11. April 2021
Offset Agreement Compensation
This offset story in the United States has highlighted the impact of confidential agreements by defence firms on U.S. non-military activities, in some cases with devastating effects. The discovery of Feingold is also revealing for the EU common market, where interference and negative effects on EU businesses are allowed by an unjustified national attitude towards confidentiality or secrecy in indirect, non-military, balanced cases. Article 346 of the Lisbon Treaty, written more than 50 years ago, is there to wisely avoid the disruptive effects caused by unjustified military secrets in civil compensation in the European common market. In the EU defence market, which is worth around $250 billion, with 27 sovereign public authorities that can claim state secrets – from Germany to Cyprus and Luxembourg – there is a potential for non-military indirect compensation of $60 billion, more than 1,000 times the distortion problem caused by Northrop (and the Finnish Ministry of Defence) to Beloit. Between 2003 and 2018, the total volume of offset transactions recorded amounted to 4.5 billion euros, or 1,861 transactions of 338 companies. Eurofighter was informed by letter of 12 December 2019. The Ministry of Economy is the compensation management body. The threshold (not clearly set) can fall to 130,000 euros.
The amount of the compensation proposal is negotiable, but generally corresponds to 100% of the market value. Higher multipliers are for direct offsets. Countertrade – Offset is a fourteen-day magazine about the offset industry; The same publishing house also has a quarter for the sector: The Offset Guidelines Quarterly Bulletin. A royal decree (6.2.1997 and amended-6/12/2001) forms the legal basis of the Belgian industrial benefits programme. The program is managed by the Industrial Benefits in the Field of Defense Procurement. The threshold is usually 11 million euros, but it is lower when it is not a public and open tender. The minimum required is 100%. Multipliers are not specified. The focus is on high technology and new or additional business flow. The Belgian „offset“ guidelines are very elaborate.
One of the most important and obvious points is the so-called „newness“ aspect: such export subsidies „clearly must create a new or additional trade flow to exports“ for Belgian companies. Belgium distinguishes three forms of offset: direct, semi-direct and indirect.  Belgium has a specific problem with the industrial services programme, which refers to the de facto division of the country in Wallonia and Flanders. The Belgian compensation programme is more meticulous than other European countries, but Belgian citizenship is aware that the payment of compensation, rather than obtaining weapons at commercial prices, does not involve such transparent transfers of taxpayers` money to Belgian companies designated by political decisions. Such a transfer of compensation can rightly be considered a confidential public subsidy. Flemish parties claim that subsidies to Wallonia cost proportionately more than the price paid by West Germany for East Germany.  The issue of subsidies/compensations has been particularly acute with regard to the redistricting of direct and indirect industrial benefits for one of the latest acquisitions with compensation: 242 Mowag Piranha for the Belgian army of General Dynamics, more than 700 million euros. One of the controversial offsets linked to the Piranha III is a direct lag for the Piranha III co-production and the controversial choice of a 90mm cannon (produced by a Walloon firm) instead of a standard 105mm NATO gun.  The real situation in the EU is described in detail in a study commissioned by the European Defence Agency and published in 2007 on defence compensation in EU countries.  In 2006, the volume of EU compensation agreements exceeded EUR 4-5 billion.  The distribution of these offsets is illustrated in the diagram: Direct Offsets, Military Indirect Offset, Civil Indirect Offset.