2011-3916. Reporting for Calendar Year 2010 on Offsets Agreements Related to Sales of Defense Articles or Defense Services to Foreign Countries or Foreign Firms

AGENCY:

Bureau of Industry and Security, Department of Commerce.

ACTION:

Notice; annual reporting requirements.

SUMMARY:

This notice is to remind the public that U.S. firms are required to report annually to the Department of Commerce (Commerce) on contracts for the sale of defense articles or defense services to foreign countries or foreign firms that are subject to offsets agreements exceeding $5,000,000 in value. U.S. firms are also required to report annually to Commerce on offsets transactions completed in performance of existing offsets commitments for which offsets credit of $250,000 or more has been claimed from the foreign representative. This year, such reports must include relevant information from calendar year 2010 and must be submitted to Commerce no later than June 15, 2011.

ADDRESSES:

Reports should be addressed to “Offsets Program Manager, U.S. Department of Commerce, Office of Strategic Industries and Economic Security, Bureau of Industry and Security, Room 3878, Washington, DC 20230.”

FOR FURTHER INFORMATION CONTACT:

Ronald DeMarines, Office of Strategic Industries and Economic Security, Bureau of Industry and Security, U.S. Department of Commerce, telephone: [phone]; fax: [phone]; e-mail: [e-mail].

SUPPLEMENTARY INFORMATION:

Background

In 2009, the Congress reauthorized the Defense Production Act of 1950 (DPA), and added a new section 723 to that Act, which replaced prior section 309 and addresses offsets in defense trade (See 50 U.S.C. app. 2172). Offsets are 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. For example, a company that is selling a fleet of military aircraft to a foreign government may agree to offset the cost of the aircraft by providing training assistance to plant managers in the purchasing country. Although this distorts the true price of the aircraft, the foreign government may require this sort of extra compensation as a condition of awarding the contract to purchase the aircraft.

Section 723(a)(1) of the DPA requires the President to submit an annual report to the Congress on the impact of offsets on the U.S. defense industrial base. Section 723 directs the Secretary of Commerce (Secretary) to function as the President's executive agent for carrying out the responsibilities set forth in that section and authorizes the Secretary to develop and administer the regulations necessary to collect offsets data from U.S. defense exporters.

The authorities of the Secretary regarding offsets have been delegated to the Under Secretary of Commerce for Industry and Security. The regulations associated with offsets reporting are set forth in part 701 of title 15 of the Code of Federal Regulations.

As described in those regulations, U.S. firms are required to report on contracts for the sale of defense articles or defense services to foreign countries or foreign firms that are subject to offsets agreements exceeding $5,000,000 in value. U.S. firms are also required to report annually on offsets transactions completed in performance of existing offsets commitments for which offsets credit of $250,000 or more has been claimed from the foreign representative.

Commerce's annual report to Congress includes an aggregated summary of the data reported by industry in accordance with the offsets regulation and the DPA. As provided by section 723(c) of the DPA, BIS will not publicly disclose the information it receives through offsets reporting unless the firm furnishing the information specifically authorizes public disclosure. The information collected is sorted and organized into an aggregate report of national offsets data, and therefore does not identify company-specific information.

In order to enable BIS to prepare the next annual offset report reflecting calendar year 2010 data, U.S. firms must submit required information on offsets agreements and offsets transactions from calendar year 2010 to BIS no later than June 15, 2011.

Dated: February 15, 2011.

Kevin J. Wolf,

Assistant Secretary for Export Administration.