[Federal Register Volume 59, Number 80 (Tuesday, April 26, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-9994]


[[Page Unknown]]

[Federal Register: April 26, 1994]


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DEPARTMENT OF COMMERCE

Bureau of Export Administration

15 CFR Part 701

[Docket No. 940364-4064]
RIN 0694-AA91

 

Offsets in Military Exports

AGENCY: Bureau of Export Administration, Commerce.

ACTION: Proposed rule with a request for comments.

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SUMMARY: The Bureau of Export Administration (BXA) is proposing to 
amend the National Security Industrial Base Regulations to require U.S. 
firms entering into offset agreements associated with the sale of 
weapons systems or defense-related items 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. Interested parties are invited to submit written comments, 
suggestions, information, or advice relative to these proposed 
regulations.

DATES: Comments must be submitted on or before May 26, 1994.

ADDRESSES: Written comments (six copies) should be sent to Brad Botwin, 
Director, Strategic Analysis Division, Office of Industrial Resource 
Administration, Attention: Offset Regulation Comments, room 3878, U.S. 
Department of Commerce, 14th Street and Pennsylvania Avenue NW., 
Washington, DC 20230.

FOR FURTHER INFORMATION CONTACT: Karen Swasey, Offsets Program Manager, 
Strategic Analysis Division, Office of Industrial Resource 
Administration, room 3878, U.S. Department of Commerce, 14th Street and 
Pennsylvania Avenue NW., Washington, DC 20230. Telephone 202-482-3795.

SUPPLEMENTARY INFORMATION:

Background

    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 weapons systems or defense-
related items 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 
proposed here. It will address the impact of offsets on the defense 
preparedness, industrial competitiveness, employment, and trade of the 
United States.

Rulemaking Requirements

    1. This proposed rule has been determined to be ``not significant'' 
for purposes of Executive Order 12866.
    2. Public reporting burden for this collection of information is 
estimated to be 5 to 60 hours per response, with an average of 10 
hours, including time for reviewing instructions, searching existing 
data sources, gathering and maintaining the data needed, and completing 
and reviewing the collection of information. Send comments regarding 
this burden estimate or any other aspect of this collection of 
information, including suggestions for reducing this burden to Brad 
Botwin, Director, Strategic Analysis Division, Office of Industrial 
Resource Administration, Attention: Offset Regulation Comments, room 
3878, U.S. Department of Commerce, 14th Street and Pennsylvania Avenue 
NW., Washington, DC 20230; and to the Office of Information and 
Regulatory Affairs, Office of Management and Budget, Washington, DC 
20503.
    3. This proposed rule does not contain policies with Federalism 
implications sufficient to warrant preparation of a Federalism 
assessment under Executive Order 12612.
    4. The General Counsel of the Department of Commerce has certified 
to the Chief Counsel for Advocacy of the Small Business Administration 
that this proposed rule will not have a significant economic impact on 
a substantial number of small entities. It is anticipated that the rule 
will primarily affect large defense contractors that engage in offset 
agreements with foreign governments. Moreover, the rule is not expected 
to pose a burden because firms engaging in offset transactions already 
must prepare periodic accounts of progress toward fulfillment of offset 
obligations for the foreign entity that is party to the offset 
agreement. The information to be collected pursuant to these 
regulations is less than that required by these foreign parties. With 
regard to new offset agreements entered into, the information requested 
is readily available and will take a minimum amount of time to assemble 
by the parties involved.
    5. The provisions of the Administrative Procedure Act, 5 U.S.C. 
553, requiring notice of proposed rulemaking, the opportunity for 
public participation, and a delay in the effective date, are 
inapplicable because this regulation is specifically exempt pursuant to 
the Defense Production Act of 1950, as amended. (50 U.S.C. app. 2159). 
Further, no other law requires a notice of proposed rulemaking to be 
issued for this proposed rule.
    However, because of the importance of the issues raised by this 
regulation, this rule is being issued in proposed form. Pursuant to the 
Act, comments will be considered in the development of final 
regulations. (50 U.S.C. app. 2159(b)(1)). Accordingly, the Department 
encourages interested persons who wish to comment to do so at the 
earliest possible time to permit the fullest consideration of their 
views.
    The period for submission of comments will close May 26, 1994. The 
Department will consider all comments received before the close of the 
comment period in developing final regulations. Comments received after 
the end of the comment period will be considered if possible, but their 
consideration cannot be assured. The Department will not accept 
comments accompanied by a request that a part or all of the material be 
treated confidentially because of its business proprietary nature or 
for any other reason. The Department will return such comments and 
materials to the person submitting the comments and will not consider 
them in the development of final regulations. All comments on these 
regulations will be a matter of public record and will be available for 
public inspection and copying. In the interest of accuracy and 
completeness, the Department requires comments in written form. Oral 
comments must be followed by written memoranda, which will also be a 
matter of public record and will be available for public review and 
copying. Communications from agencies of the United States Government 
or foreign governments will not be made available for public 
inspection.
    The public record concerning these regulations will be maintained 
in BXA's Freedom of Information Records Inspection Facility, room 4525, 
Department of Commerce, 14th Street and Pennsylvania Avenue, NW., 
Washington, DC 20230. Records in this facility, including written 
public comments and memoranda summarizing the substance of oral 
communications, may be inspected and copied in accordance with 
regulations published in part 4 of title 15 of the Code of Federal 
Regulations. Information about the inspection and copying of records at 
the facility may be obtained from Margaret Cornejo, BXA's Freedom of 
Information Officer, at the above address or by calling (202) 482-5653.

List of Subjects in 15 CFR Part 701

    Administrative practice and procedure, Arms and munitions, Exports, 
Offsets, Reporting requirements.

    Accordingly, the National Security Industrial Base Regulations (15 
CFR parts 700-709) are proposed to be amended by adding part 701 to 
read as follows:

PART 701--REPORTING OF OFFSET AGREEMENTS IN SALES OF WEAPON SYSTEMS 
OR DEFENSE-RELATED ITEMS TO FOREIGN COUNTRIES OR FOREIGN FIRMS

Sec.
701.1  Purpose.
701.2  Definitions.
701.3  Applicability and Scope.
701.4  Procedures.
701.5  Confidentiality.

    Authority: Title I, sec. 124, Pub. L. 102-558, 106 Stat. 4207 
(50 U.S.C. App. 2099)


Sec. 701.1  Purpose.

    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 weapons or defense-related items to foreign 
countries or foreign firms that are subject to offset agreements 
exceeding $5,000,000 in value to furnish information regarding such 
sales. 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 to 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. Types of 
offsets include, but are not limited to, coproduction, licensed 
production, subcontractor production, overseas investment, technology 
transfer, countertrade, barter, counterpurchase, and buy back.
    (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 in paragraph (a) of 
this section 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 
receives credit for full or partial fulfillment of the offset 
agreement.


Sec. 701.3  Applicability and scope.

    (a) This part applies to U.S. firms entering contracts for the sale 
of weapons systems or defense-related items (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 part applies to all offset transactions completed in 
performance of existing offset commitments since January 1, 1993 for 
which offset credit has been received from the foreign representative, 
and new offset agreements entered into since that time.


Sec. 701.4  Procedures.

    (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 Industrial Resource 
Administration, 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 (date to be provided) and should cover offset transactions 
completed during the calendar year 1993, as well as information 
regarding all unfulfilled offset agreements. After this initial 
submission, companies should provide information twice yearly not later 
than August 15 covering the first six months of a calendar year and 
February 15 covering the second six months of a 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 are encouraged to 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. (1) Reports should include an 
itemized list of offset transactions completed during the reporting 
period, including the following data elements (Estimates are acceptable 
when actual figures are unavailable; estimated figures should be 
followed by the letter ``E''):
    (i) Name of Country--Country of entity purchasing the weapon 
system, defense item or service subject to offset.
    (ii) Name or Description of Weapon system, Defense Item, or Service 
Subject to Offset.
    (iii) Name of Offset Fulfilling Entity--Entity fulfilling offset 
transaction (including first tier subcontractors).
    (iv) Name of Offset Receiving Entity--Entity receiving benefits 
from offset transaction.
    (v) Offset Credit Value--Dollar value credits awarded by 
international customer's offset agency including any intangible 
factors/multipliers.
    (vi) Actual Offset Value-- Dollar value of the offset transaction 
without multipliers/intangible factors.
    (vii) Description of Offset Product/Service--Short description of 
the type of offset (e.g., coproduction, technology transfer, 
subcontract activity, training, purchase, cash payment, etc.).
    (viii) Broad Industry Category--Broad classification of the 
industry in which the offset transaction was fulfilled (e.g., 
aerospace, electronics, chemicals, industrial machinery, textiles, 
etc.).
    (ix) Direct or Indirect Offset--Specify whether the offset 
transaction was a direct offset (defined as any product or service 
directly related to the defense systems procured/sold) or indirect (any 
other transactions).
    (x) Name of Country in Which Offset Was Fulfilled--United States, 
purchasing country, or third country.
    (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.
    (e) Reporting on offset agreements entered into. (1) In addition to 
the itemized list of offset transactions completed during the year as 
specified in paragraph (d) of this section, U.S. firms should provide 
information regarding new offset agreements entered into during the 
year, including the following elements:
    (i) Name of Country--Country of entity purchasing the weapon 
system, defense item, or service subject to offset;
    (ii) Name or Description of Weapon System, Defense Item, or Service 
Subject to Offset;
    (iii) Names/Titles of Signatories to the Offset Agreement;
    (iv) Value of Export Sale Subject to Offset (approximate);
    (v) Total Value of the Offset Agreement;
    (vi) Term of Offset Agreement (months);
    (vii) Description of Performance Measures--(e.g., ``Best Efforts,'' 
Liquidated Damages, (describe)).
    (2) For the first reporting period only, U.S. firms will be asked 
to provide this information for all offset agreements currently in the 
fulfillment process (i.e., those with uncompleted offset obligations).


Sec. 701.5  Confidentiality.

    (a) As provided by section 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 part 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.

    Dated: April 20, 1994.
Sue E. Eckert,
Assistant Secretary for Export Administration.
[FR Doc. 94-9994 Filed 4-21-94; 11:52 am]
BILLING CODE 351-DT-P