Armed Services chair pushes new 'buy American' provision
Measure would restrict the Pentagon's ability to buy technology from foreign companies whose governments require U.S. firms to assist their defense industries as a condition of purchasing U.S. weapons.
House Armed Services Committee Chairman Duncan Hunter, R-Calif., is expected to include a provision in the chairman's markup of the fiscal 2005 defense authorization measure Wedensday that could restrict the Pentagon's ability to buy technology and defense services from foreign companies whose governments require U.S. firms to assist their defense industries as a condition of purchasing U.S. weapons and military equipment.
Such defense offsets typically include a full range of industrial and commercial benefits that U.S. firms provide to foreign governments as inducements for the purchase of military goods and services.
They include co-production arrangements and subcontracting, technology exports and joint ventures. Foreign governments use offsets as a means of reducing the financial impact of their purchases, obtaining valuable technology and manufacturing know-how, supporting domestic jobs and creating or expanding their defense industries.
The United States has maintained a hands-off policy toward defense offsets, viewing them as part of the transaction between the contracting parties.
Hunter's provision would mean that "foreign countries can't extort offsets from U.S. companies, which is the way offsets have been described by the [World Trade Organization]," he said in an interview Tuesday.
Hunter added that foreign governments require industrial compensation in foreign military sales to "extract engineering know-how as an offset, which takes away America's military technological edge."
The legislation seeks to ensure that Defense Department policies reflect a situation in which U.S. firms and U.S. employment in the defense sector are not disadvantaged by unilateral procurement practices of foreign governments.
It also would also level the free trade playing field for U.S. defense firms and suppliers by forcing foreign governments to drastically reduce their offset requirements in order to buy military systems and defense services from the United States.
Many U.S. defense companies view the effects of offsets as both positive and an unavoidable part of doing business overseas. But others and lawmakers like Hunter believe offsets harm the U.S. industrial base while jeopardizing national security.
For the Defense Department, offsets can often result in a reduced unit cost due to increased production runs.
However, use of a foreign supplier by a U.S. prime contractor under the terms of an offset arrangement can, over time, lead to decreased business opportunities for U.S. suppliers, as prime contractors may develop long-term relationships with those foreign subcontractors, potentially leading to the loss of capability in the U.S. defense industrial base.
Between 1993 and 2000, U.S. companies reported 4,425 offset transactions in 35 countries, according to an annual study by the Commerce Department's Bureau of Industry and Security.
These transactions were related to 227 defense systems under existing offset agreements. In 2000, European nations received offsets equal to 116 percent of the total value of exports, the highest offset percentage on record for any single year over the past eight years. For non-European nations, the offset percentage was 50 percent in 2000.