[Federal Register Volume 59, Number 231 (Friday, December 2, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-29645]


[[Page Unknown]]

[Federal Register: December 2, 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: Final rule.

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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 N.W., 
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 N.W., Washington, DC 20230. Telephone 202-482-
2322 or Fax 202-482-5650.

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 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.

Rulemaking Requirements

    1. This rule has been determined to be ``significant'' for purposes 
of Executive Order 12866.
    2. This rule involves collections of information subject to the 
Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et seq.). These 
collections have been approved by the Office of Management and Budget 
under control number 940364-4212. 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.
    3. This 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 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.

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

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 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 countertrade, 
barter, counterpurchase, 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.


Sec. 701.3  Applicability and scope.

    (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.


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 Strategic Industries and 
Economic Security, Bureau of Export Administration, Room 3878, 14th 
Street and Pennsylvania Avenue, N.W., 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.
    (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 claimed by fulfilling 
entity 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.). Firms may request a list of the Standard Industry Classification 
(SIC) codes to assist in identifying an appropriate industry category. 
Forward such requests 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, N.W., Washington, D.C. 20230 or Fax 202-482-5650.
    (ix) Direct or Indirect Offset--Specify whether the offset 
transaction was direct or indirect offset.
    (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.
    (3) Any necessary comments or explanations relating to the above 
information should be footnoted and supplied on separate sheets 
attached to the report.
    (e) Reporting on Offset Agreements Entered Into. (1) In addition to 
the itemized list of offset transactions completed during the year as 
specified above, 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) [Reserved]


Sec. 701.5  Confidentiality.

    (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.

    Dated: November 28, 1994.
Sue E. Eckert,
Assistant Secretary for Export Administration.
[FR Doc. 94-29645 Filed 12-1-94; 8:45 am]
BILLING CODE 3510-DT-P