demands by other governments, disclose proprietary information, and possibly damage the competitive position of U.S. firms in international defense business.

Comment: U.S. industry has generally opposed massive data collections on offsets. It has done so because each offset is so unique—and the meaning of individual numbers (particularly percentages) so particular to a specific offset program—that aggregating the data may obfuscate the issue more than it clarifies. It should be noted that there is a clear incentive for the selling firm and even some agencies in the purchasing government to inflate the offset figures so as to put the best image possible on the purchase of a foreign product. However, this in turn tends to distort the importance of offsets in U.S. studies. It also may well escalate the demands of other countries that read the reports.

In general, if the concern is over the impact of offsets on the defense industrial base, the government would be better served by identifying which specific industries seem to be in trouble. Studies of those industries should then identify all the sources of their difficulty, including offsets. It is likely that if such studies are conducted, it will be found that offsets are not a very important aspect of problems relating to the industrial base. It may well be the case that even where offsets appear to affect a weak subsector of the economy, it will turn out that offsets are more a symptom than a cause of the problem. That is, subsectors that have not kept up technologically, or employ technologies that are widely available around the world, or that are employing high-paid labor in low-skilled jobs are precisely the types of sectors for which foreign alternatives prove attractive, with or without offset obligations. However, if government can find specific subsectors that are particularly impacted by offsets, it would then be possible to work with the limited number of companies that account for most offset performance to see if greater restraint could be used in meeting offset obligations in such subsectors.

In summary, the aerospace industry has concluded that, whereas the U.S. government might continue to make clear its dislike for offsets to U.S. trading partners, it should use extreme caution in taking any action that would simply shift purchasers away from U.S. producers. The government essentially agreed with those views, and in 1990 the White House issued a policy statement3 on offsets that tracked closely with the industry recommendations enumerated above. That statement remains the policy of the U.S. government, which industry supports. Although all policies must change with external circumstances, so far there do not appear to be any developments in the offset world that would justify a departure from current policy. The aerospace industry certainly is prepared to continue to work with the government to monitor the offset landscape to ensure that current policy continues to be appropriate.

3  

Statement by the White House Press Secretary, April 16, 1990.



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