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d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d dWednesday(Y2$ T m-!XXXXXX  ݁ Level 1 Level 2 Level 3 Level 4 Level 5(Y2$ T m-!XXXXXX  ($    'dxdA<< c d d d d d d d&0 d d d&0 d d d&0 d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d3|x (>m-$XXXXXXAcrobat Distiller,,,,0!r[0s 3#37=CIQYag1.a.i.(1)(a)(i)1)a)Y i)W0 U T m-!Xd|XXd|XXXd|  _  &    [_XXd|[_[_      _' T     Xd|X[_Xd|XXXd|    _&    [_XXd|[_[_       '[_#[_#[_AppendixF:GlossaryandOffset_Example hT      Xd|XXd|XXXd|_      XXd|        GLOSSARYANDOFFSETEXAMPLE#[_#   _T     [_    _w Offsets: Industrialcompensationpracticesrequiredasa " F conditionofpurchaseinsalesofdefensearticlesand/ordefense   services.    OffsetAgreement: Contractspecifyingthepercentageofthe -Q  totalsaletobeoffset,theformsofindustrialcompensation  required,thedurationoftheagreement,andpenaltyclauses,if  any. v  OffsetTransaction: Anyactivityforwhichthedefenseprime  contractorclaimscreditinfulfillmentoftheoffsetagreement.  Forthepurposeofanalysis,BISdividesoffsettransactionsinto  ninedifferentcategories.Thesearealsotherequiredcategories C g fortheoffsetreportingrequirement. ")     TechnologyTransfer :Transferoftechnologythatoccurs %$ asaresultofanoffsetagreementandthatmaytaketheformof N'r!& researchanddevelopmentconductedabroad,technical )4#( assistanceprovidedtothesubsidiaryorjointventureofoverseas *$* investment,orotheractivitiesunderdirectcommercial ,&, arrangementbetweenthedefenseprimecontractorandaforeign  entity.  ̀ SubcontractorProduction: Overseasproductionofapartor " F componentofaU.S.origindefensearticle.Thesubcontract   doesnotnecessarilyinvolvelicenseoftechnicalinformationand   isusuallyadirectcommercialarrangementbetweenthedefense k  primecontractorandaforeignproducer. -Q  ̀ Coproduction: Overseasproductionbasedupon  governmenttogovernmentagreementthatpermitsaforeign v governmentorproducer(s)toacquirethetechnicalinformation 8\ tomanufactureallorpartofaU.S.origindefensearticle.Co  productionincludesgovernmenttogovernmentlicensed  production,butexcludeslicensedproductionbasedupondirect ~ commercialarrangementsbyU.S.manufacturers. @ d ̀ LicensedProduction: OverseasproductionofaU.S.origin #" defensearticlebasedupontransferoftechnicalinformation %$ underdirectcommercialarrangementsbetweenaU.S. K'o!& manufacturerandaforeigngovernmentorproducer.  )1#( _Ԁ Purchases: Procurementofofftheshelfitemsfromthe ,&, offsetrecipient.Often,butnotalways,purchasesareindirectby  nature.Indirectpurchasesaresimilarindefinitionto  countertrade,whiledirectpurchasesareanalogoustobuybacks. `  ̀ Training: Generallyincludestrainingrelatedtothe   productionormaintenanceoftheexporteddefenseitem.   Trainingmayberequiredinunrelatedareas,suchascomputer k  training,foreignlanguageskills,orengineeringcapabilities. -Q  ̀ Investment: Investmentarisingfromtheoffsetagreement,  takingtheformofcapitalinvestedtoestablishorexpanda v subsidiaryorjointventureintheforeigncountry. 8\ ̀ Marketing: Marketingassistancetoforeigncompaniesin  eitherdefenseorunrelatedindustries.Insomecases,countries  requiremarketinginadditiontotheoffsets.Alsoencompasses C g exportassistance. ")  ̀ Other: Anyotherformofoffsetrequiredorofferedbya %$ defensecompany/foreigngovernment. N'r!&  OffsetRecipients: Foreignfirmsthatreceivethebenefitsof *$* offsettransactionsfromdefensefirms.Forexample,aU.S. ,&, companysellsadefenseitemtoaforeigncountry,withanoffset  obligationrequiringthatcomponentsworth50percentofthe  exportcontractbebuiltintheforeigncountry.Theforeign `  companiesmanufacturingthesecomponentswouldbethe " F  offsetrecipients.    OffsetFulfiller: Thecompanythatprovidestheoffset h  compensation,whichisusuallythedefensefirmwhosignedthe -Q  offsetagreement.However,therearetimeswhentheobligation  isnotrelatedtothedefensefirmsspecialtyandthereforeis  contractedout.Forexample,ifmarketingisacomponentofthe s offsetrequirement,thedefensefirmmayhireamarketing 5Y companytosatisfytheobligation.Themarketingfirmwould  thenbethe offsetfulfiller.   ActualValueofOffsetTransactions: Themarketvalueofthe = a offsettransactionmeasuredinU.S.dollars. "&   CreditValueofOffsetTransactions: Thevaluecreditedforthe %$ offsettransactionbyapplicationofamultiplierorothermethod. K'o!& Thecreditvaluemaybegreaterthanorequaltotheactualvalue  )1#( oftheoffset. *$*  ,&,  Multiplier: Afactorappliedtotheactualvalueofcertainoffset  transactionstocalculatethecreditvalueearned.Foreign  governmentsusemultiplierstoprovidefirmswithincentivesto c  offeroffsetsintargetedareasofeconomicgrowth.Whena % I multiplierisappliedtotheofftheshelfpriceofamoredesirable   serviceorproductofferedasanoffset,thedefensefirmreceives   ahighercreditvaluetowardfulfillinganoffsetobligation. k          B.p` hp x (#XB8 p Example:Aforeigngovernmentinterestedina  specifictechnologymayofferamultiplierof   sixforoffsettransactionsprovidingaccessto s thattechnology.AU.S.defensecompanywith 5Y a120percentoffsetobligationfroma$1million  saleofdefensesystemsordinarilywouldbe  requiredtoprovidetechnologytransferthrough { anoffsetequaling$1.2million.Witha = a multiplierofsix,however,theU.S.company !#  couldofferonly$200,000(actualvalue)in #" technologytransferandearn$1.2millionin %$ creditvalue,fulfillingitsentireoffsetobligation E'i!& undertheagreement.)+#(phph eof        H.` hp x (#p` XH DirectOffsets: Offsettransactionsthataredirectlyrelatedto ,&, thedefenseitemsorservicesexportedbythedefensefirm.  Theseareusuallyintheformofcoproduction,subcontracting,  training,production,licensedproduction,orpossiblytechnology `  transferorfinancingactivities. " F  IndirectOffsets :Offsettransactionsthatarenotdirectlyrelated   tothedefenseitemsorservicesexportedbythedefensefirm. k  Thekindsofoffsetsthatareconsidered indirectinclude -Q  purchases,investment,training,financingactivities,  marketing/exportingassistance,andtechnologytransfer.   Penalties: Measuresusedtomotivatedefensefirmstofulfill 5Y theiroffsetobligationwithinthetimeframeallottedbythe  contract.  ̀ Liquidateddamages: Ifafirmfailstofulfillallrequired @ d offsetsbythestipulateddeadline,itmustpayapercentage ")  (usually520percent)ofthetotalvalueoftheexportcontract. #" Thepercentageforliquidateddamagesisspecifiedinthe %$ contract. K'o!& Ѐ  )1#(    Nonperformancepenalties: Firmsmustpaya *$* prearrangedpercent(210percent)ofallobligationsnotfulfilled ,&, withintheallottedtime.       Besteffortsclauses: Witha besteffortsclause,thereis `  nopenaltyfornon_Ԅfulfillmentofthecontract;thefirmisjudged % I tobeactingingoodfaithtomeetitsobligations.However,   firmsreputationscanbejeopardizedifoffsetobligationsarenot   fulfilledasstatedinthecontract;nonfulfillmentwouldlikely k  resultintheU.S.defensefirmbeingexcludedfromfuture -Q  _procurements_Ԁbythatpurchasinggovernment.   OFFSETEX  AMPLE  5Y Thisexampleisforillustrativepurposesonlyandinnoway  representsanactualoffsetagreement.Thefictitiousnationof { AtlantispurchasedtenKS340jetfightersfromaU.S.defense = a firm,_PJD_ԀInc.(_PJD_),foratotalof$500millionwith100 !#  percentoffset.Inotherwords,theoffsetagreementobligated #" _PJD_Ԁtofulfilloffsetsequaltothevalueofthecontract,or$500 %$ million.ThegovernmentofAtlantisdecidedwhatwouldbe E'i!& requiredof_PJD_Ԁinordertofulfillitsoffsetobligation,which )+#( wouldincludebothdirectandindirectcompensation.The *$* governmentalsoassignedthecreditvalueforeachcategory. ,&, Ї DirectOffsets(i.e.,relatedtotheproductionoftheexportitem,  theKS340jetfighter)   TechnologyTransfer:Thetechnologytransferrequirementwas " F assigned36percentofthetotaloffsetobligation._PJD_Ԁagreedto   transferallthenecessarytechnologyandknowhowtoAtlantis   firmsinordertorepairandmaintainthejetfighters.The h  Atlantisgovernmentdeemedthiscapabilitytobevitalto *N  nationalsecurityand,therefore,gaveamultiplierofsix.Asa  result,thetransferoftechnologyactuallyworth$30millionwas  givenacreditvalueof$180million. p Coproduction:Atlantisfirmsmanufacturedsomecomponents  oftheKS340jetfighters,totaling$220million,which  accountedfor44percentoftheoffsetobligation. x  IndirectOffsets(i.e.,notrelatedtotheproductionoftheexport !   item,theKS340jetfighter)  #" Purchase:_PJD_ԀpurchasedmarblestatuesfromAtlantis B'f!& manufacturersforeventualresale.Thesepurchasesaccounted )(#( for7percentoftheoffsetobligation,or$35million. *$*  ,&, FinancingActivities:_PJD_Ԁmadeinvestmentsinnondefense  relatedindustriesinAtlantis;thisaccountedfor4percentofthe  offsetobligation,or$20million. `  TechnologyTransfer:_PJD_Ԁprovidedsubmarinetechnologyto   Atlantisfirms,whichaccountedfor6percentoftheoffset   obligation,or$30million. h  Marketing:CommercialassistancewasprovidedforAtlantis  fisheriestomarkettheirfishintheUnitedStates,whichfulfilled  theremaining3percent,or$15millionoftheoffsetobligation. p Inthisexample,theAtlantisfisheriesareoffsetrecipients 2V becausetheyreceivedmarketingservicesfortheirproduct._PJD_  hiredanAmericanadvertisingfirm,theoffsetfulfiller,tomarket  theAtlantis_fish. x __The_Ԁdurationoftheoffsetagreementwas10yearswithathree !   yeargraceperiod.AtimetablewascreatedbytheAtlantis #" governmentoutliningwhichobligationsshouldbefulfilled,to %$ whatextent,andwhen.If_PJD_Ԁdidnotmeetthedeadlinesgiven, B'f!& thecompanywasrequiredtopaytheAtlantisgovernment5 )(#( percentoftheunfulfilledoffsetamountinliquidateddamages. *$* Forexample,ifafter10years,only98.5percentoftheoffset ,&, obligationof$500millionwasfulfilled,_PJD_Ԁwouldberequired  topayliquidateddamagesintheamountof5percentofthe1.5  percentunfulfilledportionoftheoffsetobligation,or$375,000.__&   `    &@ %&% %&@        & A   &%%&&%%&        & A   &%%&&%%&        & A   &%%&&%%&        & A   &%%&&%%&             _ MAT       _