What is offset?
Due to the great importance of defence policy, every country pays special attention to the development of its national defence sector, including research activity in this field. We have to point out that the national industry is not always able to meet all the requirements and needs concerning the nations defence and security. This situation forces the government to import armaments, apart from purchasing them domestically. In this case offset is a kind of obligatory cooperation between national contractors and foreign suppliers. Offset is a compensation instrument required when a contract for supplying armaments is awarded to foreign contractor.
Legal basis
The member states of the European Union regulate offset according to Article 296 of the Treaty Establishing the European Community. It states: „Any Member State may take such measures as it considers necessary for the protection of the essential interests of its security which are connected with the production of or trade in arms, munitions and war material; such measures shall not adversely affect the conditions of competition in the common market regarding the products which are not intended for specifically military purposes.”
In the world there are many different attitudes to offset regulations. In the Republic of Poland we have adopted the Offset Law. Article 22 of the Polish Constitution states: “Limiting economic freedom is acceptable only in accordance with an act of law and only because of an important public interest.”
Offset in Poland - the legal basis.
Offset Act Amendment came in to force on 13 Jan 2007.
Act with amendment is available on the main department site in English language version - for information purposes only. Note the interim regulations mentioned there.
Below we present regulations which are binding for all agreements concluded before 13 Jan 2007 or procurements started before 13 Jan 2007.
- The Act of September 10th, 1999 on certain compensation contracts concluded in connection with supply contracts for the needs of national defence and security (Dziennik Ustaw of 1999 No. 80, item 903 with further revisions).
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download a file .pdf)
- The Regulation of the Council of Ministers of July 2nd, 2002 concerning the detailed principles for verifying and approving offset commitments of a foreign supplier of armaments or military equipment towards the value of the offset agreement (Dziennik Ustaw of 2002 No. 100, item 907).
(download a file .pdf)
- The Regulation of the Council of Ministers of August 20th, 2004 concerning the list of companies of special significance for the economy and defence (Dziennik Ustaw of 2004 No. 192, item 1965).
- The Regulation of the Council of Ministers of August 1st, 2000 concerning the statute of the Offset Committee (Dziennik Ustaw of 2000 No. 66, item 793 with further revisions).
Basic concepts
Offset agreement – an agreement signed between by the Minister of Economic Affairs on behalf of the State Treasury and the foreign supplier.
Awarding entity – Ministry of Defence, Ministry of Internal Affairs or entities supervised by or other entity buying armaments, military equipment or services for the needs of defence or security of the state.
Foreign supplier – a foreign contractor delivering weapons or military equipment for the needs of defence or security of the state.
Offsetor – (other names are offset service provider, offset provider) a foreign supplier or an enterprise acting on behalf of this supplier in direct cooperation with an offsetee.
Offsetee – (other names are offset beneficiary, offset receiver) an offset receiver - a Polish entrepreneur, a university, a research and development centre (R&D) or a public sector entity but only connected with the delivery.
Offset commitment – the obligations of a foreign supplier (offsetor) towards an offsetee. A typical offset commitment can refer to e.g. :
- purchase of shares from the State Treasury;
- financial contribution to a limited liability company or joint stock company;
- conclusion and performance of sales contracts, delivery contracts, licence contracts, know-how contracts or other contracts for the transfer of rights or performance of services.
Direct offset – offset commitments performed by entrepreneur who has a right to produce or mantain armaments or military equipment in Poland. It means entrepreneur who has a concession granted by the Ministry of Internal Affairs according Act of 22 Jun 2001 (Official Journal of year 2001, No 67, item 679 with amendments).
Important change. In previous regulations binding for agreements concluded before 13 Jan 2007 - offset commitments performed by defence industry companies (listed in the relevant regulation), whose objective is production, repairs, servicing, research and development and trading in armaments.
Indirect offset – concerning any other companies registered in Poland.
Objectives of offset
According to the Offset Law offset agreements ensure the participation of foreign suppliers in the process of restructuring and developing the economy of the Republic of Poland, in particular:
- development of Polish industry, especially with regard to the Polish defence industry;
- gaining access to new export markets for Polish industry or increasing current export potential;
- transfer of new technologies and improvements in organization;
- development of research work, development of Polish universities and R&D centres;
- creation of new jobs in the Republic of Poland, in particular in regions affected by unemployment;
- knowledge based economy.
The main principles of the offset agreement
- it is obligatory when the value of a contract for the delivery of armaments or military equipment exceeds 5 million € for one foreign supplier over a period of three years;
- the total value shall not be lower than the equivalent of the supply contract;
- the total value of direct offset commitments shall not be lower than half of the value of the offset agreement;
- it is signed between the Minister of Economic Affairs on behalf of the State Treasury and the foreign supplier;
- it is concluded in accordance with Polish law;
- it is signed not later than the supply contract;
- it is concluded for a period not longer than ten years;
- it is approved by the Council of Ministers;
- it is supervised by the Minister of Economic Affairs;
- neither of the parties shall withdraw from the offset agreement.
The value and multipliers
In order to draw foreign contractors’ attention to Poland’s national preferences in the field of offset needs and to state which of them are of special significance for the economy, the offset law introduced the idea of offset multipliers.
Offset value = nominal value X multiplier
Multipliers range from:
- 0,5 – 2
- 2 – 5 - used in cases justified by the interests of the economy or national security and defence of state.
Relationship between foreign supplier, offsetee and offsetor
Offset agreements do not establish any rights and obligations on the part of the offsetee and the offsetor – there is no liability of the offset supplier towards the offsetee on the grounds of the offset agreement.
The foreign supplier bears the responsibility for the performance of an offset agreement and particular offset commitments.
The relationship between the offsetor and the offsetee should be defined in a business agreement between them.
Liability
The scope of liability is defined in offset agreements.
An option to exchange commitments
The offset law introduces a special supporting mechanism, article 17 of the offset law, which can be adopted in the case of a significant change of circumstances, such as a change in the business environment, a change in the law, bankruptcy or adverse financial conditions. When a significant change occurs, the object, the value or the schedule of performance of an offset commitment may be changed.
The list of offset agreements in Poland as of 21st February 2007 is available on the main department site in English language version.
Polish version of this site