Code of Conduct on Offsets

The Steering Board of the European Defence Agency agreed on 24 October 2008 a voluntary Code of Conduct on Offsets in order to evolve towards more transparent use of offsets that can also help shape the European Defence Technological and Industrial Base, whilst reducing reliance on them.

The Code applies to all compensation practices required as a condition of purchase or resulting from a purchase of defence goods or defence services and will take effect from 1 July 2009.

Photoxpress

Offset is one of the most contentious practices in defence procurement. While offsets can facilitate the development of the defence technological and industrial base and stimulate business opportunities, they have the potential to distort the defence market and do not always provide value for money.

Since 2005, the EDA Member States have sought consistently to act together to develop a more open and competitive European Defence Equipment Market (EDEM).

As an enabler in helping to take this work forward, the Agency’s Steering Board decided to undertake the necessary measures to limit the most harmful effects of offsets in the European defence market. The launch of the Code of Conduct on Offsets on 1 July 2009 with the participation of 25 EDA Member States and Norway is the first pragmatic and significant step towards this direction heralding a fundamental change in the way offsets are used in defence procurement and enabling a more effective use of resources.

Aim

The Agency’s efforts aim at limiting adverse effects of offsets through consistently injecting more transparency and providing for evolving offsets to help develop capability driven, competent and competitive defence industrial capacities.

Current Status

The launch of the Code of Conduct on Offsets on 1 July 2009 is a first pragmatic and significant step in an incremental process to address offset practices in Europe. Its implementation has already brought some genuinely substantive results, demonstrating that its arrangements – even if legally non-binding - work whilst considerably contributing to the development of a more open and competitive defence market and stronger European Defence Technological and Industrial Base (EDTIB).

The Code of Conduct on Offset comes together with two vital implementation tools. The Offset Portal on the EDA website provides detailed information on the subscribing Member States and Norway national offset policies and practices, including national regulations and guidelines, offset requirements criteria and modalities. The Reporting and Monitoring System helps achieve the Code’s full effectiveness providing the reciprocal visibility and reassurance on the equal and uniform application and implementation of the Code by all the subscribers.
Currently, we are also investigating application of abatements as a means to reduce mutual offset obligations.

Way Ahead

1) Ongoing implementation of the Code of Conduct on Offsets;
2) Further work on factors, which similarly to offsets have an impact on developing the EDTIB and which might substitute traditional offset;
3) Further work on abatements as a means to reduce mutual offset obligations;
4) Analysis of the global practice of offset and in particular the offset policies of third countries and their impact on EDEM and EDTIB;
5) Further work on other forms of market distorting, uncompetitive practices and the effect they may have on the level playing field and EDTIB.

continue

“This a breakthrough decision and a first step in dealing with a very complex issue, knowing that offset is not the only market distortion. (...) Considering the present structure of the European industry and that our market opening efforts are still in their beginning, we need for the short term to focus, on evolving offsets, whilst starting to mitigate the adverse impact they have on cross-border competition.” Alexander Weis, EDA Chief Executive (2007/2010), October 2008