Commerce Finds U.S. Firms Hurt by Arms Sales Offsets
Federation of American Scientists
WASHINGTON, D.C.-According to a just-released Commerce
Dept. report, U.S. aerospace and defense subcontractors
today face increased overseas competition as a result of
"offset agreements" tied to U.S. arms exports.
One U.S. aerospace firm quoted in the report called
offsets are "our number one problem."
Offsets are trade concessions required by foreign
buyers as a condition of the sale in today's highly
competitive arms market. Through these secret side deals,
buyers seek economic benefits to "offset" the
cost of an arms purchase. Typical offsets include
licensed or joint production of a weapon or its
components; counter-trade, in which the seller agrees to
purchase or market some of the buyer's goods; or capital
investment in the purchasing country.
The Commerce Dept.'s survey of 204 firms impacted by military offsets found that the overwhelming majority-83 percent-were negatively impacted. One aerospace subcontractor estimated that "our company has lost more than 50 percent of our business due to offset agreements." Another firm said "New competitors were created or strengthened due to an offset program, hence, we lost the contracts." Conversely, 17 percent of the affected companies reported positive effects from offsets, including access to new markets and joint projects with foreign firms.
The report found that offset obligations undertaken by
American arms corporations fell from $4.8 billion 1993 to
$2 billion in 1994. However, offsets as a percentage of
contract value grew during this time from 35 percent to
"Weapons sales are usually presented as being
good for the American economy-both in terms of employment
and balance of trade. Offsets belie these claims,"
said Paul Pineo, research Associate at the Federation of
The report, "Offsets in Defense Trade," was mandated by a 1992 amendment to the Defense Production Act. The annual report, which was expected last December, was delivered to Congress on Monday.
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