The Department of Commerce, through the Bureau of Industry and Security, has participated in a Department of Defense-led Interagency Offsets Steering Committee (the Committee) , which includes representatives from the Departments of Defense, State, and Labor, and the Office of the U.S. Trade Representative. Since the publication of the sixth report on Offsets in Defense Trade in February 2003, the Committee has been inactive.
In prior years, the Committee has pursued consultations with foreign governments on both a multilateral and bilateral basis, in an attempt to reduce the impact of offsets in defense trade. The Committee took steps to address the issue of offsets with the United States ' European allies, our largest defense trade partners who tend to demand the highest levels of offsets. The Committee met with representatives of the British, Canadian, Dutch, French, and Spanish governments, both to gain their perspective on offsets and to discuss the cost to governments of requiring and administering offset programs and the impact on small- and medium-sized businesses.
The defense world changed in the 1990s, reflecting both retrenchment of military expenditures and tougher offset policies and enforcement by governments worldwide. Offsets have risen to a more prominent status in determining competitions and ultimately access to foreign markets. Offset agreements exceeding 100 percent are occurring with increasing frequency and, in one case, exceeded 300 percent. From the U.S. perspective, Europe is clearly the central focus of offset activity, dominating both offset agreements and offset transactions with U.S. companies. Because 90 percent of offset agreements are aerospace-related, concerns about U.S. prime contractors and the aerospace infrastructure have increased.
BIS estimates that during the period, offsets maintained an average of 41,666 jobs per year in defense system exporting industries but cost 9,688 jobs per year in the lower-tier supplier base. Based on these conservative calculations, offset agreements and transactions had a net positive effect on employment.
The U.S. aerospace trade surplus fell from its all time high of $40 billion in 1998 to about $27 billion in 2000. Imports of aerospace products have increased rapidly in the last decade for a number of reasons, including offsets. Aerospace-related imports have increased in both up and down market cycles - despite the fact that the United States spends more on aerospace research and development than any other nation - a factor that should make U.S. products very competitive in world markets.
In this report, Commerce has not identified any specific recommendations for remedial action concerning offsets in defense trade. No other government agency has offered alternative findings and recommendations. However, in the coming year, using authorities granted under the DPA, Commerce is committed to work with U.S. industry, the Department of Defense and other agencies, and foreign governments to analyze the impact of offsets on all parties and to seek ways to mitigate their effect on competition. Our goal is to support the U.S. defense industry and to ensure a robust and vibrant industrial base.