Bureau of Industry and Security
U.S. Department of Commerce
Where Industry and Security Intersect
What's New | Sitemap | Search

Federal Register Final Rule 1994
Offsets in Military Exports

[Federal Register: December 2, 1994]

DEPARTMENT OF COMMERCE
Bureau of Export Administration
15 CFR Part 701
[Docket No. 940364-4064]
RIN 0694-AA91

Offsets in Military Exports

AGENCY: Bureau of Export Administration, Department of Commerce
ACTION: Final rule.

SUMMARY: The Bureau of Export Administration (BXA) is amending the National Security Industrial Base Regulations to require U.S. firms entering into offset agreements associated with the sale of defense articles and/or defense services to foreign governments or foreign companies to provide BXA certain information regarding those agreements when they exceed $5,000,000 in value. This new regulation is being promulgated pursuant to the Defense Production Act of 1950, as amended. DATES: This rule is effective December 2, 1994. Annual reports must be submitted on or before June 15 of the succeeding year, except that the report for calendar year 1993 must be submitted on or before March 15, 1995.

ADDRESSES: Annual reports should be sent to Brad Botwin, Director, Strategic Analysis Division, Office of Strategic Industries and Economic Security, Attention: Offset Regulation Report, Room 3878, U.S. Department of Commerce, 14th Street and Pennsylvania Avenue NW, Washington, DC 20230.

FOR FURTHER INFORMATION CONTACT: Erin Finn, Offsets Program Manager, Strategic Analysis Division, Office of Strategic Industries and Economic Security, Room 3878, U.S. Department of Commerce, 14th Street and Pennsylvania Avenue NW, Washington, DC 20230. Telephone 202-482- 2322 or Fax 202-482-5650.

SUPPLEMENTARY INFORMATION:

Background

The Defense Production Act Amendments of 1992 amended the Defense Production Act of 1950 (the Act). The Act now requires that U.S. firms entering into contracts for the sale of defense articles or defense services to foreign countries or foreign firms that are subject to offset agreements exceeding $5,000,000 in value to furnish information regarding such sales to the Secretary of Commerce (the Secretary). The Act also now requires the Secretary to establish regulations to collect this information and to protect it from public disclosure unless public disclosure is specifically authorized by the firm furnishing the information. The Act further requires the Secretary to serve as the President's executive agent in preparing an annual report to Congress on the impact of offsets on the United States.

This report will include an aggregated summary of information provided to the Secretary by U.S. industry pursuant to the regulation provided here. It will address the impact of offsets on the defense preparedness, industrial competitiveness, employment, and trade of the United States.

On April 26, 1994, BXA published in the Federal Register (59 FR 21678) a proposed rule on reporting of offsets in military exports designed to elicit comments, suggestions, information, or advice relative to the proposed regulation. 20 responses were received commenting on the proposed rule. The two major comments concerned the requirements to submit semi-annual reports and to report each individual transaction undertaken to fulfill an offset commitment. The rule has been amended to address these concerns.

Rulemaking Requirements

1. This rule has been determined to be "significant" for purposes of Executive Order 12866.
   
2. This rule involves collections of information subject to the Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et seq.). These collections have been approved by the Office of Management and Budget under control number 940364-4212. Public reporting burden for this collection of information is estimated to be 5 to 60 hours per response, with an average of 10 hours, including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information.
   
3. This rule does not contain policies with Federalism implications sufficient to warrant preparation of a Federalism assessment under Executive Order 12612.
   
4. The General Counsel of the Department of Commerce has certified to the Chief Counsel for Advocacy of the Small Business Administration that this rule will not have a significant economic impact on a substantial number of small entities. It is anticipated that the rule will primarily affect large defense contractors that engage in offset agreements with foreign governments. Moreover, the rule is not expected to pose a burden because firms engaging in offset transactions already must prepare periodic accounts of progress toward fulfillment of offset obligations for the foreign entity that is party to the offset agreement. The information to be collected pursuant to these regulations is less than that required by these foreign parties. With regard to new offset agreements entered into, the information requested is readily available and will take a minimum amount of time to assemble by the parties involved.

List of Subjects in 15 CFR Part 701
Administration practice and procedure, Arms and munitions, Exports, Offsets, Reporting requirements.
Accordingly, the National Security Industrial Base Regulations (15 CFR parts 700-709) are amended by adding part 701 to read as follows:

PART 701--REPORTING OF OFFSETS AGREEMENTS IN SALES OF WEAPON SYSTEMS OR DEFENSE-RELATED ITEMS TO FOREIGN COUNTRIES OR FOREIGN FIRMS
Sec.
701.1 Purpose.
701.2 Definitions.
701.3 Applicability and Scope.
701.4 Procedures.
701.5 Confidentiality.
Authority: Title I, sec. 124, Pub. L 102-558, 106 Stat. 4207 (50 U.S.C App. 2099).

Sec. 701.1 Purpose.

The Defense Production Act Amendments of 1992 require the Secretary of Commerce to promulgate regulations for U.S. firms entering into contracts for the sale of defense articles or defense services to foreign countries or foreign firms that are subject to offset agreements exceeding $5,000,000 in value to furnish information regarding such agreements. The Secretary of Commerce has designated the Bureau of Export Administration as the organization responsible for implementing this provision. The information provided by U.S. firms will be aggregated and used to determine the impact of offset transactions on the defense preparedness, industrial competitiveness, employment, and trade of the United States. Summary reports will be submitted annually to the Congress pursuant Section 309 of the Defense Production Act of 1950, as amended.

Sec. 701.2 Definitions.

(a) Offsets--Compensation practices required as a condition of purchase in either government-to-government or commercial sales of defense articles and/or defense services as defined by the Arms Export Control Act and the International Traffic in Arms Regulations.

(b)Military Export Sales--Exports that are either Foreign Military Sales (FMS) or commercial (direct) sales of defense articles and/or defense services as defined by the Arms Export Control Act and International Traffic in Arms Regulations.

(c) Prime Contractor--A firm that has a sales contract with a foreign entity or with the U.S. Government for military export sales.

(d) United States--Includes the 50 states, the District of Columbia, Puerto Rico, and U.S. territories.

(e) Offset Agreement--Any offset as defined above that the U.S. firm agrees to in order to conclude a military export sales contract. This includes all offsets, whether they are ``best effort'' agreements or are subject to penalty clauses.

(f) Offset Transaction--Any activity for which the U.S. firm claims credit for full or partial fulfillment of the offset agreement. Activities to implement offset agreements may include, but are not limited to, coproduction, licensed production, subcontractor production, overseas investment, technology transfer counter trade, barter, counter purchase, and buy back.

(g) Direct Offset--Contractual arrangements that involve defense articles and services referenced in the sales agreement for military exports.

(h) Indirect Offset--Contractual arrangements that involve defense goods and services unrelated to the exports referenced in the sales agreement.

Sec. 701.3 Applicability and scope.

(a) This rule applies to U.S. firms entering contracts for the sale of defense articles or defense services (as defined in the Arms Export Control Act and International Traffic in Arms Regulations) to a foreign country or foreign firm for which the contract is subject to an offset agreement exceeding $5,000,000 in value.

(b) This rule applies to all offset transactions completed in performance of existing offset commitments since January 1, 1993 for which offset credit of $250,000 or more has been claimed from the foreign representative, and new offset agreements entered into since that time.

Sec. 701.4 Procedures.

(a) To avoid double counting, firms should report only offset transactions for which they are directly responsible for reporting to the foreign customer (i.e., prime contractors should report for their subcontractors if the subcontractors are not a direct party to the offset agreement).

(b) Reports should be delivered to the Offsets Program Manager, U.S. Department of Commerce, Office of Strategic Industries and Economic Security, Bureau of Export Administration, Room 3878, 14th Street and Pennsylvania Avenue, NW, Washington DC 20230. The first industry reports should be submitted to the Bureau of Export Administration not later than March 15, 1995 and should cover offset transactions completed during the calendar year 1993, as well as information regarding unfulfilled offset agreements. After this initial submission, companies should provide information once yearly not later than June 15 covering the preceding calendar year. All submissions should include a point of contact (name and telephone number) and should be by a company official authorized to provide such information.

(c) Companies may submit this information in computerized spreadsheet/database format (e.g., Lotus 1-2-3, Quattro Pro, dbase IV) using a 3.5 inch 1.44 megabyte diskette, accompanied by a printed copy.

(d) Offset Transaction Reporting.

(1) Reports should include an itemized list of offset transactions
completed during the reporting period, including the following data elements (Estimates are acceptable when actual figures are unavailable; estimated figures should be followed by the letter ``E''):


(i) Name of Country--Country of entity purchasing the weapon system, defense item or service subject to offset.
(ii) Name or Description of Weapon system, Defense Item, or Service Subject to Offset.
(iii) Name of Offset Fulfilling Entity--Entity fulfilling offset transaction (including first tier subcontractors).
(iv) Name of Offset Receiving Entity--Entity receiving benefits from offset transaction.
(v) Offset Credit Value--Dollar value credits claimed by fulfilling entity including any intangible factors/multipliers.
(vi) Actual Offset Value--Dollar value of the offset transaction without multipliers/intangible factors.
(vii) Description of Offset Product/Service--Short description of the type of offset (e.g., coproduction, technology transfer, subcontract activity, training, purchase, cash payment, etc.).
(viii) Broad Industry Category--Broad classification of the industry in which the offset transaction was fulfilled (e.g., aerospace, electronics, chemicals, industrial machinery, textiles, etc.). Firms may request a list of the Standard Industry Classification (SIC) codes to assist in identifying an appropriate industry category. Forward such requests to the Offsets Program Manager, U.S. Department of Commerce, Office of Strategic Industries and Economic Security, Bureau of Export Administration, Room 3878, 14th Street and Pennsylvania Avenue, NW, Washington, D.C. 20230 or Fax 202-482-5650.
(ix) Direct or Indirect Offset--Specify whether the offset transaction was direct or indirect offset.
(x) Name of Country in Which Offset was Fulfilled--United States, purchasing country, or third country.

(2) Offset transactions of the same type (same fulfilling entity, receiving entity, and offset product/service) completed during the same reporting period may be combined.

(3) Any necessary comments or explanations relating to the above information should be footnoted and supplied on separate sheets attached to the report.

(e) Reporting on Offset Agreements Entered Into. (1) In addition to the itemized list of offset transactions completed during the year as specified above, U.S. firms should provide information regarding new offset agreements entered into during the year, including the following elements:


(i) Name of Country--Country of entity purchasing the weapon system, defense item, or service subject to offset;
(ii) Name or Description of Weapon System, Defense Item, or Service Subject to Offset;
(iii) Names/Titles of Signatories to the Offset Agreement;
(iv) Value of Export Sale Subject to Offset (approximate);
(v) Total Value of the Offset Agreement;
(vi) Term of Offset Agreement (months);
(vii) Description of Performance Measures--(e.g., ``Best Efforts,'' Liquidated Damages, (describe)).

(2) [Reserved]

Sec. 701.5 Confidentiality.

(a) As provided by Sec. 309(c) of the Defense Production Act of 1950, as amended, BXA shall not publicly disclose the information it receives pursuant to this Part, unless the firm furnishing the information subsequently specifically authorizes public disclosure.

(b) Public disclosure must be authorized in writing by an official of the firm competent to make such an authorization.

(c) Nothing in this provision shall prevent the use of data aggregated from information provided pursuant to this part in the summary report to the Congress described in Sec. 701.1.

Dated: November 28, 1994
Sue E. Eckert,
Assistant Secretary for Export Administration.
[FR Doc. 94-29645 Filed 12-1-94; 8:45 am]

                          

 

---

FOIA | Disclaimer | Privacy Policy Statement | Information Quality
Department of Commerce | BIS Jobs | Contact Us