Appendix C: Defense Offsets Disclosure Act of 1999

Public Law 106-113

Title XII

Subtitle D--Defense Offsets Disclosure

SEC. 1241. SHORT TITLE.

This subtitle may be cited as the "Defense Offsets Disclosure Act of 1999".

SEC. 1242. FINDINGS AND DECLARATION OF POLICY.

a)Findings.--Congress makes the following findings:

(1) A fair business environment is necessary to advance

international trade, economic stability, and development

worldwide, is beneficial for American workers and businesses,

and is in the United States national interest.

(2) In some cases, mandated offset requirements can cause

economic distortions in international defense trade and

undermine fairness and competitiveness, and may cause particular

harm to small- and medium-sized businesses.

(3) The use of offsets may lead to increasing dependence on

foreign suppliers for the production of United States weapons

systems.

(4) The offset demands required by some purchasing

countries, including some close allies of the United States,

equal or exceed the value of the base contract they are intended

to offset, mitigating much of the potential economic benefit of

the exports.

(5) Offset demands often unduly distort the prices of

defense contracts.

(6) In some cases, United States contractors are required to

provide indirect offsets which can negatively impact nondefense

industrial sectors.

(7) Unilateral efforts by the United States to prohibit

offsets may be impractical in the current era of globalization

and would severely hinder the competitiveness of the United

States defense industry in the global market.

(8) The development of global standards to manage and

restrict demands for offsets would enhance United States efforts

to mitigate the negative impact of offsets.

b) Declaration of Policy.--It is the policy of the United States to

monitor the use of offsets in international defense trade, to promote

fairness in such trade, and to ensure that foreign participation in the

production of United States weapons systems does not harm the economy of

the United States.

SEC. 1243. DEFINITIONS.

In this subtitle:

(1) Appropriate congressional committees.--The term

"appropriate congressional committees" means--

(A) the Committee on Foreign Relations of the

Senate; and

(B) the Committee on International Relations of the

House of Representatives.

(2) G-8.--The term "G-8" means the group consisting of

France, Germany, Japan, the United Kingdom, the United States,

Canada, Italy, and Russia established to facilitate economic

cooperation among the eight major economic powers.

(3) Offset.--The term "offset" means the entire range of

industrial and commercial benefits provided to foreign

governments as an inducement or condition to purchase military

goods or services, including benefits such as coproduction,

licensed production, subcontracting, technology transfer, in-

country procurement, marketing and financial assistance, and

joint ventures.

(4) Transatlantic economic partnership.--The term

"Transatlantic Economic Partnership" means the joint

commitment made by the United States and the European Union to

reinforce their close relationship through an initiative

involving the intensification and extension of multilateral and

bilateral cooperation and common actions in the areas of trade

and investment.

(5) Wassenaar arrangement.--The term "Wassenaar

Arrangement" means the multilateral export control regime in

which the United States participates that seeks to promote

transparency and responsibility with regard to transfers of

conventional armaments and sensitive dual-use items.

(6) World trade organization.--The term "World Trade

Organization" means the organization established pursuant to

the WTO Agreement.

(7) WTO agreement.--The term "WTO Agreement" means the

Agreement Establishing the World Trade Organization entered into

on April 15, 1994.

SEC. 1244. SENSE OF CONGRESS.

It is the sense of Congress that--

(1) the executive branch should pursue efforts to address

trade fairness by establishing reasonable, business-friendly

standards for the use of offsets in international business

transactions between the United States and its trading partners

and competitors;

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(2) the Secretary of Defense, the Secretary of State, the

Secretary of Commerce, and the United States Trade

Representative, or their designees, should raise with other

industrialized nations at every suitable venue the need for

transparency and reasonable standards to govern the role of

offsets in international defense trade;

(3) the United States Government should enter into

discussions regarding the establishment of multilateral

standards for the use of offsets in international defense trade

through the appropriate multilateral fora, including such

organizations as the Transatlantic Economic Partnership, the

Wassenaar Arrangement, the G-8, and the World Trade

Organization; and

(4) the United States Government, in entering into the

discussions described in paragraph (3), should take into account

the distortions produced by the provision of other benefits and

subsidies, such as export financing, by various countries to

support defense trade.

SEC. 1245. REPORTING OF OFFSET AGREEMENTS.

(a) Initial Reporting of Offset Agreements.--

(1) Government-to-government sales.--Section 36(b)(1) of the

Arms Export Control Act (22 U.S.C. 2776(b)(1)) is amended in

subparagraph (C) of the fifth sentence, by striking "and a

description" and all that follows and inserting "and a

description of any offset agreement with respect to such

sale;".

(2) Commercial sales.--Section 36(c)(1) of the Arms Export

Control Act (22 U.S.C. 2776(c)(1)) is amended in the second

sentence, by striking "if known on the date of transmittal of

such certification)" and inserting "and a description of any

such offset agreement".

(b) Confidentiality of Information Relating to Offset Agreements.--

Section 36 of the Arms Export Control Act (22 U.S.C. 2776) is amended--

(1) by redesignating the second subsection (e) (as added by

section 155 of Public Law 104-164) as subsection (f); and

(2) by adding at the end the following new subsection:

"(g) Information relating to offset agreements provided pursuant to

subparagraph (C) of the fifth sentence of subsection (b)(1) and the

second sentence of subsection (c)(1) shall be treated as confidential

information in accordance with section 12(c) of the Export

Administration Act of 1979 (50 U.S.C. App. 2411(c)).".

SEC. 1246. EXPANDED PROHIBITION ON INCENTIVE PAYMENTS.

(a) In General.--Section 39A(a) of the Arms Export Control Act (22

U.S.C. 2779a(a)) is amended--

(1) by inserting "or licensed" after "sold"; and

(2) by inserting "or export" after "sale".

(b) Definition of United States Person.--Section 39A(d)(3)(B)(ii) of

the Arms Export Control Act (22 U.S.C. 2779a(d)(3)(B)(ii)) is amended by

inserting "or by an entity described in clause (i)" after

"subparagraph (A)".

SEC. 1247. ESTABLISHMENT OF REVIEW COMMISSION.

(a) In General.--There is established a National Commission on the

Use of Offsets in Defense Trade (in this section referred to as the "Commission") to address all aspects of the use of offsets

in international defense trade.

(b) Commission Membership.--Not later than 120 days after the date

of enactment of this Act, the President, with the concurrence of the

Majority and Minority Leaders of the Senate and the Speaker and Minority

Leader of the House of Representatives, shall appoint 11 individuals to

serve as members of the Commission. Commission membership shall

include--

(1) representatives from the private sector, including--

(A) one each from--

(i) a labor organization,

(ii) a United States defense manufacturing

company dependent on foreign sales,

(iii) a United States company dependent on

foreign sales that is not a defense manufacturer,

and

(iv) a United States company that specializes

in international investment, and

(B) two members from academia with widely recognized

expertise in international economics; and

(2) five members from the executive branch, including a

member from--

(A) the Office of Management and Budget,

(B) the Department of Commerce,

(C) the Department of Defense,

(D) the Department of State, and

(E) the Department of Labor.

The member designated from the Office of Management and Budget shall

serve as Chairperson of the Commission. The President shall ensure that

the Commission is nonpartisan and that the full range of perspectives on

the subject of offsets in the defense industry is adequately

represented.

(c) Duties.--The Commission shall be responsible for reviewing and

reporting on--

(1) the full range of current practices by foreign governments

in requiring offsets in purchasing agreements and the extent and

nature of offsets offered by United States and foreign defense

industry contractors;

(2) the impact of the use of offsets on defense

subcontractors and nondefense industrial sectors affected by

indirect offsets; and

(3) the role of offsets, both direct and indirect, on

domestic industry stability, United States trade competitiveness

and national security.

(d) Commission Report.--Not later than 12 months after the

Commission is established, the Commission shall submit a report to the

appropriate congressional committees. In addition to the items described

under subsection (c), the report shall include--

(1) an analysis of--

(A) the collateral impact of offsets on industry

sectors that may be different than those of the

contractor providing the offsets, including estimates of

contracts and jobs lost as well as an assessment of

damage to industrial sectors;

(B) the role of offsets with respect to

competitiveness of the United States defense industry in

international trade and the potential damage to the

ability of United States contractors to compete if

offsets were prohibited or limited; and

(C) the impact on United States national security,

and upon United States nonproliferation objectives, of

the use of coproduction, subcontracting, and technology

transfer with foreign governments or companies that

results from fulfilling offset requirements, with

particular emphasis on the question of dependency upon

foreign nations for the supply of critical components or

technology;

(2) proposals for unilateral, bilateral, or multilateral

measures aimed at reducing any detrimental effects of offsets;

and

(3) an identification of the appropriate executive branch

agencies to be responsible for monitoring the use of offsets in

international defense trade.

(e) Period of Appointment; Vacancies.--Members shall be appointed

for the life of the Commission. Any vacancy in the Commission shall not

affect its powers, but shall be filled in the same manner as the

original appointment.

(f) Initial Meeting.--Not later than 30 days after the date on which

all members of the Commission have been appointed, the Commission shall

hold its first meeting.

(g) Meetings.--The Commission shall meet at the call of the

Chairman.

(h) Commission Personnel Matters.--

(1) Compensation of members.--Each member of the Commission

who is not an officer or employee of the Federal Government

shall be compensated at a rate equal to the daily equivalent of

the annual rate of basic pay prescribed for level IV of the

Executive Schedule under section 5315 of title 5, United States

Code, for each day (including travel time) during which such

member is engaged in the performance of the duties of the

Commission. All members of the Commission who are officers or

employees of the United States shall serve without compensation

in addition to that received for their services as officers or

employees of the United States.

(2) Travel expenses.--The members of the Commission shall be

allowed travel expenses, including per diem in lieu of

subsistence, at rates authorized for employees of agencies under

subchapter I of chapter 57 of title 5, United States Code, while

away from their homes or regular places of business in the

performance of services for the Commission.

(3) Staff.--

(A) In general.--The Chairman of the Commission may,

without regard to the civil service laws and

regulations, appoint and terminate an executive director

and such other additional personnel as may be necessary

to enable the Commission to perform its duties. The

employment of an executive director shall be subject to

confirmation by the Commission.

(B) Compensation.--The Chairman of the Commission

may fix the compensation of the executive director and

other personnel without regard to the provisions of

chapter 51 and subchapter III of chapter 53 of title 5,

United States Code, relating to classification of

positions and General Schedule pay rates, except that

the rate of pay for the executive director and other

personnel may not exceed the rate payable for level V of

the Executive Schedule under section 5316 of such title.

(4) Detail of government employees.--Any Federal Government

employee may be detailed to the Commission without

reimbursement, and such detail shall be without interruption or

loss of civil service status or privilege.

(5) Procurement of temporary and intermittent services.--The

Chairman of the Commission may procure temporary and

intermittent services under section 3109(b) of title 5, United

States Code, at rates for individuals which do not exceed the

daily equivalent of the annual rate of basic pay prescribed for

level V of the Executive Schedule under section 5316 of such

title.

(i) Termination.--The Commission shall terminate 30 days after the

transmission of the report from the President as mandated in section

1248(b).

SEC. 1248. MULTILATERAL STRATEGY TO ADDRESS OFFSETS.

(a) In General.--The President shall initiate a review to determine

the feasibility of establishing, and the most effective means of

negotiating, a multilateral treaty on standards for the use of offsets

in international defense trade, with a goal of limiting all offset

transactions that are considered injurious to the economy of the United

States.

(b) Report Required.--Not later than 90 days after the date on which

the Commission submits the report required under section 1247(d), the

President shall submit to the appropriate congressional committees a

report containing the President's determination pursuant to subsection

(a), and, if the President determines a multilateral treaty is feasible

or desirable, a strategy for United States negotiation of such a treaty.

One year after the date the report is submitted under the preceding

sentence, and annually thereafter for 5 years, the President shall

submit to the appropriate congressional committees a report detailing

the progress toward reaching such a treaty.

(c) Required Information.--The report required by subsection (b)

shall include--

(1) a description of the United States efforts to pursue

multilateral negotiations on standards for the use of offsets in

international defense trade;

(2) an evaluation of existing multilateral fora as

appropriate venues for establishing such negotiations;

(3) a description on a country-by-country basis of any

United States efforts to engage in negotiations to establish

bilateral treaties or agreements with respect to the use of

offsets in international defense trade; and

(4) an evaluation on a country-by-country basis of any

foreign government efforts to address the use of offsets in

international defense trade.

(d) Comptroller General Review.--The Comptroller General of the

United States shall monitor and periodically report to Congress on the

progress in reaching a multilateral treaty.