A shadowy world of deal-making that exists alongside the already shadowy world of arms sales is growing, say those who keep tabs on the industry. Called offsets, it is not uncommon for national governments to condition the purchase of arms from another country on additional investments. In offsets negotiations, the seller is asked to make financial contributions to the buyer’s domestic economy. “America has long been officially against offsets, though it practises something similar at home under the Buy American Act of 1933, which requires foreign arms-makers to source much of the work locally.”
What’s the Big Idea?
Turkey has used offsets to build a more independent military, requiring arms sellers to invest in its armed forces, while other offsets have created investments as unrelated as shrimp farms in Saudi Arabia. Economists say the deals amount to protectionism and are therefore market distorting. The World Trade Organization already bans the use of offsets as a criterion for contract evaluation in all industries except defense. In the short term, the offsets industry is likely to grow as American and European arms makers try to sell outside their own shrinking domestic markets.