Public Papers - 1990
Statement by Press Secretary Fitzwater on Offsets in Military Exports
The President announced today his policy on offsets in military exports. This responds to the requirement under the FY 1989 National Defense Authorization Act, section 825, 10 U.S.C. 2505.
The President stated that the United States Government is committed to the principles of free and fair trade. Consequently, the United States Government views certain offsets for military exports as economically inefficient and market distorting.
Mindful of the need to minimize the adverse effects of offsets in military exports while ensuring that the ability of U.S. firms to compete for military export sales is not undermined, the President has established the following policy:
No agency of the U.S. Government shall encourage, enter directly into, or commit U.S. firms to any offset arrangement in connection with the sale of defense goods or services to foreign governments.
U.S. Government funds shall not be used to finance offsets in security assistance transactions except in accordance with currently established policies and procedures.
Nothing in this policy shall prevent agencies of the U.S. Government from fulfilling obligations incurred through international agreements entered into prior to the issuance of this policy.
The decision whether to engage in offsets, and the responsibility for negotiating and implementing offset arrangements, resides with the companies involved.
Any exception to this policy must be approved by the President through the National Security Council.
The President also noted that the time has come to consult with our friends and allies regarding the use of offsets in defense procurement. He has, therefore, directed the Secretary of Defense, in coordination with the Secretary of State, to lead an interagency team to consult with foreign nations with a view to limiting the adverse effects of offsets in defense procurement. This interagency team will report periodically on the results of these consultations and forward any recommendations to the National Security Council.
Note: The Office of the Press Secretary issued a fact sheet on the same day which provided the following additional information on offsets in military exports:
Offsets have become a common feature in the international arms trade. In the most general sense, offsets are industrial and commercial compensation practices offered or demanded in connection with the purchase of defense goods and services. While offsets also occur in civil trade and include business practices as old as barter itself, the scope and variety of offsets associated with military exports have become the focus of increasing public attention.
Some forms of offsets have become basic components of achieving defense sales and of furthering national policy goals of the U.S. and foreign governments. The objectives of a government making a foreign arms purchase often go beyond procuring arms at cost-effective prices and include considerations of the political acceptability of a foreign source; the maintenance and development of domestic defense and nondefense industries; obtaining advanced military and commercial technology; increasing employment; and other economic goals, such as conserving foreign exchange.
In this context, a U.S. seller of defense goods and services is often faced with difficult choices. The seller can elect not to offer offsets, which could result in the loss of sales because of the existence of competition willing to offer offsets. The seller can elect to offer offsets and hope to minimize their costs during implementation. The seller may face foreign government demands that obligate the seller to provide offsets as a non-negotiable condition of sales.
Because some offsets can alter the nature of defense sales transactions by including terms unrelated to price and performance of the product or service, offsets can introduce market rigidities and increased costs to the purchaser. In these circumstances, the result not only distorts trade and reduces economic efficiency but it diminishes the purchasing power of scarce defense resources.