Export Controls and Offsets Ken Oukrop Ira Berkowitz Daniel Farthing Director, Licensing Directorate, Defense Technology Security Administration Lockheed Martin Corporation Northrop Grumman Corporation Society for International Affairs
OFFSET AND EXPORT CONTROL Basic Definition: A reciprocal arrangement in which a customer country receives economic benefit(s) to off-set an overseas purchase of a major defense system. Different Forms of Offset: The nature of applicable benefits has evolved over the decades (from Indirect to Direct) The focus priority now is increasingly in advanced technology areas & co-development / co-production where exportability is critical. Key Players: Business Development / Programs; Offset / Industrial Participation; Export Control; USG; the Foreign Customer (comprising: end-user; MoD; and Offset Authority). HOW DO WE BEST BRING THESE PLAYERS TOGETHER PROACTIVELY IN ORDER TO BUILD OFFSET PROGRAMS TO DRIVE DOWN RISK AND MEET ALL STAKEHOLDER NEEDS?
OFFSET U.S. GOVERNMENT PERSPECTIVE Business development -vs- export compliance Do not get out in front of the U.S. Government when offering offsets Offset often involves a direct commercial sale export license (State- munitions, Commerce- dual use) Government approval required - DoD national security review/recommendation Technology security review may change the original offset proposal Communication Communication Communication
CHALLENGES IN OFFSETS TODAY What is a Direct Offset? Some countries may refer to the specific Program of record, others anything defense related product. The USG definition of direct does not always align with a specific country s definition. DFARS 252.202.101: A direct offset involves benefits or obligations, including supplies or services, that are related to the item being purchased Who does what in an Offset program? Responsibility for offset is company dependent. Offset may reside within the contracts, business development, or even the sourcing organization of a company. How do you make sure your company is getting proper credits? It is the offset professional s responsibility to understand the specific crediting rules as they differ for each country. Clear requirements/milestones for receiving credit should be established in formal documentation. The offset organization is typically charged with preparing offset claims and/or reports where and when required. Bottom Line Offset is a Team Sport
DOD REVIEW OF DEFENSE TRANSACTIONS ASSESSING IMPACT ON NATIONAL SECURITY Among the Factors Considered: Technology Security Review Policies (Region, Country & Technology) Level of Technology (vs. US systems and countermeasures) End-user & End-use History Military Operational Impact Inter-operability Requirements Bilateral, Multilateral and International Agreements Foreign Availability of Like Systems Classified Data Transfers Low Observable / Counter Low Observable (LO/CLO) considerations
COOPERATIVE NEW PROCESS Opportunity Identified Offset Rules / Requirement Understood Export Control B D Offset WHITE PAPER Programs Includes: - Scope of proposed offset (article, technology transfer, co-production/codevelopment, end user capacity) - Proposed Offset candidate projects and/or requested areas of discussion GSC Submit to DTSA Licensing Directorate DTSA Review Outcome: - Creates USG awareness - Technology security review of white paper - Industry-USG discussion - Advisement of USG technology red lines - Smoother processing of License Application Engage Customer License Application Note: Applies to DCS exports in support of FMS programs