II

106TH CONGRESS

1ST SESSION S. 1373

To increase monitoring of the use of offsets in international defense trade.

IN THE SENATE OF THE UNITED STATES

JULY 15, 1999

Mr. FEINGOLD introduced the following bill; which was read twice and

referred to the Committee on Foreign Relations

A BILL

To increase monitoring of the use of offsets in international

defense trade.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Defense Offsets Disclo5 sure Act of 1999’’.

6 SEC. 2. FINDINGS AND DECLARATION OF POLICY.

7 (a) FINDINGS.—Congress makes the following find8 ings:

9 (1) A fair business environment is necessary to

10 advance international trade, economic stability, and

11 development worldwide, is beneficial for American
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1 workers and businesses, and is in the United States

2 national interest.

3 (2) Mandated offset requirements can cause

4 economic distortions in international defense trade

5 and sabotage fairness and competitiveness, and may

6 cause particular harm to small- and medium-sized

7 businesses.

8 (3) The stated goal of supporting the national

9 security needs of allied countries by assisting their

10 defense industries through the use of offsets may no

11 longer be sufficient justification for the practice.

12 (4) The use of offsets may lead to increasing

13 dependence on foreign suppliers for the production

14 of United States weapons systems.

15 (5) The offset demands required by some pur16 chasing countries, including some of the United

17 States closest allies, equal or exceed the value of the

18 base contract they are intended to offset, mitigating

19 much of the potential economic benefit of the ex20 ports.

21 (6) Offset demands often unduly inflate the

22 prices of defense contracts.

23 (7) In some cases, United States contractors

24 are required to provide indirect offsets which can

25 negatively impact nondefense industrial sectors.
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1 (8) Unilateral efforts by the United States to

2 prohibit offsets may be impractical in the current

3 era of globalization and would severely hinder the

4 competitiveness of the United States defense indus5 try in the global market.

6 (9) The development of global standards to

7 manage and restrict demands for offsets would en8 hance United States efforts to mitigate the negative

9 impact of offsets.

10 (b) DECLARATION OF POLICY.—Congress declares

11 that the United States policy is to develop a workable sys12 tem to monitor the use of offsets in the defense industry,

13 to promote fairness in international trade, and to ensure

14 an appropriate level of foreign participation in production

15 of United States weapons systems.

16 SEC. 3. SENSE OF CONGRESS.

17 It is the sense of Congress that—

18 (1) the executive branch should pursue efforts

19 to address trade fairness by making transparent and

20 establishing standards for the use of offsets in inter21 national business transactions among United States

22 trading partners and competitors;

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

24 Commerce, and the United States Trade Represent25 ative, or their designees, should raise the need for
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1 transparency and other standards bilaterally with

2 other industrialized nations at every suitable venue;

3 and

4 (3) the United States Government should enter

5 into discussions regarding the establishment of mul6 tilateral standards for the control of the use of off7 sets in international defense trade through the ap8 propriate multilateral fora, including such organiza9 tions as the Transatlantic Economic Partnership,

10 the Wassenaar Arrangement, the G–8, and the

11 World Trade Organization.

12 SEC. 4. DEFINITIONS.

13 In this Act:

14 (1) APPROPRIATE CONGRESSIONAL COMMIT15 TEES.—The term ‘‘appropriate congressional com16 mittees’’ means—

17 (A) the Committee on Foreign Relations of

18 the Senate;

19 (B) the Committee on International Rela20 tions of the House of Representatives;

21 (C) the Committees on Commerce of the

22 Senate and the House of Representatives; and

23 (D) the Committees on Armed Services of

24 the Senate and the House of Representatives.
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1 (2) G–8.—The term ‘‘G–8’’ means the group

2 consisting of France, Germany, Japan, the United

3 Kingdom, the United States, Canada, Italy, and

4 Russia established to facilitate economic cooperation

5 among the eight major economic powers.

6 (3) OFFSET.—The term ‘‘offset’’ means the en7 tire range of industrial and commercial benefits pro8 vided to foreign governments as an inducement or

9 condition to purchase military goods or services, in10 cluding benefits such as coproduction, licensed pro11 duction, subcontracting, technology transfer, in12 country procurement, marketing and financial assist13 ance, and joint ventures.

14 (4) TRANSATLANTIC ECONOMIC PARTNER15 SHIP.—The term ‘‘Transatlantic Economic Partner16 ship’’ means the joint commitment made by the

17 United States and the European Union to reinforce

18 their close relationship through an initiative involv19 ing the intensification and extension of multilateral

20 and bilateral cooperation and common actions in the

21 areas of trade and investment.

22 (5) WASSENAAR ARRANGEMENT.—The term

23 ‘‘Wassenaar Arrangement’’ means the multilateral

24 export control regime in which the United States

25 participates that seeks to promote transparency and
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1 responsibility with regard to transfers of conven2 tional armaments and sensitive dual-use items.

3 (6) WORLD TRADE ORGANIZATION.—The term

4 ‘‘World Trade Organization’’ means the organization

5 established pursuant to the WTO Agreement.

6 (7) WTO AGREEMENT.—The term ‘‘WTO

7 Agreement’’ means the Agreement Establishing The

8 World Trade Organization entered into on April 15,

9 1994.

10 SEC. 5. REPORTING OF OFFSET AGREEMENTS.

11 (a) INITIAL REPORTING OF OFFSET AGREEMENTS.—

12 (1) GOVERNMENT-TO-GOVERNMENT SALES.—

13 Section 36(b)(1) of the Arms Export Control Act

14 (22 U.S.C. 2776(b)(1)) is amended—

15 (A) in the fourth sentence, by striking ‘‘(if

16 known on the date of transmittal of such cer17 tification)’’ and inserting ‘‘and a description of

18 any offset agreement, including the dollar

19 amount of the agreement’’; and

20 (B) by inserting after the fourth sentence

21 the following: ‘‘Such description shall to the ex22 tent possible be available to the public.’’.

23 (2) COMMERCIAL SALES.—Section 36(c)(1) of

24 the Arms Export Control Act (22 U.S.C.

25 2776(c)(1)) is amended—
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1 (A) in the second sentence, by striking ‘‘(if

2 known on the date of transmittal of such cer3 tification)’’ and inserting ‘‘and a description of

4 any offset agreement, including the dollar

5 amount of the agreement’’; and

6 (B) by inserting after the fourth sentence

7 the following: ‘‘Such description shall to the ex8 tent possible be available to the public.’’.

9 (b) REPORTING UPON COMPLETION OF OFFSET OB10 LIGATIONS.—Not later than 90 days after the fulfillment

11 of an offset obligation made in conjunction with trans12 actions reported in section 36 (b) or (c) of the Arms Ex13 port Control Act, the President shall submit a report to

14 Congress identifying all measures taken to fulfill the offset

15 obligations related to the sale. The report shall contain

16 all the information required in section 36 (b) and (c) of

17 the Arms Export Control Act, as well as any additional

18 information that may not have been available at the time

19 of the initial notification.

20 SEC. 6. EXPANDED PROHIBITION ON INCENTIVE PAY21 MENTS.

22 (a) IN GENERAL.—Section 39A(a) of the Arms Ex23 port Control Act (22 U.S.C. 2779a(a)) is amended—

24 (1) by inserting ‘‘or licensed’’ after ‘‘sold’’; and

25 (2) by inserting ‘‘or export’’ after ‘‘sale’’.
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1 (b) DEFINITION OF UNITED STATES PERSON.—Sec2 tion 39A(d)(3)(B)(ii) of the Arms Export Control Act (22

3 U.S.C. 2779a(d)(3)(B)(ii)) is amended by inserting ‘‘or by

4 an entity described in clause (i)’’ after ‘‘subparagraph

5 (A)’’.

6 SEC. 7. MULTILATERAL STRATEGY TO COMBAT OFFSETS.

7 (a) IN GENERAL.—The President shall initiate a re8 view to determine the feasibility of establishing, and the

9 most effective means of negotiating, multilateral agree10 ments on standards for the use of offsets in international

11 defense trade, with a goal of limiting all offset trans12 actions.

13 (b) REPORT REQUIRED.—Not later than 90 days

14 after the date of enactment of this Act, the President shall

15 submit to the appropriate congressional committees a re16 port containing a strategy for United States negotiations

17 of multilateral agreements with designated foreign coun18 tries that provide standards for the use of offsets with re19 spect to the sale or licensing of defense articles or defense

20 services under the Arms Export Control Act (22 U.S.C.

21 2751 et seq.), and a timetable for entering into such multi22 lateral agreements. One year after the date the report is

23 submitted under the preceding sentence, and annually

24 thereafter for 5 years, the President shall submit to the

25 appropriate congressional committees a report detailing
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1 the progress toward reaching such multilateral agree2 ments.

3 (c) REQUIRED INFORMATION.—The report required

4 by subsection (b) shall include—

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

6 pursue multilateral negotiations on standards for the

7 use of offsets in international defense trade;

8 (2) an evaluation of existing multilateral fora as

9 appropriate venues for establishing such negotia10 tions;

11 (3) a description on a country-by-country basis

12 of United States efforts to engage in negotiations to

13 establish bilateral agreements with respect to the use

14 of offsets in international defense trade; and

15 (4) an evaluation on a country-by-country basis

16 of foreign government efforts to address the use of

17 offsets in international defense trade.

18 (d) COMPTROLLER GENERAL REVIEW.—The Comp19 troller General of the United States shall monitor and pe20 riodically report to Congress on the progress in reaching

21 a multilateral agreement.

22 SEC. 8. ESTABLISHMENT OF REVIEW COMMISSION.

23 (a) IN GENERAL.—There is established a National

24 Commission on the Use of Offsets in Defense Trade (in

25 this section referred to as the ‘‘Commission’’) to address
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1 all aspects of the use of offsets in international defense

2 trade.

3 (b) COMMISSION MEMBERSHIP.—Not later than 60

4 days after the date of enactment of this Act, the Presi5 dent, in consultation with Congress, shall appoint 10 peo6 ple to serve as members of the Commission. Commission

7 membership shall include four representatives from the

8 private sector, including one each from a labor organiza9 tion, the defense manufacturing sector, academia, and an

10 organization devoted to arms control; four from the execu11 tive branch, including one each from the Office of Manage12 ment and Budget, and the Departments of Commerce, De13 fense, and State; and two from the legislative branch, one

14 each from among members of the Senate and the House

15 of Representatives. The member designated from the Of16 fice of Management and Budget will serve as Chairperson

17 of the Commission. The President shall ensure that the

18 Commission is nonpartisan and that the full range of per19 spectives on the subject of offsets in the defense industry

20 is adequately represented.

21 (c) DUTIES.—The Commission shall be responsible

22 for reviewing and reporting on—

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

24 governments requiring offsets in purchasing agree25 ments and the extent and nature of offsets offered
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1 by United States and foreign defense industry con2 tractors;

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

4 subcontractors and nondefense industrial sectors af5 fected by indirect offsets; and

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

7 on domestic industry stability, United States trade

8 competitiveness, national security, and the

9 globalization of the weapons industry.

10 (d) COMMISSION REPORT.—Not later than 12

11 months after the Commission is established, the Commis12 sion shall submit a report to the appropriate congressional

13 committees. The report shall include—

14 (1) an analysis of—

15 (A) the collateral impact of offsets on in16 dustry sectors that may be different than those

17 of the contractor providing the offsets, includ18 ing estimates of contracts and jobs lost as well

19 as an assessment of damage to industrial sec20 tors;

21 (B) the role of offsets with respect to com22 petitiveness of the United States defense indus23 try in international trade and the potential

24 damage to the ability of United States contrac25 tors to compete if offsets were prohibited;
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1 (C) the impact on United States national

2 security of the use of coproduction, subcon3 tracting, and technology transfer with foreign

4 governments or companies that result from ful5 filling offset requirements; and

6 (D) the potential negative effects of the in7 creasing globalization of the weapons industry

8 through the use of offsets and the resultant im9 plications for the United States ability to limit

10 the proliferation of weapons and weapons tech11 nology;

12 (2) proposals for unilateral, bilateral, or multi13 lateral measures aimed at reducing the detrimental

14 effects of offsets; and

15 (3) an identification of the appropriate execu16 tive branch agencies to be responsible for monitoring

17 the use of offsets in international defense trade.

18 (e) TERMINATION.—The Commission shall terminate

19 not later than the date that is 3 years after the date of

20 enactment of this Act.

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