[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 1373 Introduced in Senate (IS)]







106th CONGRESS
  1st Session
                                S. 1373

 To increase monitoring of the use of offsets in international defense 
                                 trade.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             July 15, 1999

 Mr. Feingold introduced the following bill; which was read twice and 
             referred to the Committee on Foreign Relations

_______________________________________________________________________

                                 A BILL


 
 To increase monitoring of the use of offsets in international defense 
                                 trade.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Defense Offsets Disclosure Act of 
1999''.

SEC. 2. FINDINGS AND DECLARATION OF POLICY.

    (a) Findings.--Congress makes the following findings:
            (1) A fair business environment is necessary to advance 
        international trade, economic stability, and development 
        worldwide, is beneficial for American workers and businesses, 
        and is in the United States national interest.
            (2) Mandated offset requirements can cause economic 
        distortions in international defense trade and sabotage 
        fairness and competitiveness, and may cause particular harm to 
        small- and medium-sized businesses.
            (3) The stated goal of supporting the national security 
        needs of allied countries by assisting their defense industries 
        through the use of offsets may no longer be sufficient 
        justification for the practice.
            (4) The use of offsets may lead to increasing dependence on 
        foreign suppliers for the production of United States weapons 
        systems.
            (5) The offset demands required by some purchasing 
        countries, including some of the United States closest allies, 
        equal or exceed the value of the base contract they are 
        intended to offset, mitigating much of the potential economic 
        benefit of the exports.
            (6) Offset demands often unduly inflate the prices of 
        defense contracts.
            (7) In some cases, United States contractors are required 
        to provide indirect offsets which can negatively impact 
        nondefense industrial sectors.
            (8) Unilateral efforts by the United States to prohibit 
        offsets may be impractical in the current era of globalization 
        and would severely hinder the competitiveness of the United 
        States defense industry in the global market.
            (9) The development of global standards to manage and 
        restrict demands for offsets would enhance United States 
        efforts to mitigate the negative impact of offsets.
    (b) Declaration of Policy.--Congress declares that the United 
States policy is to develop a workable system to monitor the use of 
offsets in the defense industry, to promote fairness in international 
trade, and to ensure an appropriate level of foreign participation in 
production of United States weapons systems.

SEC. 3. SENSE OF CONGRESS.

    It is the sense of Congress that--
            (1) the executive branch should pursue efforts to address 
        trade fairness by making transparent and establishing standards 
        for the use of offsets in international business transactions 
        among United States trading partners and competitors;
            (2) the Secretary of State, the Secretary of Commerce, and 
        the United States Trade Representative, or their designees, 
        should raise the need for transparency and other standards 
        bilaterally with other industrialized nations at every suitable 
        venue; and
            (3) the United States Government should enter into 
        discussions regarding the establishment of multilateral 
        standards for the control of the use of offsets in 
        international defense trade through the appropriate 
        multilateral fora, including such organizations as the 
        Transatlantic Economic Partnership, the Wassenaar Arrangement, 
        the G-8, and the World Trade Organization.

SEC. 4. DEFINITIONS.

    In this Act:
            (1) Appropriate congressional committees.--The term 
        ``appropriate congressional committees'' means--
                    (A) the Committee on Foreign Relations of the 
                Senate;
                    (B) the Committee on International Relations of the 
                House of Representatives;
                    (C) the Committees on Commerce of the Senate and 
                the House of Representatives; and
                    (D) the Committees on Armed Services of the Senate 
                and the House of Representatives.
            (2) G-8.--The term ``G-8'' means the group consisting of 
        France, Germany, Japan, the United Kingdom, the United States, 
        Canada, Italy, and Russia established to facilitate economic 
        cooperation among the eight major economic powers.
            (3) Offset.--The term ``offset'' means the entire range of 
        industrial and commercial benefits provided to foreign 
        governments as an inducement or condition to purchase military 
        goods or services, including benefits such as coproduction, 
        licensed production, subcontracting, technology transfer, in-
        country procurement, marketing and financial assistance, and 
        joint ventures.
            (4) Transatlantic economic partnership.--The term 
        ``Transatlantic Economic Partnership'' means the joint 
        commitment made by the United States and the European Union to 
        reinforce their close relationship through an initiative 
        involving the intensification and extension of multilateral and 
        bilateral cooperation and common actions in the areas of trade 
        and investment.
            (5) Wassenaar arrangement.--The term ``Wassenaar 
        Arrangement'' means the multilateral export control regime in 
        which the United States participates that seeks to promote 
        transparency and responsibility with regard to transfers of 
        conventional armaments and sensitive dual-use items.
            (6) World trade organization.--The term ``World Trade 
        Organization'' means the organization established pursuant to 
        the WTO Agreement.
            (7) WTO agreement.--The term ``WTO Agreement'' means the 
        Agreement Establishing The World Trade Organization entered 
        into on April 15, 1994.

SEC. 5. REPORTING OF OFFSET AGREEMENTS.

    (a) Initial Reporting of Offset Agreements.--
            (1) Government-to-government sales.--Section 36(b)(1) of 
        the Arms Export Control Act (22 U.S.C. 2776(b)(1)) is amended--
                    (A) in the fourth sentence, by striking ``(if known 
                on the date of transmittal of such certification)'' and 
                inserting ``and a description of any offset agreement, 
                including the dollar amount of the agreement''; and
                    (B) by inserting after the fourth sentence the 
                following: ``Such description shall to the extent 
                possible be available to the public.''.
            (2) Commercial sales.--Section 36(c)(1) of the Arms Export 
        Control Act (22 U.S.C. 2776(c)(1)) is amended--
                    (A) in the second sentence, by striking ``(if known 
                on the date of transmittal of such certification)'' and 
                inserting ``and a description of any offset agreement, 
                including the dollar amount of the agreement''; and
                    (B) by inserting after the fourth sentence the 
                following: ``Such description shall to the extent 
                possible be available to the public.''.
    (b) Reporting Upon Completion of Offset Obligations.--Not later 
than 90 days after the fulfillment of an offset obligation made in 
conjunction with transactions reported in section 36 (b) or (c) of the 
Arms Export Control Act, the President shall submit a report to 
Congress identifying all measures taken to fulfill the offset 
obligations related to the sale. The report shall contain all the 
information required in section 36 (b) and (c) of the Arms Export 
Control Act, as well as any additional information that may not have 
been available at the time of the initial notification.

SEC. 6. EXPANDED PROHIBITION ON INCENTIVE PAYMENTS.

    (a) In General.--Section 39A(a) of the Arms Export Control Act (22 
U.S.C. 2779a(a)) is amended--
            (1) by inserting ``or licensed'' after ``sold''; and
            (2) by inserting ``or export'' after ``sale''.
    (b) Definition of United States Person.--Section 39A(d)(3)(B)(ii) 
of the Arms Export Control Act (22 U.S.C. 2779a(d)(3)(B)(ii)) is 
amended by inserting ``or by an entity described in clause (i)'' after 
``subparagraph (A)''.

SEC. 7. MULTILATERAL STRATEGY TO COMBAT OFFSETS.

    (a) In General.--The President shall initiate a review to determine 
the feasibility of establishing, and the most effective means of 
negotiating, multilateral agreements on standards for the use of 
offsets in international defense trade, with a goal of limiting all 
offset transactions.
    (b) Report Required.--Not later than 90 days after the date of 
enactment of this Act, the President shall submit to the appropriate 
congressional committees a report containing a strategy for United 
States negotiations of multilateral agreements with designated foreign 
countries that provide standards for the use of offsets with respect to 
the sale or licensing of defense articles or defense services under the 
Arms Export Control Act (22 U.S.C. 2751 et seq.), and a timetable for 
entering into such multilateral agreements. One year after the date the 
report is submitted under the preceding sentence, and annually 
thereafter for 5 years, the President shall submit to the appropriate 
congressional committees a report detailing the progress toward 
reaching such multilateral agreements.
    (c) Required Information.--The report required by subsection (b) 
shall include--
            (1) a description of the United States efforts to pursue 
        multilateral negotiations on standards for the use of offsets 
        in international defense trade;
            (2) an evaluation of existing multilateral fora as 
        appropriate venues for establishing such negotiations;
            (3) a description on a country-by-country basis of United 
        States efforts to engage in negotiations to establish bilateral 
        agreements with respect to the use of offsets in international 
        defense trade; and
            (4) an evaluation on a country-by-country basis of foreign 
        government efforts to address the use of offsets in 
        international defense trade.
    (d) Comptroller General Review.--The Comptroller General of the 
United States shall monitor and periodically report to Congress on the 
progress in reaching a multilateral agreement.

SEC. 8. ESTABLISHMENT OF REVIEW COMMISSION.

    (a) In General.--There is established a National Commission on the 
Use of Offsets in Defense Trade (in this section referred to as the 
``Commission'') to address all aspects of the use of offsets in 
international defense trade.
    (b) Commission Membership.--Not later than 60 days after the date 
of enactment of this Act, the President, in consultation with Congress, 
shall appoint 10 people to serve as members of the Commission. 
Commission membership shall include four representatives from the 
private sector, including one each from a labor organization, the 
defense manufacturing sector, academia, and an organization devoted to 
arms control; four from the executive branch, including one each from 
the Office of Management and Budget, and the Departments of Commerce, 
Defense, and State; and two from the legislative branch, one each from 
among members of the Senate and the House of Representatives. The 
member designated from the Office of Management and Budget will serve 
as Chairperson of the Commission. The President shall ensure that the 
Commission is nonpartisan and that the full range of perspectives on 
the subject of offsets in the defense industry is adequately 
represented.
    (c) Duties.--The Commission shall be responsible for reviewing and 
reporting on--
          (1) the full range of current practices by foreign 
        governments requiring offsets in purchasing agreements and the 
        extent and nature of offsets offered by United States and 
        foreign defense industry contractors;
            (2) the impact of the use of offsets on defense 
        subcontractors and nondefense industrial sectors affected by 
        indirect offsets; and
            (3) the role of offsets, both direct and indirect, on 
        domestic industry stability, United States trade 
        competitiveness, national security, and the globalization of 
        the weapons industry.
    (d) Commission Report.--Not later than 12 months after the 
Commission is established, the Commission shall submit a report to the 
appropriate congressional committees. The report shall include--
            (1) an analysis of--
                    (A) the collateral impact of offsets on industry 
                sectors that may be different than those of the 
                contractor providing the offsets, including estimates 
                of contracts and jobs lost as well as an assessment of 
                damage to industrial sectors;
                    (B) the role of offsets with respect to 
                competitiveness of the United States defense industry 
                in international trade and the potential damage to the 
                ability of United States contractors to compete if 
                offsets were prohibited;
                    (C) the impact on United States national security 
                of the use of coproduction, subcontracting, and 
                technology transfer with foreign governments or 
                companies that result from fulfilling offset 
                requirements; and
                    (D) the potential negative effects of the 
                increasing globalization of the weapons industry 
                through the use of offsets and the resultant 
                implications for the United States ability to limit the 
                proliferation of weapons and weapons technology;
            (2) proposals for unilateral, bilateral, or multilateral 
        measures aimed at reducing the detrimental effects of offsets; 
        and
            (3) an identification of the appropriate executive branch 
        agencies to be responsible for monitoring the use of offsets in 
        international defense trade.
    (e) Termination.--The Commission shall terminate not later than the 
date that is 3 years after the date of enactment of this Act.
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