Offset agreement

Offsets can be defined as provisions to an import agreement, between an exporting foreign company, or possibly a government acting as intermediary, and an importing public entity, that oblige the exporter to undertake activities in order to satisfy a second objective of the importing entity, distinct from the acquisition of the goods and/or services that form the core transaction. The incentive for the exporter results from the conditioning of the core transaction to the acceptance of the offset obligation. Offset agreements often involve trade in military goods and services and are alternatively called: industrial compensations, industrial cooperation, offsets, industrial and regional benefits, balances, juste retour or equilibrium, to define mechanisms more complex than counter-trade. Counter-trade can also be considered one of the many forms of defense offset, to compensate a purchasing country. The main difference between a generic offset and counter-trade, both common practices in the international defense trade, is the involvement of money. In counter-trade, goods are paid through barters or other mechanisms without the exchange of money, while in other defense offsets money is the measure and the medium of exchange.

Offsets can be defined as provisions to an import agreement, between an exporting foreign company, or possibly a government acting as intermediary, and an importing public entity, that oblige the exporter to undertake activities in order to satisfy a second objective of the importing entity, distinct from the acquisition of the goods and/or services that form the core transaction. The incentive for the exporter results from the conditioning of the core transaction to the acceptance of the offset obligation.

Often, the proclaimed aim of this process is to even-up a country's balance of trade. However, some forms of offsets transactions do not represent trade flows going from the initial importer towards the initial exporter. Offsets are frequently an integral part of international defense contracts.

The U.S. government's definition of offset agreement is the most crucial, since the U.S. aerospace and defense industry is the biggest exporter of aerospace and defence products, and therefore engaged in the majority of the world’s offsets. The U.S. has a Commerce Department Division, the Bureau of Industry and Security (BIS), that deals specifically with U.S. defense offset agreements with foreign nations as a main subset of U.S. industrial security. BIS - whose main task is protecting U.S. security from the point of view of export of high technology, fostering commercially acceptable U.S. foreign policy, and protecting U.S. economic interests - deals with U.S. aerospace and defense companies that export defense products, systems or services, involving “offset agreements,” that is, those sales' collateral or additional agreements requested by purchasers. BIS defines offsets as “mandatory compensations required by foreign governments when purchasing weapon systems and services.”

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