Pieter TaalDeputy Commissioner for Military ProductionNetherlands Ministry of Economic Affairs

3rd International GtoG seminar, Jerusalem, may 7-9 2007

Offset & Industrial cooperation

a Dutch perspective

May 7-9 2007 3rd International Seminar of Offset and Industrial Cooperation, Jerusalem

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Contents

• Why is offset it around?

• Developments in the defence market

• Offset policy in the Netherlands

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Why is offset around?• Investing large amounts of tax payers money abroad

• System builders on closed national markets

• National defence industry, DTIB

• Strategic know how, smart buyer, smart user

• Guaranteed supply

• Innovation, spin offs and spill overs

• Revenues and employment

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“Project offset”: the game

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Is this how industry sees us?

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Is offset the only method ?

• National programmes

• Local content requirements

• Cost share = work share

• Offset

• Global Balance (OCCAR, LOI)

• Best Value (JSF)

• Open competition????

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Ambition in the Netherlands

• international level playing field

• competitive European defence industry

• and transatlantic cooperation

• participation of technologically advanced and competitive NL industry

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Developments in defence market

• Harmonization of demand, coordination of capabilities, planning and R&D planning, task specialization. Not all at once, but evolution

• From national companies via international groups with national players to international players

• EU/EDA: CoC and CoPBSC, Interpretation article 296, defence procurement directive (draft in 2007?)

• More offset, harmonisation of offset, more competition?

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Elements crucial for scenario’s • US initiates more ‘best value’ programmes or accepts a law against offset • Europe and US challenging partners who can create synergy, or lawyers and politic(ien)s in

between? • Internationally operating firms are allowed by national governments to optimize division of work • Acceptance of mutual dependence as security of supply? • As a result smaller companies in the supply chain experience a level playing field.• Offset is harmonized with key elements: competition and flexibility • Offset can only be fulfilled with military activities

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Dutch position on the use of offset

The Netherlands are against offset, but….It takes time before the situation makes it obsolete.For the time being it must bring best value closer: • Stimulate competition and economically sustainable activities as much as possible• Give clear guidelines and the obligor freedom to choose• Open communication. harmonize guidelines • Support mutual abatements or ‘quid pro quo’ • Do not limit offset fulfillment to military projects

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Offset in the Netherlands (1)

• 100% offset when > € 5 mln, also services

• Direct offset, other military offset and civil offset

• Agreement with MEA on offset prior to contract MoD

• Aim for 30 – 40% ‘firm projects’ before contract

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Offset in the Netherlands (2)

• Max. performance period 10 years

• Claiming and verification process

• Banking possibilities for valuable projects

• Deduction of foreign content above threshold (15-25%)

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Priorities

• Development, production and MRO of defence systems– Involvement from development phase– Single source – Abatements– Transfer of knowledge

• Civil Projects with and economic multiplier– Investments in venture capital– Marketing & sales support innovative SME’s

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Multipliers

• Basis: multiplier of 1

• Civil R&D: up to 3

• Defence related R&D: up to 10

• Starting single source relation: up to 5

• Marketing & sales support: up to 30 on out of pocket and higher in case of sales

• Venture capital: up to 30

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Cost of offset

• No separate cost for offset accepted

• Budget? – Find competitive & better suppliers – Offset is a marketing tool

• Mix ‘free’ offset like competitive suppliers and abatements with investments in venture capital

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Some figures

• Current obligations – Agreements : 81– Initial obligation € 3,6 mld– To fulfill: € 1,8 mld– Performance period: Av. 7,5 jaar

• Yearly ‘revenues’: – 2002: € 548 mln– 2003: € 618 mln– 2004: € 322 mln– 2005: € 573 mln– 2006: € 499 mln

Average: € 512 mln

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Who makes it happen?

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Thank you for your attention,

questions and remarks?