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P. L. 108-375

House Conference Report 108-767


(a) POLICY. — It is the policy of Congress that procurement regulations used in the conduct of trade in defense articles and defense services should be based on the principle of fair trade and reciprocity consistent with United States national security, including the need to ensure comprehensive manufacturing capability in the United States defense industrial base.

(b) REQUIREMENT.—The Secretary of Defense shall make every effort to ensure that the policies and practices of the Department of Defense reflect the goal of establishing an equitable trading relationship between the United States and its foreign defense trade partners, including ensuring that United States firms and United States employment in the defense sector are not disadvantaged by unilateral procurement practices by foreign governments, such as the imposition of offset agreements in a manner that undermines the United States defense industrial base. In pursuing this goal, the Secretary shall —

(1) develop a comprehensive defense acquisition trade policy that provides the necessary guidance and incentives for the elimination of any adverse effects of offset agreements in defense trade; and

(2) review and make necessary modifications to existing acquisition policies and strategies, and re- view and seek to make necessary modifications to existing memoranda of understanding, cooperative project agreements, or related agreements with foreign defense trade partners, to reflect this goal.

(c) REGULATIONS. — The Secretary shall prescribe regulations to implement this section in the Department of Defense supplement to the Federal Acquisition Regulation.

(d) DEFINITIONS.—In this section:

     (1) The term ‘‘foreign defense trade partner’’ means a foreign country with respect to which there is —

(A) a memorandum of understanding or related agreement described in section 2531(a) of title 10, United States Code; or

(B) a cooperative project agreement described in section 27 of the Arms Export Control Act (22 U.S.C. 2767).

(2) The term ‘‘offset agreement’’ has the meaning provided that term by section 36(e) of the Arms Export Control Act (22 U.S.C. 2776(e)).

(3) The terms ‘‘defense article’’ and ‘‘defense service’’ have the meanings provided those terms by section 47(7) of the Arms Export Control Act (22 U.S.C. 2794(7)).

The House bill contained a provision (sec. 811) that would limit the ability of the Secretary of Defense to purchase defense items from countries that impose offset regulations or policies on purchases of defense items from the United States. 

The Senate amendment contained no similar provision. 

The Senate recedes with an amendment that would require the Secretary of Defense to develop a defense acquisition trade policy designed to eliminate any adverse impact of offset agreements in defense trade.

House Report 108-491

This section would establish a defense trade policy based upon the principle of fair trade and reciprocity. Further, this section would require the Secretary of Defense to ensure that the offset regulations or policies of a foreign country are reduced to the same level as the domestic content requirements of the United States before the Secretary acquires defense products from a foreign firm operating in that country.

Offsets are defined as compensation required as a condition of purchase in government-to-government or commercial sales of defense products or services. Therefore, in order to sell defense products to many of our foreign security partners, the majority of the manufacturing jobs and technology must be transferred to the purchasing country. In many cases, the value of the offset compensation of U.S. manufacturing jobs or technology exceeds the value of the product sold. The U.S. has no offset requirements for its foreign trading partners.

The committee is concerned that the cost of offsets in foreign export defense sales is the loss of U.S. subcontractor jobs and the loss of U.S. technology paid for by the U.S. taxpayer.