From Offsets: The Industrial, Employment and Security Costs of Arms Exports, "Last updated: November 2001":
One of the most politically powerful claims supporting U.S. arms trading today is that weapons exports sustain American jobs. But the employment benefits of arms exports are diluted, and may be negated, by seldom-discussed side deals known as "offsets." These agreements require a supplier to direct some benefits. -usually work or technology. -back to the purchaser as a condition of the sale.
There is a word for that: kickbacks.
Offsets come in two forms. Through "direct" offsets, the purchaser receives work or technology directly related to the weapons sale, typically by producing the weapon system or its components under license. "Indirect" offsets involve barter and countertrade deals, investment in the buying country, or the transfer of technology unrelated to the weapons being sold. Both types of offsets send work overseas, but direct offsets also raise serious security concerns, as they assist the development of foreign arms industries.
So, the kickback can be that the purchasing country's industry gets built up by production of components for the weapon system being purchased.
That's interesting, because one big marketing tool for sale of high-tech weaponry to countries that really shouldn't have it is the jobs (especially high-tech ones) that the sale will bring to the selling country. But, if that industrial capacity and those jobs go to the purchaser's country, then that defeats the purpose of the sale as far as the selling country is concerned: it is just transferring technology, economic benefits and industrial capacity to the purchaser, which often is just a step or two away from being an enemy.
Under those circumstances, the only ones in the selling country who are benefiting are the companies that are actually making the deal -- and they are making money essentially by selling out their country to the highest bidder.
Alternatively, the kickback can be in the form of marketing the buyer country's goods and services (shoes, rugs, furniture, rice, clothing, jihad, heroin...) in the seller country (or elsewhere).
The 2001 report produced by the Presidential Commission on Offsets in International Trade (created by the Defense Offsets Disclosure Act of 1999) concluded that the average offset requirement for 1998 was 57.9% of the value of the contract; this rate represented a slight increase over the figures from the previous five years. The quantifiable effect of direct offset transactions for 1993-1998 "supplanted $2.3 billion in U.S. work or 25,300 work-years." The report concluded that while quantitative levels of offsets have remained relatively steady, there has been a qualitative increase in the negotiated transactions. These qualitative increases refer to the transfer of often sensitive technologies to foreign defense industries, which improve the competitiveness of foreign firms and rarely (only in 4% of the cases) result in the transfer of technology back to the U.S. Furthermore, Ann Markusen, a member of the Presidential Commission on Offsets, concluded that although "the United States has one of the strongest licensing regimes in the world, ...enforcement is inadequate." Thus these qualitatively high demands for offsets and the resulting technology transfer increase potential threats to U.S. national security, and pose real threats to U.S. jobs.
So, first of all, the value of the kickback is a very significant fraction of the original sale: more than half, on average.
Second, increasingly it entails the transfer of sensitive technology and the best of the jobs to the buying country.
The report claims that theoretically if offsets were not offered, there would be a net loss of profits which would have a detrimental impact on U.S. jobs. However actual figures speak volumes. William Hartung in his report "Welfare for Arms Dealers" reported that "Today, thanks to these offsets, there are twice as many workers employed building the F-16 in Ankara, Turkey (2,000), as there are at Lockheed Martin's principle F-16 plant in Fort Worth, Texas (1,155)." Sending jobs abroad reduce labor costs for manufacturers, but it translates into the loss of American jobs.
In other words, if America goes to war with Turkey, Turkey is better able to produce F-16's (an American jet fighter) to fight that war than America?
Why aren't American workers protesting this practice? Some are. Workers for Boeing and Lockheed Martin have rallied against licensed production of weaponry and technology transfers that result from direct offsets. In October 1995, one-third of Boeing's workforce went on strike, largely to protest the use of foreign subcontractors. In other cases, though, workers and firms may not realize that they are being negatively affected by military offsets. If an American furniture company loses a bid for a contract to a Swedish or South Korean firm, for example, it doesn't know that an American arms corporation may have helped the foreign firm secure the furniture sale as part of a military offset obligation.
Oops. There's that furniture connection! I was just joking about that.
Hmm... If there really is a furniture connection, I wonder about the other items I was joking about: shoes, rugs, rice, clothing, jihad, and heroin?
There are other disturbing trends in offset agreements. There is an increasing percentage of countries requiring offsets valued at more than 100% of the negotiated contract. Furthermore, in several recent transactions, the purchasing country has demanded and successfully negotiated a "pre-offset" from each of the firms competing for the contract. Pre-offsets are often valued at 10% of the value of the contract and accompany each bidder's offer. The proceeds of these pre-offsets remain with the purchaser, regardless of whether or not the bid is successful.
So the net result is 1) we pay as much as 10% of the value of the contract just be able to bid it, and 2) if we win the contract, we actually lose money. All to build up a foreign power's military forces and the industry to support it. All while sending jobs overseas.
Well, that's fair!
Offsets even occur on arms sales financed by U.S. taxpayers. Such deals cost Americans thrice. first when they pay for researching and developing the weapons, secondly when they pay for the sale, and again when their jobs are shipped overseas. Rep. Cardiss Collins, former Chair of the Energy and Commerce subcommittee on Commerce, Consumer Protection, and Competitiveness, challenged the practice at a June 1994 hearing. The Government Accounting Office came out with the same recommendation in a report released at the hearing.
So, the U.S. taxpayer gives these foreign countries the money to use to make the purchase to begin with.
You can't beat that!
If the public realized that U.S. arms corporations were jeopardizing American jobs and security by assisting foreign competitors, opposition to arms sales would increase. The arms industry knows this, and it has worked hard to keep offsets safely out of view. Although the government has examined offsets three times in the past (1985, 1988, and 2001), and some new oversight measures have recently been enacted (see below), it is still very difficult to point to specific firms that have been hurt by military offsets or to ascertain how much offsets are costing U.S. industries and workers.
Opposition would increase???
Far less than that resulted in a revolution back about 230 years ago!
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