DEPARTMENT OF COMMERCE
Bureau of Export Administration
15 CFR Part 701
[Docket No. 940364-4064]
AGENCY: Bureau of Export Administration, Department of Commerce
ACTION: Final rule.
SUMMARY: The Bureau of Export Administration (BXA) is amending the National Security Industrial Base Regulations to require U.S. firms entering into offset agreements associated with the sale of defense articles and/or defense services to foreign governments or foreign companies to provide BXA certain information regarding those agreements when they exceed $5,000,000 in value. This new regulation is being promulgated pursuant to the Defense Production Act of 1950, as amended. DATES: This rule is effective December 2, 1994. Annual reports must be submitted on or before June 15 of the succeeding year, except that the report for calendar year 1993 must be submitted on or before March 15, 1995.
ADDRESSES: Annual reports should be sent to Brad Botwin, Director, Strategic Analysis Division, Office of Strategic Industries and Economic Security, Attention: Offset Regulation Report, Room 3878, U.S. Department of Commerce, 14th Street and Pennsylvania Avenue NW, Washington, DC 20230.
FOR FURTHER INFORMATION CONTACT: Erin Finn, Offsets Program Manager, Strategic Analysis Division, Office of Strategic Industries and Economic Security, Room 3878, U.S. Department of Commerce, 14th Street and Pennsylvania Avenue NW, Washington, DC 20230. Telephone 202-482- 2322 or Fax 202-482-5650.
The Defense Production Act Amendments of 1992 amended the Defense Production
Act of 1950 (the Act). The Act now requires that U.S. firms entering into
contracts for the sale of defense articles or defense services to foreign
countries or foreign firms that are subject to offset agreements exceeding
$5,000,000 in value to furnish information regarding such sales to the Secretary
of Commerce (the Secretary). The Act also now requires the Secretary to establish
regulations to collect this information and to protect it from public disclosure
unless public disclosure is specifically authorized by the firm furnishing
the information. The Act further requires the Secretary to serve as the President's
executive agent in preparing an annual report to Congress on the impact of
offsets on the United States.
This report will include an aggregated summary of information provided to the Secretary by U.S. industry pursuant to the regulation provided here. It will address the impact of offsets on the defense preparedness, industrial competitiveness, employment, and trade of the United States.
On April 26, 1994, BXA published in the Federal Register (59 FR 21678) a proposed rule on reporting of offsets in military exports designed to elicit comments, suggestions, information, or advice relative to the proposed regulation. 20 responses were received commenting on the proposed rule. The two major comments concerned the requirements to submit semi-annual reports and to report each individual transaction undertaken to fulfill an offset commitment. The rule has been amended to address these concerns.
List of Subjects in 15 CFR Part 701
Administration practice and procedure, Arms and munitions, Exports, Offsets, Reporting requirements.
Accordingly, the National Security Industrial Base Regulations (15 CFR parts 700-709) are amended by adding part 701 to read as follows:
PART 701--REPORTING OF OFFSETS AGREEMENTS IN SALES OF WEAPON SYSTEMS OR
DEFENSE-RELATED ITEMS TO FOREIGN COUNTRIES OR FOREIGN FIRMS
701.3 Applicability and Scope.
Authority: Title I, sec. 124, Pub. L 102-558, 106 Stat. 4207 (50 U.S.C App. 2099).
The Defense Production Act Amendments of 1992 require the Secretary of Commerce
to promulgate regulations for U.S. firms entering into contracts for the sale
of defense articles or defense services to foreign countries or foreign firms
that are subject to offset agreements exceeding $5,000,000 in value to furnish
information regarding such agreements. The Secretary of Commerce has designated
the Bureau of Export Administration as the organization responsible for implementing
this provision. The information provided by U.S. firms will be aggregated
and used to determine the impact of offset transactions on the defense preparedness,
industrial competitiveness, employment, and trade of the United States. Summary
reports will be submitted annually to the Congress pursuant Section 309 of
the Defense Production Act of 1950, as amended.
Sec. 701.2 Definitions.
(a) Offsets--Compensation practices required as a condition of purchase in either government-to-government or commercial sales of defense articles and/or defense services as defined by the Arms Export Control Act and the International Traffic in Arms Regulations.
(b)Military Export Sales--Exports that are either Foreign Military Sales (FMS) or commercial (direct) sales of defense articles and/or defense services as defined by the Arms Export Control Act and International Traffic in Arms Regulations.
(c) Prime Contractor--A firm that has a sales contract with a foreign entity or with the U.S. Government for military export sales.
(d) United States--Includes the 50 states, the District of Columbia, Puerto Rico, and U.S. territories.
(e) Offset Agreement--Any offset as defined above that the U.S. firm agrees to in order to conclude a military export sales contract. This includes all offsets, whether they are ``best effort'' agreements or are subject to penalty clauses.
(f) Offset Transaction--Any activity for which the U.S. firm claims credit for full or partial fulfillment of the offset agreement. Activities to implement offset agreements may include, but are not limited to, coproduction, licensed production, subcontractor production, overseas investment, technology transfer counter trade, barter, counter purchase, and buy back.
(g) Direct Offset--Contractual arrangements that involve defense articles and services referenced in the sales agreement for military exports.
(h) Indirect Offset--Contractual arrangements that involve defense goods and services unrelated to the exports referenced in the sales agreement.
(a) This rule applies to U.S. firms entering contracts for the sale of defense articles or defense services (as defined in the Arms Export Control Act and International Traffic in Arms Regulations) to a foreign country or foreign firm for which the contract is subject to an offset agreement exceeding $5,000,000 in value.
(b) This rule applies to all offset transactions completed in performance of existing offset commitments since January 1, 1993 for which offset credit of $250,000 or more has been claimed from the foreign representative, and new offset agreements entered into since that time.
(a) To avoid double counting, firms should report only offset transactions for which they are directly responsible for reporting to the foreign customer (i.e., prime contractors should report for their subcontractors if the subcontractors are not a direct party to the offset agreement).
(b) Reports should be delivered to the Offsets Program Manager, U.S. Department of Commerce, Office of Strategic Industries and Economic Security, Bureau of Export Administration, Room 3878, 14th Street and Pennsylvania Avenue, NW, Washington DC 20230. The first industry reports should be submitted to the Bureau of Export Administration not later than March 15, 1995 and should cover offset transactions completed during the calendar year 1993, as well as information regarding unfulfilled offset agreements. After this initial submission, companies should provide information once yearly not later than June 15 covering the preceding calendar year. All submissions should include a point of contact (name and telephone number) and should be by a company official authorized to provide such information.
(c) Companies may submit this information in computerized spreadsheet/database format (e.g., Lotus 1-2-3, Quattro Pro, dbase IV) using a 3.5 inch 1.44 megabyte diskette, accompanied by a printed copy.
(d) Offset Transaction Reporting.
(2) Offset transactions of the same type (same fulfilling entity, receiving entity, and offset product/service) completed during the same reporting period may be combined.
(3) Any necessary comments or explanations relating to the above information should be footnoted and supplied on separate sheets attached to the report.
(a) As provided by Sec. 309(c) of the Defense Production Act of 1950, as amended, BXA shall not publicly disclose the information it receives pursuant to this Part, unless the firm furnishing the information subsequently specifically authorizes public disclosure.
(b) Public disclosure must be authorized in writing by an official of the firm competent to make such an authorization.
(c) Nothing in this provision shall prevent the use of data aggregated from information provided pursuant to this part in the summary report to the Congress described in Sec. 701.1.