The Legal Structure of Offset Transactions - Impact on the National Security
The Legal Structure of Offset Transactions - Impact on the National Security

Summary/Abstract: The article describes the phenomenon of government mandated countertrade especially in trading military equipment. Special attention is paid to the various types of offset transactions where in exchange for export in one direction the seller (or its government) commits itself to buy goods of nominated value from the purchaser. Another aspect of commitment of the seller is to perform certain services requested by the purchaser (or its government) as the fulfilment of exporter’s countertrade commitment, which establishes the contractual link between two supply contracts in opposite directions. The practice of requiring offset has spread beyond defence procurement and is increasingly required as a condition for sales contracts also in major civil trade operations, yet especially with the sales of aircraft and armaments. Despite much criticism, including past negative opinions of US economists, and IMF and WTO experts, the use of countertrade continues and even grows, especially in the trade practices of Middle East and the Far East economies, in Australia and many EU countries. The Author argues that countertrade is here to stay in the variety of its forms, including counter purchase, buyback and offset, all and especially the last being substitutes to foreign direct investments (FDI). Legal creation of an offset agreement influences the economical aspects of national security in the domain of procurements, investments in defence firms, trading of commodities, and also foreign defence-related projects. Offsets may be direct or indirect, where first refer to coproduction or subcontracting directly related to the exported equipment. Indirect offset include other performances from the ex-exporter and is often a substitute for FDI.

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