CROSS ANALYSIS ON COMPENSATORY MEASURES IN ...

W O R L D B A N K C OMM I T T E E

Thisisthefirststepwhichisacrossanalysisbetween8levelsofcriteriaandthe

11selectedcountries.Theobjectivesweretomakeaninventoryofoffsetspracticesanddetermine

commonprinciplesofoffsets.

EDITEDBYTHEEUROPEANCLUBFORCOUNTERTRADEANDOFFSET

ManufacturinginMyamarPhotocredits:ChristianSYLVAIN

Cross analysis on Compensatory measures in international public

procurements contracts

Cross analysis on Compensatory Measures in International Public Procurements contracts

ReproductionanddistributionprohibitedwithoutpriorandwrittenauthorizationfromtheEuropeanClubforCountertradeandOffsetNovember2016

2

TABLE OF CONTENTS

INTRODUCTION.........................................................................................................................................................3CONCEPTNOTE.........................................................................................................................................................9

LEVEL0:ECONOMICDATA.........................................................................................................13

LEVEL1:Internationalinstitutions&publicprocurementmeasures........................15

LEVEL2:Regional/multi/bilateralagreementsongovernmentprocurementsignedwithothercountries......................................................................................................16

LEVEL3:Inventoryofnationallegislationandrulesapplicableatnationallevelsongovernmentprocurement....................................................................................................22

LEVEL4:Offsetsrulesatnationallevel.................................................................................30

LEVEL5:COMPARATIVEOFFSETSREQUIREMENTS..........................................................34

LEVEL7:Cultural,regionalandpoliticalorganization....................................................41

LEVEL8:ComparisonbetweenUncitralmodellawonpublicprocurement(2011)andnationalpublicprocurementlaws.................................................................................48

AUSTRALIA......................................................................................................................................57

BRASIL..............................................................................................................................................58

CANADA............................................................................................................................................60

KUWAiT............................................................................................................................................65

INDIA.................................................................................................................................................68

PERU..................................................................................................................................................71

RUSSIA..............................................................................................................................................73

SOUTHAFRICA...............................................................................................................................76

SOUTHKOREA................................................................................................................................79

TURKEY............................................................................................................................................82

UAE.....................................................................................................................................................84



3

INTRODUCTIONWhatAreOffsets?

Thereisnosingle,agreedupondefinitionofoffsets.However,theWorldTradeOrganization(WTO)Agreement on Government Procurement (GPA), which limits, and, outside of the defense sector,prohibits,theuseofoffsetsbyitsmembers,definesanoffsetas“anyconditionorundertakingthatencourageslocaldevelopmentorimprovesaParty’sbalance-of-paymentsaccounts,suchastheuseof domestic content, the licensing of technology, investment, countertrade and similar action orrequirement.”Relatedtermsincludecompensatorytradeagreements,coproduction,barter,andbuybacks.The term“offset” ismostoftenused in theaerospaceanddefense industry,whereasotherterms,suchascountertrade,maybeusedinothersectors.

More colloquially, offsets are commonly defined as nonstandard contracts that require, as acondition for thesaleofgoodsorservices, that thevendortransfera formofeconomicactivity tothebuyer’sgovernment.Inshorthand,thatmeansthatoffsetsaresideagreements,orsweeteners,ancillarytoagovernmentcontractthatprovideadditionalbenefitstothebuyer.

Offsetsaregenerallyusedbypurchasinggovernments to reduce thecost (at leastasperceivedbytheirconstituents)ofprocurementfromabroadand/ortoachieverelatedorunrelatedpolicygoals,such as advancing the state of domestic industry or broader domestic development goals.Momentum in countering the growthof offsets has stalled since theperiodof trade liberalizationthatresultedintheWTO-GPAciviloffsetbanin1994.The2012revisiontotheGPAdidnotclosetheloopholes that allowed offsets to continue in the interim. More recently, in the global defensemarketplace, offsets have played a particularly significant role in the competitive landscape asdefense budgets in the United States and Europe have been slashed and producers seek newmarketsabroad.Asa result,at least for the foreseeable future, itappears thatoffsetsarehere tostay, and that parties engaged in the international defense trade should understand the basics ofoffsets,aswellasthelegalandcompliancepitfallsthatcanbeassociatedwiththem.

Legalfieldofoffsets:theWorldcanbedividedinto3parts:USA (BuyAmericanAct),developing&emerging countries (GPA 1994, revised 2014), Europe (GPA 1994, art. 18; TFEU, for civil contract2004/17/EC/directive,2009/81/EC/directive–fordefense2009/81/EC).



4

THE GLOBAL FORUM COMMUNITY OF PRACTICE ON “COMPENSATORYMEASURES ININTERNATIONALGOVERNMENTPROCUREMENTCONTRACTS”

ObjectivesAstandaloneCommunityofPractice(CoP)dedicatedtothecompensatorymeasuresininternationalgovernmentprocurementcontractswascreatedonthe29thOctober2013intheframeworkoftheGFLJD (Global ForumonLaw, JusticeandDevelopment).TheGFLJD1is apermanent, global forum,withitsSecretariathousedattheWorldBank,whichseekstoconnectexpertsandstakeholdersfromaroundtheworld,andwhichprovidesamechanismforcontinualandefficientknowledgeexchangeas well as for the cogeneration of innovative solutions to development challenges based onefficiency,equityandjustice.

TheGFLJD aims to facilitate the identification, discussion, production and/or sharing of innovativeand customized legal and institutional tools to address global, regional or national developmentchallenges.Based on the areas of interest expressed by the GFLJD Partners, five Thematic Working Groups(TWGs)andrelativeThematicWorkingSub-groups (TWSs)were launched inApril20122.Alongtheway,newTWSsandCoPswereestablished.Each TWG is to identify key challenges in its area and to generate outputs that address thesechallenges.AlloftheTWGshavemadesubstantialprogress inthe identificationprocess,aspartoftheirwork planning. Although there have been colloquia,meetings and presentations, only a fewpublishableoutputshavebeenproduced. Inaddition tostandaloneCoPs, theworkof theTWGs isgenerallyledbyCOPs.

After submitted a concept note on offsets practices as a major development challenge, thestandaloneCOPoncompensatorymeasuresininternationalgovernmentprocurementcontractswascreatedwiththecommitmenttoproducetargetedknowledgeproductsrepresentinginnovativelegalsolutionstothechallengesidentified.

Thepurposeof theCoPsonoffsets issues is todevelop fruitfulandconstructivedialoguebetweenthe differentmethodological trends and to propose a comprehensive draft to create amodel law(UNCITRAL).

TheCoPhas3areasofexploration:• 1.Firstly,definingtherelevantfield:-

o Inventoryingworkcarriedout,andattemptingtodefineoffsetanditscommonprinciplesandtechnicalcomplexity;

1Itseeksto:(1)promoteabetterunderstandingoftheroleoflawandjusticeinthedevelopmentprocess,throughstructuredSouth-Southand North-South dialogues amongst relevant stakeholders and a research agenda thatwill facilitate and support the co-generation ofknowledge;(2)strengthenandbetterintegratelegalandjudicialinstitutionsinthedevelopmentprocess,bycarryingoutrelevantcapacitybuildinginitiatives;and(3)provideaccesstoanopenrepositoryofknowledge.TheGFLJDwillsetmeasurable,sustainablegoalsforitselfinthese areas, and evaluate its progress. The forum is organized thematically. Partners form and lead ThematicWorkingGroups (TWGs)basedontheirexpertise,comparativestrengthsandareasoffocus.EachTWGproposesitsownagenda,groupcompositionandoperatingguidelines.2TherearefiveThematicWorkingGroups(TWGS),whichareclustersofpartnersorganizedaroundtopicsofinterest:. (1)JusticeReform/RuleofLawReform . (2)LawandtheEconomy . (3)EnvironmentalandNaturalResourcesLaw . (4)GovernanceandAnti-corruption . (5)EmpowermentandEquityforDiverseCommunities



5

o Identifyingadvantagesandinconveniencesofoffsetsininternationaltrade;

o Exploringtheoptimumscaleonwhichtoact:global,multilateral,bilateralregionalornational.

• 2.Secondly,preparingresearchtopics:o Exploringlawandconflictinglegalprovisionsininternationalgovernment

procurementtendering;

o Systematizingthemarketonthebasisofvalueaddedinordertosetanewdefinitionoftheworldmarket;

o Analyzingtheimpactofdirectoffsets(delocalization)on“madein”;

o Drawingupkeyoffsetconcepts(seeECCOglossary,etc.)

• 3.Thirdly,analyzingstandards,differentiatingbetweenstandardtypesandsources,includingthefollowing:

o Considermultilateralagreementswithaneyetohow,fromaUNvantagepoint,theGPAmightbeimproveduponthroughthecreationofstandardUNlawonoffsets;

o Developideasonhowtomonetizenon-monetarycriteria(Article11-4ofUNCITRALconcerningGovernmentProcurement);

o Exploreideasonhowtodrawupgeneraloffsetmanagementconditionstolimitdistortions.

ThisCoPisundertheleadershipoftheEuropeanClubforCountertradeandOffset(ECCO).Themainroleoftheleaderistoensurethattheprojectprogressesadequately,facilitatingtheparticipationofthemembersoftheCoP.

The leader arranges and distributes tasks among the members of the CoP, ensuring efficientfunctioning of the CoP. Meetings of the CoP take place on a regular basis, with a pre-arrangedschedule,tomonitorprogressandexchangeinformationontheproject.

Methodology

Work began by asking group members to lay out their nation’s practices. Specifically, such anapproachwasmeant to (1) identify thedifferentmajor partnership contracts, (2) determine thedifferentlegalframeworks(BOT,FBO,offsets,etc.)andsectors(mining,water,infrastructures,etc.)involved, (3) determining which national regulations apply to these international contracts (e.g.,offsetcontractlegislation)and(4)pinpointtechniquesusedtocreatemajorcontracts,aswellastheinter-normativityphenomenaatwork,notablyininternationalcallsfortender.



6

The analysis was based on a pluralistic methodology, allowing for several different researchapproachesinthefollowingcountries,whichhaveanoffsetprogram:

• Australia• Brazil• Canada• India• Kuwait• Peru• Russia• SouthAfrica• SouthKorea• Turkey• UnitedArabEmirates

Workwasconductedonthefollowingdifferentlevelsofinformation:

• Level0:EconomicData• Level1:InternationalInstitutions&PublicProcurementMeasures• Level2:Regional/Multi-/BilateralAgreementsonGovernmentProcurementsignedwith

OtherCountries• Level3:NationalLegislationonGovernmentProcurement.• Level4:OffsetsRulesatNationalLevel• Level5:ComparativeOffsetsRequirements• Level6:OffsetsandCorruption• Level7:Cultural,RegionalandPoliticalOrganization• Level8:UNCITRALModelLawonPublicProcurementComparison

Sinceitscreation,theCoPhasheld17workingsessions:

• Meeting#1(October29,2013):Official launchoftheCoP,whenthepartnersestablishedaframeworkfortheworktobecarriedoutinthenextthreeyears.

• Meeting#2 (January29, 2014):Agreementofhow research into international governmentprocurement and offset practices (legal typology, national regulations, multilateral andbilateralagreements)wastobesplitupbetweengroupmembers.

• Meeting #3 (April 01, 2014): Agreement on how to explore research into international

governmentprocurementandoffsetpractices(economicaldata,offsetsrequirementdetails,offsets and corruption, cultural, regional and political organization for each country,comparisonwithUNCITRALModelLawonpublicprocurement).

• Meeting #4 (July 22, 2014): Agreement on how to consider international government

procurementandoffsetpractices(economicaldata,offsetsrequirementdetails,offsetsandcorruption, cultural, regional and political organization for each country, comparison withUNCITRALModelLaw).

• Meeting#5(October14,2014):Creatingacross-analysisper levelsandaccordingtothe10

countries



7

• Meeting #6 (January 29, 2015): Following up on added research into internationalgovernmentprocurementandoffsetpractices(economicaldata,offsetsrequirementdetails,offsetsandcorruption,cultural,regionalandpoliticalorganization,UNICTRALcomparisonforeachcountry).

• Meeting #7 (May 19, 2015): Finalizing cross analysis on research into international

governmentprocurementandoffsetpractices(economicaldata,offsetsrequirementdetails,offsetsandcorruption,cultural,regionalandpoliticalorganizationUNICTRALcomparisonforeachcountry).

• Meeting#8(September23,2015):PresentingoftheBookonthecrossanalysisresearch,and

discussionontheelaborationofanUNICTRALModelLawtableofcontents.

• Meeting#9(December10,2015): startofphase2-draftof thetableofcontentofOffsetsmodellaw,basedonUNCITRALmodellaw(article1to15)

• Meeting #10 (March 08, 2016): start of phase 2- draft of the table of content of Offsetsmodellaw,basedonUNCITRALmodellaw(article15to22)

• Meeting#11(April12,2016):follow-up-draftofthetableofcontentofOffsetsmodellaw,basedonUNCITRALmodellaw(article22to25)

• Meeting#12(May31,2016):startofphase2-draftofthetableofcontentofOffsetsmodellaw,basedonUNCITRALmodellaw(article25to29)

• Meeting#13(July12,2016):phase2-draftofthetableofcontentofOffsetsmodellaw,basedonUNCITRALmodellaw(article22totheend)

• Meeting#14(September27,2016):phase2-redactionofthearticlesoftheOffsetsmodellaw,basedonUNCITRALmodellaw(article1to3)

• Meeting#15(October11,2016):phase2-redactionofthearticlesoftheOffsetsmodellaw,basedonUNCITRALmodellaw(article3to7)

• Meeting#16(November03,2016):phase2-redactionofthearticlesoftheOffsetsmodellaw,basedonUNCITRALmodellaw(article8to9.6)

• Meeting#17(November10,2016):phase2-redactionofthearticlesoftheOffsetsmodel

law,basedonUNCITRALmodellaw(article9to12)

PARTICIPANTS

• BOHLILotfi–ECCO,Paris1,PanthéonSorbonneUniversity(FRANCE)

• CHARVERIATGilles–ECCO,Paris1,PantheonSorbonneUniversity(FRANCE)

• DAGNAUDChantal–ECCO,INSTITUTIONS&STRATEGIESFIRM(FRANCE)

• ELHARRAKMehdi–ECCO,Paris1,PanthéonSorbonneUniversity(FRANCE)



8

• FRANKMelanie–TheGlobalTradeGroup(USA)

• GARCZYNSKIJohn–ECCO,AREVA(FRANCE)

• METZGERRobertS–RogersJosephO’Donnell(USA)

• PAIVADomingos,Ph.D.-ECCO,PAIVALAWFIRM(FRANCE&BRAZIL)

• PLATZGUMMERPeter–IPW-HSG/CentreforSecurityEconomicsandTechnology(SWITZERLAND)

• SIGALPhilippe–OECD(FRANCE)

• SYLVAINChristian–ECCO,AREVA(FRANCE)

• TAGUCHIJeanIsamu–NagoyaUniversity(JAPAN)

• SEUNGHWANPark-SeniorCounsel-LegalVicePresidency-WorldBank(forSouthKorea)



9

CONCEPTNOTEObjective

TherolesofthePartners,aswellasanyprocedurestobeused,aredefinedherein.

The identification and prioritization of all themes and issues is ensured through a participatoryprocessinvolvingbroadandregularconsultationwithpartners.

Think-tanks, regional and international organizations, international financial institutions,governments,judiciaries,theprivatesector,andcivilsocietyorganizationsinterestedintheGFLJD’smissionareinvitedtojoinbysendingaconceptnoteandsigningaletterofendorsement,expressingtheircommitmenttocontributeintellectuallyand/orfinanciallytotheGFLJDtherein.AconceptnoteonoffsetshasbeensubmittedtotheGFLJDSteeringCommitteeanddulyaccepted.

ConceptNote

Globalizationistransformativeineconomic,politicalandsocialterms.Itbroadensexistingeconomicprospects and opens up countries to the growing world market, often revolutionizing theireconomies.Theopeningupofmarketsprovidesanopportunitytorethinkeconomicgrowthmodesand to identify new forms of solidarity that respond to both growing interdependence and todevelopingsharedactionswithregardtocommongoods.

Intheabsenceofinternationalanddomesticregulations,majorcompensatoryOffsetPublic/PrivatePartnershipcontractscouldbeusedtostrikeabalance.MostmajorsuchcontractsaregovernmentprocurementcontractssignedbyaState,oraninstitutionactingasproxy,followinganinternationalcallfortenders.Thesecontractsareworthmillionsorevenbillionsofeurosandareconcentratedonactivities of great value: oil, rare earths, nuclear, aeronautics, arms, transport, telecoms, water,energy,etc.Thesecontractsareincreasinglylocalizedinemergingcountries.

Given both the sums involved, as well as the economic and political importance of these majorcontracts, some formofeconomic compensation is often required. The resulting contracts,whichrepresent between 10 and 25 percent ofworld trade, can take a variety of forms, themostwell-known being the offset contract under which the transfer or creation of economic value-addedbecomes thecondition for signing themaincontract.Other forms includeBuild,Operate,Transfer(BOT),whereinaprivateinvestorreceivesaconcessiontofinance,buildandmanageaserviceforagiven period and to transfer it to a government authority at the end of that period, and Finance,Build,Operate(FBO),whereinaninvestorreceivesaconcessiontofinanceandmanageaserviceandagreestosharetheprofitswiththeStatewithwhichitformedajointventure.

These contracts are a cluster of smaller contracts. Typically, the cluster includes a governmentcontract(betweenagovernmentormandatedinstitutionandagroupofprivateforeigncompanies),an offset contract (which structures the investment needed), framework agreements (betweenprivate partners who perform the government contract and anticipate future agreements), jointventureagreements(betweentheprivatecompaniesperformingthecontractinthetwocountries),jointventurecompanies(whichcreategroupsofcompanies)andnumerousprivatelawapplicationagreements(corporateandsalesagreements,etc.).Thegoverningof lawisselectedbytheparties(includingdispute resolution), leaving ample scope for normativity – the contracts can bemixed,plurinational,privateorpublic.



10

Theadvantageofthesemultilateraloffsetoperationsisthattheyfosterlocaldevelopment,improvethebalanceofpaymentsofthebuyingcountryandultimatelyreducethatcountry’sdependencyonforeigncountriesworkinginareaswhicharetypicalStateprerogatives(defense,energy,etc.).Giventhat these contracts promote technology transfer and ensure financial independence frominternationalbackers,theseoffsetshavebecome,withoutdoubt,oneofthemost importantformsof international cooperation anddevelopment andoneof themost significantwaysof controllingglobalization.Thesemajorpublic-privatepartnershipcontractswhereintheamountscompaniesareobliged to invest in development are on a par with government development aid. They areauthorizedbytheWTO(Annex4oftheMarrakeshagreement)fordevelopingcountries.

The purpose of this topic on “International offset contracts” is to understand how globalizationcreatesanew formof legalnormativity,and in fine to searchhow“internationaloffset contracts”mightpromotedevelopmentandjusticeinourincreasinglyglobalizedworld.



11

CHAPTER 1 : ANALYS IS BY LEVELS

LEVELO:ECONOMICALDATAThislevelgivesforthelastyears:

- GDP;

- Amountspentonthegovernmentprocurement;

- Sectoralbreakdownofthisamount:defense,energy,transport,telecommunication.

-

LEVEL1:INTERNATIONALINSTITUTIONS&PUBLICPROCUREMENTMEASURESThislevelidentifieswhichcountriesaremembersofwhichinternationalInstitutions(UNO,WB,IMF,WTO,GPA,OECD,WCO,etc.).

LEVEL 2: REGIONAL/MULTI/BILATERAL AGREEMENTS ON GOVERNMENT PROCUREMENTSIGNEDWITHOTHERCOUNTRIESThislevelincludesthefollowinginformationpercountry:

- Regulation(s)onpublicprocurementand/oroffsetsinFreeTradeAgreements;

- Regionalagreement(s)andarticle(s)onpublicprocurement;

- Multilateralagreement(s)andarticle(s)onpublicprocurement;

- Bilateralagreement(s)andarticle(s)onpublicprocurement.

LEVEL3:NATIONALLEGISLATIONONGOVERNMENTPROCUREMENT:NOLEADER.Thislevelincludesthefollowinginformationpercountry:

- Nationallawsonpublicprocurement;

- Rulesapplicabletopublicprocurement;

- Nationalprocurementguidelines.

LEVEL4:OFFSETSRULESATNATIONALLEVELThislevelincludesthefollowinginformationpercountryonoffsetsrulesatnationallevel.

LEVEL5:COMPARATIVEOFFSETSREQUIREMENTSThislevelincludesthefollowinginformationpercountry:

- Percentageofdirectoffsetrequired- Percentageofindirectoffsetrequired- Threshold- Multiplayers- Bankguarantees- Penalties

LEVEL6:OFFSETSANDCORRUPTION



12

This level, based on the analysis of Transparency International, identifies and examines officiallydeclared cases of corruption for which countries have been indicted, and includes the followinginformationpercountry:

- Classificationunderexistingreadings;- Listofcasesofcorruptionlinkedtooffsetunderactiveinvestigation.

LEVEL7:CULTURAL,REGIONALANDPOLITICALORGANISATIONThislevelgivesthecountry’sgovernanceintermsofthefollowing:

- Languages(s);

- Cultureandrace;

- Governancestructure(centralgovernment,regional/stategovernment);

- Applicationoflaws(importanceofnationalv.regional,etc.).

LEVEL8:UNICTRALCOMPARAISONAcomparisonwillbemadebetweenLevel2ofeachcountryandtheUNCITRALModelLawonpublicprocurement.3

3OfficialrecordsoftheGeneralAssembly,Sixty-SixthSession,SupplementNo.17(A/66/17),AnnexIfromtheUnitedNationsOrganization(UNO).



13

LEVEL0:ECONOMICDATA

Level0–Summary:

Thislevelgivesforthelastyears:

- GDP;

- Amountspentonthegovernmentprocurement;

- Sectoralbreakdownofthisamount:defense,energy,transport,telecommunication

AustraliaBrazil Canada India Kuwait Peru RussiaSouthAfrica

SouthKoreaTurkey UAE

GDP(US$b)(2013)

1560.6 2246 1825.10 1,877 183.22(2012)

202.30 2096.78 350.631,305.6(2013)

1,377.9(2015)820.21 383.8

Population(million)(2013)

23.13 200.4 35.35 1252 3.82(2012)

30 143.7 52.98

50.22(2013)

50.29(201)

50.50(2016)

80.6 9.35

AmountsSpentonGovernmentProcurement

$2736.88million(AUD)

970.71million(BRL)

$1392.72(CAD)

7097.28billion(INR)

7775.4million(KWD)

11109.28million(PEN)

7674billion(RUB)

1714million(ZAR)

11,300million(KRW)

(2013)

11,428million(KRW)

(2015)

124.231.52thousands

(TRY)

84739.04million(AED)

DefenseBreakdown(%GDP–2013)

1,60% 1,40% 1,00% 2,40% 3.2%(2012)

1,40% 4,20% 1,20%2.42%(2013)

2.35%(2015)2% 5%(2012)

EnergyBreakdown(US$)2012

N/A 30767 N/A 8461 N/A 2019

13(Significantdropfromprioryears.2011:5256

4084(2011)

N/A

5771 N/A

TransportBreakdown(US$m)-2012

26,073 21,980 20,366 18,912 N/A 983

79(Significantdropfromprioryears.2011:4285

97(2011)

N/A

1562 N/A

Level0–Conclusion:

• CountrieswithLargestGDP:Brazil,Russia,India,Canada,Australia

• CountrieswithHighestDefenseExpenditures:Russia,India,Brazil,Australia



14

• Countries with Larger (Disproportionate) Focus on Defense Spending (% of GDP): UAE (5%),Russia (4.2%), Kuwait (3.2%), India (2.4%), Turkey (2%). These countries have high defenseexpendituresdespitesmallerGDP.

As indicated in this table, there is no relationship between the economic data of the differentcountriesstudied;however,theyallhaveapplicableoffsetprograms.Onoffsets issues,wecannoticethat InternationalExchangebalance,or thebalancingtrade,hasadirectimpactonthewealthofacountryandisafactorofgrowth.



15

LEVEL1:INTERNATIONALINSTITUTIONS&PUBLICPROCUREMENTMEASURES

Level1–Summary:

ThislevelidentifieswhichcountriesaremembersofwhichinternationalInstitutions(UNO,WB,IMF,WTO,GPA,OECD,WCO,etc.).Australia UNCITRALModelLawonpublicprocurement(2011);UNCITRALModelLegislativeProvisionsonPrivatelyFinanced

InfrastructureProjects(2003);UNCITRALModelLawonProcurementofGoods,ConstructionandServices(1994).]GeneralAgreementonTradeinServices(GATS),ArticleXIII.TheAgreementonGovernmentProcurement(GPA)(Observer).OECDPrinciplesforEnhancingIntegrityinPublicProcurement(“OECDPrinciples”).GuidelinesonProcurementofGoods,Works,andNon-ConsultingServicesunderIBRDLoansandIDACredits&Grants(2011).WCOmembersince1961.

Brazil UNCITRALModelLaws;GATSArticleXIII;IBRDGuidelines.WCOmembersince1981.WTOmember,butnotasignatorytoGPAorOECD.

Canada UNCITRALModelLaws;GATSArticleXIII;GPA;OECDPrinciples;IBRDGuidelines.WCOMembersince1971.

Kuwait UNCITRALModelLaws;GATSArticleXIII;OECDPrinciples;IBRDGuidelines.WCOMembersince1993.WTOmember,butnotasignatorytoGPAorOECD.

India UNCITRALModelLaws;GATSArticleXIII;GPA(Observer);IBRDGuidelines;InternationalMonetaryFundmembersince1945;WorldCustomsOrganizationmembersince1971.NotasignatorytoOECD.

Peru UNCITRALModelLaws;GATSArticleXIII;GPA(Observer);IBRDGuidelines;InternationalMonetaryFundmembersince1945;WorldCustomsOrganizationmembersince1971.NotamemberoftheOECD.

Russia UNCITRALModelLaws;GATSArticleXIII;GPA(Observer);IBRDGuidelines;InternationalMonetaryFundmembersince1945;WorldCustomsOrganizationmembersince1971.NotamemberoftheOECD.

SouthAfrica UNCITRALModelLaws;GATSArticleXIII;IBRDGuidelines.WTOMemberbutnotasignatorytoGPAorOECD.

SouthKorea UNICTRALModelLaws,GATS,IBRD(WB),IMF,WTO,GPA,OECD,WCO

Turkey UNCITRALModelLaws;GATSArticleXIII;GPA(Observer);OECDPrinciples;IBRDGuidelines.

UAE UNCITRALModelLaws;GATSArticleXIII;IBRDGuidelines.WTOMemberbutnotasignatoryofGPAorOECD.


AllofthecountriesreviewedareUNmembersandthereforerecognizetheUNCITRALModelLaws.Inaddition,allcountriesaremembersoftheWTO;however,onlyoneofthetencountriesisapartytoits Agreement on Government Procurement (GPA). Five of the ten countries (Brazil, Kuwait, PeruSouthAfrica,andUAE)havenotsignedtheGPAandfourofthecountries(Australia,India,RussiaandTurkey)areparticipantstotheGPAwithonly"Observer"status.AsnotedintheresearchoftheLevel1 Working Group, the GPA is the only legally binding agreement that focuses on governmentprocurement.NotethattheGPAexpresslyprohibitsuseofoffsets,however,theAgreementexempts"nationalsecurityanddefense"fromtherequirements.



16

LEVEL2:REGIONAL/MULTI/BILATERALAGREEMENTSONGOVERNMENTPROCUREMENTSIGNEDWITHOTHERCOUNTRIES

Level2–Summary:

Thislevelincludesthefollowinginformationpercountry:- Regulation(s)onpublicprocurementand/oroffsetsinFreeTradeAgreements;

- Regionalagreement(s)andarticle(s)onpublicprocurement;

- Multilateralagreement(s)andarticle(s)onpublicprocurement;

- Bilateralagreement(s)andarticle(s)onpublicprocurement.

AUSTRALIA

RegionalAgreements&Article

ASEAN–Australia–NewZealandFreeTradeAgreement:Governmentprocurementisexcluded.

MultilateralAgreement

ObserverofWTOGPA.

BilateralAgreement

Australia–ChileFTA,2009,Chapter15;offsetareprohibited(article15.6).Australia–UnitedStatesFTA,2004,Chapter15;offsetsarenotallowed(article15.2.5);Australiashouldphaseoutitslegislationrelatedtooffsets.Singapore–AustraliaFTA,2003,Chapter6;offsetsnotmentionedassuch,butarticle16thofthechapterrelatedtoindustrydevelopmentinpublicprocurement.Thailand–AustraliaFTA,200,Chapter15;Korea–AustraliaFTA,2014(NOTINTOFORCEYET),Chapter12;offsetsprohibited(Chapter12§4).

BRAZIL


BrazilismemberofMercosur,atraderegionalbloccreatedbytheTreatyofAsunción,signedonMarch26,1991.Itscurrentlymembersare:Argentina,Brazil,Paraguay,UruguayandVenezuela.TheTreatyofAsuncióndoesnotexplicitlyprovideongovernmentprocurements.

MultilateralAgreements

BilateralAgreements

Actingonbehalfofitsmembers,Mercosursignedbilateral(orbioregional)tradeagreementswiththeotherscountriesofSouthAmerica,andalsowithMexico,Israel,India,Egypt(notinforce),Palestine(notinforce),andtheSouthernAfricanCustomsUnion/SACU(notinforce).ButsuchagreementsdonotincludespecificprovisionsonGovernmentProcurement.However,MercosurMemberStatesagreedonaProtocolonGovernmentProcurement(DecisionCMC40/03,ofDecember15and16,2003).

CANADA


•Canadahassigned4121treaties:2819bilateraland1302multilateral.

•Fulltreatylistavailableathttp://www.treaty-accord.gc.ca/.



17


•ObserverofWTOGPA.•NorthAmericanFreeTradeAgreement(NAFTA)Chapter10-GovernmentProcurement.

BilateralAgreements

•Canada–ChileFreeTradeAgreement(CCFTA)ChapterKbis-GovernmentProcurement.•Canada–PeruFreeTradeAgreement,Chapter14-GovernmentProcurement.•Canada–ColombiaFreeTradeAgreement,Chapter14-GovernmentProcurement.•Canada–U.S.AgreementonGovernmentProcurement.

KUWAIT


CooperationcounciloftheArabStatesoftheGulf,GreaterArabFreeTradeArea


EFTA–GCCFreetradeagreement.Chapter6ongovernmentprocurement

Singapore–GCCFreetradeagreement.Chapter6ongovernmentprocurement

BilateralAgreements

Noneidentified.

INDIA


Tradeandinvestmenttreatiesexistbutnoneidentifiedongovernmentprocurement.


ObserverofWTOGPAsince10February2010.

BilateralAgreements

Noneidentified.AFTAbetweenTurkeyandSyriawassignedin2007includingregulationsregardingpublicprocurementbutthisFTAhasbeensuspended.

PERU


AndeanCommunityDecision439ofJune11,1998-PrinciplesandRulesforServicesLiberalization(articles3and10).


TradeAgreementbetweentheEuropeanUnionandColombiaandPeru,signedonJune26,2012:TITLEVI(articles172-194).

Peru-SingaporeandPeru–ThailandFreeTradeAgreements

BilateralAgreements

Peru–UnitedStatesFreeTradeAgreement.Chapter9ongovernmentprocurement

Canada–PeruFreeTradeAgreement.Chapter40ongovernmentprocurement

EFTA–PeruFreeTradeAgreement.Articles7ongovernmentprocurement

Peru–ChileFreeTradeAgreement

Peru–ChinaFreeTradeAgreement

Peru-EuropeanUnionFreeTradeAgreement

Peru–JapanFreeTradeAgreement

Peru–MERCOSUREconomicComplementationAgreement



18

Peru-MexicoTradeIntegrationAgreement

Peru-SouthKoreaFreeTradeAgreement

RUSSIA


RegionalTreaty-EurasianEconomicUnion(RegulatesPublicProcurementinSectionXXIIoftheTreatyontheEurasianEconomicUnion)


WTO-GPA,observersince29May2013,memberofBRICKS(nowrittenagreementsofar)

BilateralAgreements

Fewagreements(GeorgiaandKyrgyzstan),nothingaboutprocurement.

Azerbaijan-RussiaFreeTradeAgreement

SOUTHAFRICA


Signatory,noratificationofGPA;FreeTradeagreementbetweenEFTAandSACU,article29;Complexrulesatnationallevel,protectiveregime,nointernationaltreatiesrelatedtopublicprocurement.


TheSouthernAfricanDevelopmentCommunity(SADC)TradeAgreement

FreeTradeAgreementbetweenEFTAandSACU.Article29ongovernmentprocurement

BilateralAgreements

Trade,DevelopmentandCooperationAgreement(TDCA)withtheEU.Article45and75ongovernmentprocurement.

TradeAgreementbetweenZimbabweandSouthAfrica

SOUTHKOREARegionalAgreements&Article

BangkokAgreement(BANGKOK),GeneralSystemofTradePreferencesamongDevelopingCountries(GSTP),ProtocolrelatingtoTradeNegotiationsamongDevelopingCountries(PTN)https://www.wto.org/english/tratop_e/region_e/region_areagroup_e.htm


TheAgreementonGovernmentProcurement(GPA)Asia-PacificTradeAgreementPacificAlliance(observer)ASEANFreeTradeArea(observer)



19

BilateralAgreements

• Korea-ChileFTA(OffsetsprohibitedArticle15.4:ProhibitionofOffsets)• Korea-SingaporeFTA(OffsetsprohibitedArticle16.6Offsets)• Korea-EFTAFTA(Offsetsnotspecificallyaddressed,butincorporationofGPA,ARTICLE

6.1)• Korea-ASEANFTA(governmentprocurementandoffsetsnotaddressed)• Korea-IndiaCEPA(governmentprocurementandoffsetsnotaddressed)• Korea-EUFTA(Offsetsnotspecificallyaddressed,butincorporationofGPA,Article9.1)• Korea-PeruFTA(offsetsprohibitedArticle16.3.6)• Korea-U.S.(Offsetsnotspecificallyaddressed,butincorporationofRevisedGPA,ARTICLE

17.3)• Korea-Canada(OffsetsprohibitedaspartiestoRevisedGPA,Article14.4)• Korea-Colombia(OffsetsprohibitedArticle14.3.5)• Korea-NewZealand(Offsetprohibited;Article13.4.6.)• Korea-China(Offsetnotaddressed)• Korea-Vietnam(governmentprocurementnotaddressed)• Korea-Turkey(governmentprocurementnotaddressed)

SummaryTheWTOGPAexemptsprocurementofindispensablematerialsfornationaldefensepurposes.Korea’sdefenseprocurementisnotfullycoveredundertheGPAasthenotestoAnnex1ofKorea’sGPAprovides:“...SubjecttothedecisionoftheKoreanGovernmentundertheprovisionsofparagraph1,ArticleXXIII,forMND(MinistryofNationalDefense)purchases,thisAgreementwillgenerallyapplytothefollowingFSCcategoriesonly,andforservicesandconstructionservices,itwillapplyonlytothoseareaswhicharenotrelatedtonationalsecurityanddefense.”4

TURKEY


Tradeandinvestmenttreatiesexistbutnoneidentifiedongovernmentprocurement.


WTO-GPA,observersince4June1996.

BilateralAgreements

PowerPointfrom2005TurkeyEUmeetingshowsbilateralTradeTurkeyfreetradeagreementsthatincludegovernmentprocurementsubjects:"Manyofthefreetradeagreementslistedincludeprovisionsaboutpublicprocurement.Butthoseprovisionsintheconcludedagreementsaimingcooperationandliberalizationonpublicprocurement.TheydonotincludestrictlyanyconcretecommitmentforTurkeytorealize."Agreement:Turkey–EFTAFreeTradeDecember10,1991April1,1992Agreement:Turkey–IsraelFreeTradeMarch14,1996May1,1997Agreement:Turkey–RomaniaFreeTradeApril29,1997February1,1998Agreement:Turkey–BulgariaFreeTradeJuly11,1998January1,1999Agreement:Turkey–MacedoniaFreeTradeSeptember7,1999March7,2000Agreement:Turkey–GRECOSeptember27,2001-January1,2004againstCorruptionAgreement:Turkey–CroatiaFreeTradeMarch13,2002July1,2003Agreement:Turkey–TunisiaFreeTradeMay25,2004July1,2005Agreement:Turkey–PalestinianJuly20,2004June1,2005;AuthorityFreeTradePurposeofGRECO,whichTurkeybecameamemberofiton1January2004,istoincreasethecapacityofitsmembersinfightingagainstcorruption.ref:SC05DET_11_International_AgreementsPublic

4https://www.pps.go.kr/simpledownload.dom?fid=P_03_02_01_04



20

procurement.pdfUNITEDARABEMIRATES


CooperationcounciloftheArabStatesoftheGulf,GreaterArabFreeTradeArea


CooperationcounciloftheArabStatesoftheGulf,GreaterArabFreeTradeArea.EFTA–GCCFreetradeagreement.Chapter6ongovernmentprocurementSingapore–GCCFreetradeagreement.Chapter6ongovernmentprocurement

BilateralAgreements

Morocco–UAEFeetradeagreement.Articlenotidentified


AlltenofthereviewedcountriesaresignatorytovariousFreeTradeAgreements(FTAs).Someofthesecountriesbelongtoregionalorganizationswhichareentitledtosigntradeagreementsontheirbehalf(MercosurforBrazil;SACUforSouthAfrica;GCCforKuwaitandUAE).

Onlytwoofthetencountries(AustraliaandCanada)systematicallyincludespecificprovisionsorseparateagreementsonpublicprocurementintheirFTAs.Suchprovisionsoragreementsgenerallyprohibitoffsets.However,theagreementsincludeexceptionsrelatedtonationalsecurityornationaldefensepurposes,and,therefore,governmentshaveinterpretedtheprohibitionagainstoffsetstobeinapplicabletodefenseprocurementcontracts.

Threeofthetencountries(Peru,KuwaitandUAE)includesimilarprovisionsinsomeoftheirFTAs.Peru’sFTAswithCanadaandEUprohibitoffsets.GCC’sFTAwiththeEuropeanFreeTradeAssociation–EFTA(Iceland,Liechtenstein,Norway,Switzerland),whichenteredintoforceon1July2014,allowsoffsetsonarestrictedbasis(i.e.,basedon“developmentneeds”,transparencyandthe“mostfavorablenationclause”).

SouthAfrica(SACU)andTurkeyincludeprovisionsaimingatcooperationandliberalizationonpublicprocurementbutwithoutconcretecommitments.

Threeofthetencountries(Brazil,India,Russia)donotingeneralincludespecificprovisionsorseparatedagreementsonpublicprocurementintheirFTAs.

Summaryofregulationofpublicprocurementand/oroffsetsinFreeTradeAgreementsisasfollows:1) Fullregulation:Australia,Canada;2) Partialregulation:Peru,Kuwait,UnitedArabEmirates-UAE(withintheCooperation

CouncilfortheArabStatesoftheGulf–GCC);3) Minimumregulation:SouthAfrica(withinSouthernAfricanCustomsUnion–SACU),Turkey;4) Noregulation:Brazil(withinMercosur),India,Russia.

Itisalsonoteworthythat,inadditiontobi-lateraltradeagreements,allofthereviewedcountrieshaveenteredintovariousbilateraldefensecooperationagreementsand/orreciprocaldefensememorandaofunderstanding(MOUs)thatprovideforcooperationindefenseprocurementbetweenkeydefensepartners.Someoftheseagreementsspecificallycallforcooperationonprocurementprojects,whichcanopenthedoortooffsetagreements.Atthesametime,someoftheMOUsincludecommitmentstoreducebuy-domesticandother"protectionist"measures.



21

Bilateralormultilateralagreementsareoftenratifiedbetweenneighboringcountries.OnlytheUSAandtheEUhavesought,forsomeyearsnow,tosignagreementswithnon-neighboringcountries.ThenextfreetradeagreementsofKuwaitandtheUAEwillbesignedthroughtheGulfCooperationCouncil



22

LEVEL3:INVENTORYOFNATIONALLEGISLATIONANDRULESAPPLICABLEATNATIONALLEVELSONGOVERNMENTPROCUREMENT

Level3–Summary:- Nationallawsonpublicprocurement;

- Rulesapplicabletopublicprocurement;

- Nationalprocurementguidelines.

AUSTRALIA

Laws CommonwealthProcurementRules(CPRs).

Rules Besidesgeneralprinciples(valueformoney,encouragingcompetition,promotingtheuseofresourcesinanefficient,effectiveandethicalmanner;andmakingdecisionsinaneffectiveandaccountablemanner),thereareadditionalrulesforcertaintypesofprocurementabovecertainamounts(procurementsbyFinancialManagementandAccountabilityActagencies,otherthanprocurementsofconstructionservices,US$80,000;procurementsbyrelevantCommonwealthAuthoritiesandCompaniesActbodies,otherthanprocurementsofconstructionservices,US$400,000;procurementsofconstructionservices,US$7.5millioninallcases).

BRAZIL

Laws FederalConstitution,articles37and175;

FederalLawNo.8.666/93(PublicProcurementAct);

FederalLawNo.8.987/95(PublicProcurementforPublicServiceConcessions);

FederalLawNo.10.079/04(public-privatepartnerships–PPPs);

FederalLawNo.12.462/2011(SpecialRegimeforPublicProcurements–"RDC");

Law12.598/2012(DefenseProcurement).

Comment:themainregulationonPublicProcurementissetoutby"Laws".

CANADA

Laws • theDepartmentofPublicWorksandGovernmentServicesAct• theDefenceProductionAct• theFederalAccountabilityAct• theFinancialAdministrationAct

Rules GovernmentContractsRegulations

OverviewofCanadianGovernmentProcurementLaw:• TheGovernmentofCanadaisoneofthelargestpublicbuyersofgoodsandservicesin

Canada,purchasingapproximatelyC$6.05billionwortheveryyearonbehalfoffederaldepartmentsandagencies(federallevel).

• PublicWorksandGovernmentServicesCanada(PWGSC)isthegovernment’smainpurchaserofgoodsandservices(includingbothcivilanddefensesectors).

• PWGSCprocurementactivitiesareprincipallycarriedoutpursuanttothefollowinglegalframework:theDepartmentofPublicWorksandGovernmentServicesAct;theFinancial



23

AdministrationAct;theDefenceProductionAct;theFederalAccountabilityAct;andtheGovernmentContractsRegulations.

• Subsequentpurchasingisdonebythe10provincialgovernments(provincialandterritoriallevel),thethreeterritorialgovernments,andwhatisalsoknownastheMASHsectors(municipalities,academicinstitutions,schoolsandhospitals).

• Eachprovincial,municipal,andinstitutionalpurchaserhasuniqueprocurementpoliciesand/orbylaws.

• TheCanadiangovernmentprocurementprocessbeginswhenadepartmentoragencysendsarequisitiontoPWGSC.

• PWGSCsubsequentlypublishesitsprocurementopportunitiesonawebsitecalledMERX(www.MERX.com).

• InkeepingwiththeGovernmentContractsRegulations,PWGSCprocurementisdonebymeansofacompetitiveprocurementprocesswheneverpossible,oranon-competitiveprocurementprocess(onlyusedinspecialcircumstances).

• Throughthecompetitiveprocurementprocess,PWGSCbuysgoodsandservicesusingthefollowing2methodsofsupply:contracts,andstandingoffersandsupplyarrangements.

• ContractsvaluedatoverC$25,000(threshold)mustfollowthespecificPWGSCprocurementprocess(definitionofrequirement,validationofrequirement,governmentalapproval,creationofanofficialStatementofRequirement(SOR),selectionofprocurementstrategy,bidsolicitationandsourceselection,negotiationandawardofcontract,finaldeliveryofproduct).

• ForrequirementsbelowC$25,000,contractingofficersmayrequestquotationsfromsuppliersdirectly.TheserequirementsareconsideredbyPWGSCaslowdollarvalueprocurement.Inthiscase,contractingofficerswilldeterminethemostappropriateprocurementstrategyforeachrequirementtoobtainbestvalueandensurethetimelinessandcost-effectivenessofeachcontract.Theymayusevariousmethodsofsupplytoidentifyandselectasupplieroneitheracompetitiveornon-competitivebasis.Standingoffersandsupplyarrangementsaretwotypesofnon-bindingagreementsbetweenthefederalgovernmentandpotentialsuppliersofspecifiedgoodsorservices.Theseagreementsoutlinethetermsandconditionsthatwillapplytofuturerequirementstobeorderedonanasandwhenrequiredbasis.

• Thenon-competitiveprocurementprocess,ontheotherhand,isonlyusedinspecialcircumstances:o Theneedisoneofpressingemergencyinwhichdelaywouldbeinjurioustothepublic

interesto Theestimatedexpendituredoesnotexceed:o C$25,000forgoodsandservices(contractingofficersarestillexpectedtosolicitbids

belowthisvaluewheneveritiscosteffectivetodoso);o C$100,000forarchitectural,engineeringandotherservicesrequiredinrespectofthe

planning,design,preparationorsupervisionoftheconstruction,repair,renovationorrestorationofawork;

o C$100,000fortheCanadianInternationalDevelopmentAgency(CIDA)servicecontractsrelatedtointernationaldevelopmentassistanceprogramsorprojects;

o Onlyonepersoniscapableofperformingthework,suchaswhenasupplierownsacopyrightoralicense;

ExistingalongsidetheframeworkofCanadianstatutes,regulationsandpoliciesthatimplementCanada’stradeobligationsaretradeagreements.Indeed,CanadaisasignatorytointernationalanddomesticagreementsthatpromotetradeopportunitieswiththeCanadiangovernmentforbothforeignanddomesticsuppliers.

• Canadaisasignatorytotwointernationaltradetreatiesaimedatreducingtradebarriersbetweenthesignatories:theNorthAmericanFreeTradeAgreement(NAFTA)andtheWorldTradeOrganization(WTO)AgreementonGovernmentProcurement(GPA).

• Theprocurementprovisionsofalltradeagreementsaresimilarlystructuredinthatifaproposedcontractmeetscertaincriteriaitiscoveredbytheagreement;ifitdoesnotmeet



24

allthestatedcriteriathenitisnotcovered.Aproposedcontractcanbe,andoftenis,coveredbymorethanoneagreement.

• TheNorthAmericanFreeTradeAgreementsetsoutCanada'scommitmenttoreducetradebarriersbetweenCanada,theUnitedStatesofAmericaandtheFederalRepublicofMexico.

• Theuseofmeasurestoimprovesocioeconomicdevelopment(offsets)forprocurementscoveredbyNAFTAisprohibited.

• AprocurementissubjecttoNAFTA:ifitsvalueisequaltoorgreaterthantherelevantthreshold;ifthetypeofrequirementiscovered;iftheentityforwhichtheprocurementisbeingdoneiscovered,andifthereisnospecificexceptionapplicableorinvoked.

• TheWTO-GPAisanagreement,whichaimstosecuregreaterinternationalcompetitionforgovernmentprocurement.ItprovidesprocurementprocedureswhichCanadaabidedto.

• Theuseofmeasurestoimprovesocioeconomicdevelopment(offsets)forprocurementscoveredbyWTO-GPAisgenerallyprohibited.

• AprocurementiscoveredbytheWTO-GPA:ifitsvalueisequaltoorgreaterthantherelevantthreshold;ifthetypeofrequirementiscovered;iftheentityforwhichtheprocurementisbeingdoneiscovered,andifthereisnospecificexceptionapplicableorinvoked.

INDIA

Laws CommonwealthProcurementRules(CPRs)PublicProcurementBill,2012:notyetpassed.ThereareonlyafewstatesinIndiathathavedraftedlegislationforpublicprocurement.Withregardtotheprivatesector’sassociationwiththegovernmentinprocurementcontracts,internalandindividualcompanypoliciesandcodesofcompaniesgovernthisassociation,creatingchallengesofaccountability.Toaddresssomeofthese,theGovernmentofIndiahasdraftedthePublicProcurementBill2012whichalsocontainsDraftRulesforPPP2011.Thislegislationisapplicableforprocurementbythecentralgovernmentanddoesnotapplytothestates.ThebillwastabledinParliamentandpassedinthelowerhouseoftheParliamentinMay2012(i.e.,LokSabha).

Rules TheGeneralFinancialRules2005aretherulesfollowedforpublicprocurementbygovernmentdepartmentsandministriesacrossthecountry.Theserulesdonothavethestatusoflegislationandviolationsdonotattractmuchpenalty.IndiacurrentlyhasnoclearrulesforregulatingPPPprojects.Furthermore,Indiahasapproximately35differentministriesatthecentrallevelaloneandnocentralprocurementmechanisms.Inaddition,thereareapproximately26statesand7unionterritoriesthatprocureindependently.TheGeneralFinancialRules(GFR),developedbytheMinistryofFinance,establishtheprinciplesforgeneralfinancialmanagementandproceduresforgovernmentprocurement.Therulescontainedinchapter6concerntheprocurementofgoodsandservices,whilechapter8addressescontractmanagement.AllgovernmentpurchasesmuststrictlyadheretotheprinciplesoutlinedintheGFRs.TheManualonPoliciesandProceduresforPurchaseofGoodscontainsguidelinesforthepurchaseofgoods.ThereisnocentrallegislationgoverningprocurementinIndia.ComprehensiverulesanddirectivesinthisregardarecontainedintheGFR2005andDelegationofFinancialPowersRules(DFPR).AbroaderframeworkisalsoprovidedbytheContractAct,1872,theSaleofGoodsAct,1930,[6]theLawonArbitration[7]andLimitation[8]andtherecentRighttoInformationAct,2005.

KUWAIT

Laws Thepublictenderlaw:lawnumber37of1964,modifiedbyLawsNo.13and31of1970and1977

Thepublictenderlaw:lawnumber37of1964,modifiedbyLawsNo.13and31of1970and



25

1977

TheKuwaitCommercialCode

Rules ThePublicTendersLawprovidesthatanyprocurementmadebytheKuwaitGovernmentwithavalueinexcessofKD5,000(approximatelyUS$16,500)mustbeconductedthroughtheCentralTendersCommitteeandinaccordancewithitsproceduresinordertoensurecompetitivepricing.Article5oftheTendersLawprovidesthatatendererforgovernmentcontractsmust:1. “BeaKuwaitimerchant,individualorcompany,registeredintheRegisterofCommerce

intheChamberofCommerceandIndustryofKuwait;ThetenderermaybeaforeignerifhehasaKuwaitimerchantactingasapartneroragentpursuanttoadeeddulyexecutedbyanotary,providedtheCentralTradingCommitteeshallsetdownaspecificregulationfortheparticipationoftheforeigncompanyinthetendersoflargeworks.

2. BeregisteredintheClassificationListofContractorsandSuppliersinconformitywiththefollowingArticles.”

TwoimportantexceptionstotheapplicationofthePublicTendersLaw:1. ThePublicTendersLawdoesnotapplytotheprocurementofmilitaryitemsforthe

MinistryofDefenseandSecurityForces.“Militarymaterials”isbroadlydefinedbyKuwaitlawtoincludeland,seaandairweapons,spareparts,militarycommunications,detectionequipmentandrelatedsystems(“strategicmilitaryprocurement”).

2. OtherSpecializedProcurement.KuwaitgovernmentagenciesmayrequestpermissionoftheCentralTendersCommitteetoconductparticulartendersoutsidethePublicTendersLaw.However,suchtendersarerelativelyrare.

PERU

Laws Lawn°28.269,amendingLawn°26.850(PublicProcurementAct).

Rules • Presidentialdecreen°031-2002-PCM(electronicsystemofpublicprocurement–SEACE);

• Presidentialdecreen°067-2003-PCM(PowersoftheCouncilofMinister'sPresidenttosetoutPublicProcurementPolicy).

Guide-lines

Noneidentified

RUSSIA

Laws FederalLawNo.44-FZ‘OntheContractSysteminStateandMunicipalProcurementofGoods,WorksandServices’dated5April2013

PublicProcurementformilitaryequipmentisregulatedbyFederalLawNo.275-FZ‘OnStateDefenceProcurement’,dated29December2012,noprovisionsonoffsets

Rules Usualprinciplesandrules:transparency,openness,competition,stimulationofinnovation,etc.

Guide-lines

LawenteredintoforceinJanuary2014;noguidelinesyet.

SOUTHAFRICA



26

Laws Constitution(section217),PublicFinanceManagementAct1,1999(PFMA);PreferentialProcurementPolicyFrameworkAct5,2000(PPPFA)anditsregulations;LocalProcurementAgreement,2011.

Rules Principlesoffairness,equitability,etc.;Requirementsforblackeconomy(postapartheidaffirmativemeasure);FocusonlocalcontentoftheAgreement.

SOUTHKOREA

Laws ActonContractstoWhichtheStateisaParty(PresidentialDecree,MinisterialRuleofStrategyandFinance);GovernmentProcurementAct(PresidentialDecree,MinisterialRuleofStrategyandFinance);DefenseAcquisitionProgramAct(PresidentialDecree,MinisterialRuleofNationalDefense)

Rules - The Government Procurement Act regulates operation and management ofgovernmentprocurement,whichisconductedbythePublicProcurementService. It isfurtherregulatedbyenforcementdecreeandordinancesrelatedtotheprocurement.

- The Act on Contracts towhich the State is a Party regulates contracts towhich thegovernment is a party. It is further regulated by the enforcement decree andordinancesrelatedtocontractstowhichthegovernment isaparty.The ‘ActonLocalGovernment Contracts’ applies to contracts with the local government, and publicagencies are regulated by ‘Act on the management of Public Institutions.’ In thosecases,thegovernmentengagesinlegalactsasaprivateeconomicentity.Thus,generalprinciplesof the civil law, suchas thePrincipleofPartyAutonomy,PrincipleofGoodFaith,andPrincipleofAbuseofRightsarealsoapplicabletogovernmentcontracts.

- Moreover,therearespeciallawswhichregulateeachspecificarea.(1)SpecialProvisionsoftheEnforcementDecreeoftheActonContractstowhichtheState is a Party for Specific Goods determines special provisions regarding theenforcement decree of the act on contracts to which the state is a party whenconducting international bids in order to implement multilateral or bilateralgovernmentprocurement agreements such as the agreementprepared inMarrakechonApril15,1994whichthegovernmenthasestablishedoraccededto.

(2)Defense Acquisition Program Act addressesmilitary procurement and delegatedenforcement decree and the rules related to procurement. The procedure ofcontracting through competitive bidding is as follows: contract method decided!bidding notice! bidding! successful bidder decided! contract award! contractperformance!completionandpayment.

TURKEY

Laws ProceduresandprinciplestobeappliedtopublicprocurementareestablishedwithinPublicProcurementLaw4734(2002).Thelawsetsforthrulesofparticipationinpublictenders,suchasprinciplesaboutthresholdvalues,estimatedcosts,rulesonqualification,ineligibility,tendernoticeperiods,priornotice,subcontractors,cancelationoftenderpriortothepredeterminedtimeforsubmissionoftenders,prohibitedactsorconduct;rulesgoverningprinciplesofprocurementprocesssuchasprocurementproceduresandimplementation,principlesofopen,restricted,negotiated,directprocurementprocedures,contentsofprequalificationandtenderdocumentsandadministrativespecificationsandsuchprinciples.IneligibilitytoparticipateinprocurementtendersisregulatedunderArticle11ofthelaw.



27

Rules Noneidentified

Guide-lines

Noneidentified

UNITEDARABEMIRATES

Laws Publictenderlaw:FinancialOrderNo.16of1975.Forfederalprocurementonly.

Rules Withsomeexceptions,onlyUAEnationals,foreignentitiesrepresentedbyaUAEagent,orforeignentitieswithUAEpartners(i.e.,aUAEentitywithatleast51percentUAEownershipmaybidforpublicsectortendersforthesupplyofgoodsandpublicworksprojectsthataregovernedbythePublicTendersLaw.Asaresult,foreignentitieswishingtoperformpublicsectorcontractsaregenerallyrequiredtohavesomelevelofUAEnationalparticipation.Suchparticipationtypicallytakestheformofaregisteredcommercialagency,aserviceagentoftheforeignentity'sbranchoffice,ajoinventureinwhichtheforeignentityowns49percentorlessofaUAElimitedliabilitycompany.Threeimportantexceptiontothepublictenderlaw:1. Purchasesandcontractsconductedbythefederaldefenseforces–procurementsfor

thefederaldefenceforcesareconductedpursuanttoDecree12of1986oftheDeputySupremeCommanderoftheArmedForces(the‘ArmedForcesProcurementRegulations’.

2. Procurementbythegovernmentsoftheindividualemirates.Forexample,AbuDhabihasaprocurementsystem,whichgenerallytracksthatoftheFederalPublicTendersLawbyrequiringsupplierstohavecommercialagentsornationalcompaniesthatareregisteredwiththeAbuDhabimunicipality.

ThegeneralrequirementforUAEnationalparticipationisnotuniformlyobservedbyallgovernmentagenciesinthecontextofcertaindirectsalestothepublicsectororprivatetendersinwhichthegovernmentsolicitsbidsdirectlyfromrelevantmanufacturers,particularlyincasesinwhichthegoodsorservicesarequitespecializedornotwidelyavailable.

Guide-lines

Noneidentified


Mostofthecountrieshavesimilarbidandtenderprocesses,includingRFPs,administrativeprocesses,etc.Buttheexistenceofconcretelegislationatfederalandlocallevelsvariesgreatlyacrosscountries.Increasedenforcementinitiativesagainstcorruptionareacommontheme.

Inaddition,existinglawsemphasizetransparency,competitionandaccountability.

However,existenceofconcretelegislationatfederalandlocallevelsvariesgreatlyacrosscountries.

Somecountriesareregulatedprimarilyonthenationallevel(Australia,Brazil,SouthAfrica,Turkey,Kuwait,Peru,Russia),somelocal(Canada,UAE),andsomehaveweakornonational/sub-nationallaws(India).

Australia Comprehensive, transparent rules, modeled to reflect international obligations and global bestpractices.



28

Brazil Detailed federal procedures. Domestic preference for local production/Mercursor. Specificprovisions for IT, Defense, and nationalized industries (telecom, oil, health). Recent focus onenforcementagainstcorruption.Significantreforminlawexpectedovernextthreeyears.

Canada Detailed federal and provincial procedures. Procurement laws impacted by international tradeagreements (NAFTA, EU CETA, etc.). Special rules for Defense contracts and offset agreements.Recent increase indebarment andenforcementproceedings against corruption.Recently signedEUCETA(2013)willrequiresignificantreforminproceduresatthemunicipalandlocallevels.

India National legislation proposed (2012), but to-date no comprehensive procurement law. Bestpractices defined primarily by industry (in manuals and procedures), andaccountability/enforcement isweak.However,therearespecificDefenseproceduresandrelatedanti-corruption rules. Domestic/local sourcing preferences. Recent Supreme Court caseinvalidatingmajortelecomlicensesmaysparkreformandenactmentofpublicprocurementlaw.

Kuwait Public Tenders Law,withCentral TenderingCommittee that administers tenderingprocesses formostpublic institutions.However,PublicTenders Lawdoesnotapply toDefenseprocurements.Foreigncompaniesmustpre-qualifybeforeeachnewcontract.

Peru Regulated under Public Procurement law and by the High Council for Public Procurement. Inaddition,recentenactmentofnewpublicprocurementlaw,andprocessreformsareinprogress,includinge-governmentprocurementsystemandstreamliningofprocedures.However,corruptioncontinuestobeasignificantproblem.

Russia Federal Public Procurement law governs state and local municipalities. Exceptions for Defencecontracts.Preferencesfordomesticsuppliers.

SouthAfrica

Public Procurement regulated under the Constitution, national regulations and municipallegislation. General requirements of fairness, transparency, and cost-effectiveness. Special rulesfor Defense. Preferences for local content. Recent initiatives against corruption (e.g., anti-corruption hotline) and proposals to establish centralized buying office to handle national,provincialandlocalprocurements.



29

SouthKorea Defense Acquisition Program Act and its delegated Enforcement Decree and Regulation requireoffsets to overseas purchase projects with expected costs over USD 10million and the productmeets the requirements setbyeachserviceof thearmed forces.Theminimumoffset ratio foraprojectisdeterminedbythenumberofbidders.Foraprojectwithmultipleandcompetingbidders,theratiois50%.Foraprojectwithonlyonebidder,theratiois10%.Theratiomaybeincreasedordecreasedonacase-by-casebasis.

TheDefenseAcquisitionProgramAdministrationremainsastheonlygovernmentagencythatcanauthorize offset credits and controls offset packages. Korea’s offset program is detailed in theDefenseAcquisitionProgramAct and its delegatedEnforcementDecree andRegulation. Further,specificproceduresaredescribedindetailintheGuideline.

The administrator of DAPA will formulate a procurement plan by the guideline made by theMinistryofDefense.5Inprinciple,offsetMOAmustbesignedbybeforetheconclusionofthemaincontract. The offset procedure is broadly divided into three phases: planning, negotiation, andimplementation.Intheplanningphase,DAPA’sIntegratedProjectTeam(IPT)determineswhetheran acquisition program requires offset.6For contracts over USD100 million, the Offset Councildetermines the offset ratio before the Offset Request for Proposal (RFP).7Otherwise, the IPTdetermines the offset ratio. Next, in the negotiation phase, DAPA issues RFP and evaluates thebids. 8 Further, DAPA and bidders conclude the Memorandum of Understanding (MOU) andMemorandum of Agreement (MOA) through negotiations. Lastly, the implementation phaseincludestheimplementationoftheoffsetprogramtocompletionoftheoffsetprogram.9

Turkey PubliclawmodeledafterUNCITRAL.Procurementlawisoneofthemostrapidlychangingareasoflaw in Turkey. Specific reforms are expected with respect to mining, transportation andcommunicationsareexpectedoverthenextyear.

UAE Public procurement law, with separate laws for procurements by individual emirates. BiddinglimitedtoUAEnationals,foreignentitiesrepresentedbyaUAEagentorforeignentitieswithaUAEpartner(e.g.,localjointventure).SeparateregulationsforDefenseContracts.

5DAPAPresidentialDecree.(§25(1),(2))

6DAPAGuidelineArticle9(NotificationofProgramswithOffsetObligations)

7DAPAGuidelineArticle10(DecidingOffsetRatio)

8DAPAGuidelineArticle14,Article15

9http://www.dapa.go.kr/mbshome/mbs/dapa_eng/subview.jsp?id=dapa_eng_030100000000



30

LEVEL4:OFFSETSRULESATNATIONALLEVEL

Level4–Summary

OFFSETSRULES

Australia

Nooffsetpolicyassuchinindustry.Butthereisthee-AustralianIndustryParticipation(AIP)PlansinCommonwealthGovernmentProcurement,2010:forprocurementaboveA$20million.Thisaimsatpotentialsupplierstodetailactionsandstrategies,whichwillbeimplementedtoprovidefull,fairandreasonableopportunitytoAustraliansmallandmediumsizedenterprises(SMEs)tosupplygoodsandservicestotheproject.Thisisdoneonacontractualbasis.Defenseindustryhasotherguidelines.Norequiredpercentage.NewrequirementsfromDecember2013intermofemployment:TheAustralianJobsAct2013commencedon27December2013.AllmajorprojectswithacapitalexpenditureofA$500millionormorearenowrequiredtomeetnewmandatoryrequirementsundertheAct.

Brazil • FederalLawNo./93(PublicProcurementAct),article24.• FederalLawNo.10.079/04(public-privatepartnerships-PPPs)• Law12.598/2012(DefenseProcurement),articles3and4.• NormativeOrdinancen.764/2002-Commercial,IndustrialandTechnologicalOffsetPolicyoftheMinistry

ofDefense;• BrazilianAirForce(BAF):Portarian°1.395/GC4(DCA360-1/2005:PolicyandStrategyforCommercial,

IndustrialandTechnologicalCompensation);• BrazilianAirForce(BAF):Portarian°1.397/GC4(ICA360-1/2005:PreceptsfortheNegotiationof

Commercial,IndustrialandTechnologicalCompensationAgreements).Canada • IRBProgramprovidestheframeworkforensuringlong-termindustrialandregionaldevelopmentbenefitsfromthe

GovernmentofCanadadefenseandsecuritypurchases.ThePolicyensuresthatbusinessactivitiesequaltothevalueofthecontractaregeneratedinCanadafromcompanieswhowinthesecontracts.

• IRBobligationisacontractualcommitmentandpartoftheoverallgovernmentprocurementcontract.• Canadacurrentlyhasmorethan60defenseandsecurityprocurementsthataresubjecttotheIRBPolicy.Together,

theseIRBobligationsrepresentinexcessofC$20billionincurrentandfuturebusinessactivitieswithCanadianindustries.

• ThePolicyappliestotheGovernmentofCanadadefenseandsecurityprocurementsthatareexemptfrominternationaltradeagreementstowhichCanadaisasignatory,suchastheWTO-AGPandNAFTA.

• Moreover,theIRBProgramdoesnotapplyinthefollowingsituations:o ForeignaidbyoronbehalfoftheCIDA;o ProcurementsbytheCanadianCommercialCorporationonbehalfofentitiesnotsubjecttothispolicy;o Acquisition,modificationandroutinemaintenanceofrealproperty;o SecurityrequirementsbyoronbehalfoftheCommunicationsSecurityEstablishmentoftheDepartmentof

NationalDefense;o CanadianSecurityIntelligenceService;o RoyalCanadianMountedPoliceforthepurposeofpursuingcriminalinvestigations;o Casesofapressingemergency.

• Whenapplicable,thePolicyismandatoryforprojectsgreaterthanC$100millionanddiscretionaryforprojectsbetweenC$2and100million.

• IndustryCanadatakesanumberoffactorsintoaccountwhendecidingwhetherornottoapplythePolicytogovernmentprocurementsunder100millionCAD.Considerationsinclude:o IstheprocurementstrategictoCanadianindustry?o ArethepotentialbiddingcompaniesofinteresttoCanadianindustryandaretheycapableoffulfillingan

IndustrialandRegionalBenefits(IRB)obligation?o Istheprojectasmallerpartofalargerone?

• TherearetwotypesofIRBbenefits:directandindirect.

o DirectIRBbenefitsaretransactionscontainingworkdirectlyrelatedtotheproductorservicethatthegovernmentisprocuring(example:providingpartsormaintenanceforthepurchasedCanadianequipment).

o IndirectIRBbenefitsaretransactionscontainingworkorinvestmentsthatarenotrelatedtotheCanadianpurchase(example:investmentsinpost-secondaryinstitutionsandnon-profitresearchanddevelopmentinstitutions).



31

OFFSETSRULES

• TherearefiveeligibilitycriteriathatanIRBcontractormustdemonstratewhentheysubmitanIRBtransactiontoIndustryCanadaforreview:causality,incrementally,CanadianContentValue(CCV),timingandeligibleparty.o Causality:IRBcontractorsmustdemonstratethattheirdecisionstoplacebusinessactivitieswithaCanadian

companyhavealinktotheirIRBobligation.TheyneedtoprovetoIndustryCanadathatthebusinessactivitywouldlikelynothavehappenedhaditnotbeenfortheIRBrequirement.

o Incrementally:AllowsIRBcontractorstousecurrentsuppliersonaparticularbusinessactivity.IfanIRBcontractorhasanestablishedbusinessrelationshiponaparticularpartorserviceand,becauseofanIRBobligation,theychoosetoincreasethiswork,theincreaseiseligibleforIRBcredit.ThisensuresthatthenewworkthathasalinktotheIRBobligationiscountedbutworkthatwasoccurringbeforetheIRBobligationisnotfactoredin.

o CCV:AllproposedIRBtransactionsmustbevaluedintermsoftheCCV.CCVismeasuredinCanadiandollarsandistheportionofthesellingpriceofaproductorserviceassociatedwiththeworkactuallyperformedinCanada.OnlytheCanadianlaborandmaterialsofaparticularworkpackageiscountedtowardanIRBcontractor'sobligation;allforeignoverhead,laborandmaterialsforanyparticulartransactionisexcludedfromCCV.

o Timing:30percentofobligationswillneedtobeidentifiedattimeofcontractsigning,30percentoneyearlater,andtheremaining40percentwithinthreeyears.

o EligibleParty:Benefitsmustbecompletedbyeitherthecontractorhimselforitsparentcorporations.Kuwait

Kuwaitoffsetprogram,dealingwithmilitaryandcivilprocurements,undertheresponsibilityoftheNationalOffsetCompany.

India DPP(2005)introducedOffsetPolicy;DPP(2006)fine-tunedOffsetPolicy;offsetclauseapplicabletoallprocurementproposalswhere(1)costisaboveRs300Crores,and(2)theschemesarecategorizedas‘Buy(Global)’(involvingoutrightpurchasefromforeign/Indianvendors)and“BuyandMakewithTransferofTechnology”(involvingpurchasefromforeignvendorfollowedbyLicensedProduction);RFPtellswhichoneapplies;DPP(2013):IncreasesinthenumberofpossibilitiesforthedischargeofOffsetObligations.

Peru • Lawn°28.269,amendingLawn°26.850(PublicProcurementAct);• GuidelinesofAugust2010(defenseacquisitionsfromforeignsources);• DirectiveNo.08-2010MINDEF/SG/VRD

Russia Russian Federation lacks of detailed legislative framework with pre-approved transparent conditions andlimitations for military contracts. There are no predefined offset rules on national level, however manycontracts with foreign supplier features offset provisions, which are most likely negotiated with eachcontractor.

There are some working documents such as “The main directions of the implementation of the offsetmechanismintheRussianFederation”preparedbyTheMinistryofEconomicDevelopmentin2010.Buttheyarenotpartofapplicable law,andthere isno informationwhetherthoseplanswillbe implemented inthefuture.

The main directions of activity of the Government of the Russian Federation for the period until 2018(revised)(app.TheGovernmentoftheRussianFederationMay14,2015)inpoint3mentions:”encouragingthe transfer and development of modern technologies at the expense of increased use of offsetmechanisms”;



32

OFFSETSRULESSouthAfrica

Civiloffset:ForprocurementsoverUS$10million,30%oftheprocurement.Guidelines:NationalIndustrialParticipationProgramme(NIPP).Authority:DTI’sIndustrialParticipationSecretariatDefenseoffsets:Guidelines:DefenseIndustrialParticipation;Responsibleauthority:ARMSCOR(ArmamentCorporationofSouthAfricaSOCLtd).DefenceIndustrialParticipationismandatoryonallforeigndefensepurchasesaboveUS$2million.DefensepurchasesexceedingUS$2millionbutlessthanUS$10million:RequireaDefenseIndustrialParticipationobligationofupto50%.DefensepurchasesexceedingUS$10million:RequireaDefenseIndustrialParticipationobligationofatleast50%andaNationalIndustrialParticipationobligationofatleast30%.Usually:IndustrialParticipationofatleast100%isrequested,splitequallybetweenDefenseIndustrialParticipationandNationalIndustrialParticipation.DefensepurchasesexceedingUS$2millionbutlessthanUS$10million:RequireaDefenseIndustrialParticipationobligationofupto50%.DefensepurchasesexceedingUSD10million:RequireaDefenseIndustrialParticipationobligationofatleast50%andaNationalIndustrialParticipationobligationofatleast30%.UsuallyanIndustrialParticipationofatleast100%isrequested,splitequallybetweenDefenseIndustrialParticipationandNationalIndustrialParticipation.

SouthKorea

Defense Acquisition Program Act and its delegated Enforcement Decree and Regulation require offsets tooverseaspurchaseprojectswithexpectedcostsoverUSD10millionandtheproductmeetstherequirementssetbyeachserviceofthearmedforces.Theminimumoffsetratioforaprojectisdeterminedbythenumberofbidders.Foraprojectwithmultipleandcompetingbidders,theratio is50%.Foraprojectwithonlyonebidder,theratiois10%.Theratiomaybeincreasedordecreasedonacase-by-casebasis.

TheDefenseAcquisitionProgramAdministrationremainsastheonlygovernmentagencythatcanauthorizeoffset credits and controls offset packages. Korea’s offset program is detailed in the Defense AcquisitionProgram Act and its delegated Enforcement Decree and Regulation. Further, specific procedures aredescribedindetailintheGuideline.

The administrator of DAPA will formulate a procurement plan by the guideline made by the Ministry ofDefense.10Inprinciple,offsetMOAmustbesignedbybeforetheconclusionofthemaincontract.Theoffsetprocedure isbroadlydivided into threephases:planning,negotiation,and implementation. In theplanningphase,DAPA’s IntegratedProject Team (IPT) determineswhether an acquisitionprogram requires offset.11ForcontractsoverUSD100million,theOffsetCouncildeterminestheoffsetratiobeforetheOffsetRequestfor Proposal (RFP).12Otherwise, the IPT determines the offset ratio. Next, in the negotiation phase, DAPAissuesRFPandevaluatesthebids.13Further,DAPAandbiddersconcludetheMemorandumofUnderstanding(MOU) and Memorandum of Agreement (MOA) through negotiations. Lastly, the implementation phaseincludestheimplementationoftheoffsetprogramtocompletionoftheoffsetprogram.14

Turkey LawNo:3238of1985establishedSSMandauthorisedittocoordinateexportandoffsettradeissuesrelatingto defense industry products. The first offset handbookwas published in July 1991.Offset directivesweresubsequentlypublished in2000,2003,and2007.With thedirective issued inApril2011SSM (SSM-YN-022Rev.:0April2011)isonitsfifthpolicyrevision.

10DAPAPresidentialDecree.(§25(1),(2))11DAPAGuidelineArticle9(NotificationofProgramswithOffsetObligations)12DAPAGuidelineArticle10(DecidingOffsetRatio)13DAPAGuidelineArticle14,Article1514http://www.dapa.go.kr/mbshome/mbs/dapa_eng/subview.jsp?id=dapa_eng_030100000000



33

OFFSETSRULESUAE UAE offset program under the responsibility of Tawazun, focus on defense acquisition side : defense

contractorsshouldpartnerwiththelocalprivatesectorincommerciallyventure


Theoffsetrulesatnationallevelcoveralltypesoflegislation:- Strongerlaws:Canada,Turkey,SouthAfricaandBrazil;- Guidelines:Peru;- Programthatdependsoftheexecutivepower(KuwaitandUAE)andtheplan(Australia).

Forinstance,Australia,averydevelopedcountrythatisnotreliantonahighleveloftechnology,hasonly a plan. By contrast, Kuwait and the UAE have programs under the control of the Executivepower,reflectingastrongpoliticalwill.Indeed,thereistwoobjectivesforKuwaitandtheUAE:

- improvetechnologyand,- keepcontroloftheeconomyinnationalhands.Thebestwaytoachievethesegoalsistoput

itundertheExecutivePower.



34

LEVEL5:COMPARATIVEOFFSETSREQUIREMENTS

Level5–Summary:

Thislevelincludesthefollowinginformationpercountry:1. Percentageofdirectoffsetrequired2. Percentageofindirectoffsetrequired3. Threshold4. Multiplayers5. Bankguarantees6. Methodofdischarge7. Penalties8. Multiplayers

Australia 1. Nooffsetstandardpolicyandnopercentageofoffsetrequirements.Thepolicyisnamed“IndustrialParticipationPolicy”

2. Directmostlyandindirectcivil:contractorsmustparticipatetotheAustralianIndustryParticipationPlanDefense:contractorsmustparticipatetotheAustralianIndustryCapacityPlan.

3. Threshold:Civil:US$450millionDefense:US$21.4million.4. Multipliers:no5. Bankguarantees:no6. Methodofdischargeare:makeparticipatethelocalindustrytothe

“Globalsupplychain“Cooperatewithlocalindustrieswiththe“StrategicIndustrycapabilities(picks–Prioritiesindustriescapabilities)

7. Penalties:Civil,no,butprincipleof“NameandShame”ifnorespectoftheobligationDefense:blacklist

8. Multiplayers:Civil:IndustryMinistry(throughAustralianJobAct);Defense:DefenseMaterialOrganization(DMO)

Brazil 1. Offsetrequirementis100%ofthecontractvalue.2. OffsetismainlymanagedbySEPROD:

– AirForce(severaldepartments,mainly:SEFA,DCTA,IFI);– Army(severaldepartments,mainly:CCOMGEX);– Navy(severaldepartments,mainly:“COrM–Diretoriade

CoordenaçãodoOrçamentodaMarinha”).3. Mostlydirectbutalsoindirect.4. ThresholdUS$5million.5. Multipliers:1to10.6. Bankguaranteesareallowedonacase-by-casebasisunderthe

following:– 5yearmaxvalidityperiod;– limitedtocompanieswithinthesameholding;– beusedtothemaxextentof50%ofanobligationunderanew

contract.7. Methodofdischargearethefollowing:Co-production;Production

underlicense;Subcontractedproduction;ForeignDirectInvestment(FDI);Training;Technologytransfer;PurchaseofBrazilianproducts/services;Donations/leasesequipment;Costsindevelopment.



35

Transfersofcredits(swaps)andpre-offsetsareusuallynotacceptablebutmaybeconsideredonacase-by-casebasis.

8. Penaltiesequalto5%ofunfulfilledoffsetobligation.Canada 1. Offsetrequirementis100%ofthecontractvalue;

2. Mostlydirect,alsoindirectwith15%oftransactionwithlocalSME;3. IRB:C$2million(selectedprojects)C$100millionforallProjectsITB:

defenseoverC$100million;4. Multiplier:5to10forIRBnotyetforITB;5. IrrevocableLCcoveringpenalties,amountforIRB-notyetpublishedfor

ITB;6. Methodofdischargeare:Investment,T.T.+15%oftransactionwith

SME5%ofIRBprojectwithtechnologiesandservicesassociatedwiththeEPTI(Enhancedprioritytechnologylist);

7. Penaltiesare10%ofobligationamount.Kuwait 1. Offsetrequirementsis35%ofthecontractvalue;

2. Mostlydirect,alsoindirect;3. Threshold:DefenseUS$10.4million.CivilUS$35million;4. Multiplier:1to5,5;5. 60%ofthecontractvalue;6. Methodsofdischargeare:ToT,JV,Education,investmentforexport,

Industrialcooperation;7. Penalties:cashofbankguarantee–blacklist.

India 1. 30%offsetsin"Buy(Global)"contracts;canbehigherin"BuyandMakewithTransferofTechnology(ToT)"contracts.DOG(2012)statesthatIndiancompanyoritsjointventureparticipatingin‘Buy(Global)contractsareexemptedfromoffsetobligations,providedtheproductinquestionhasindigenouscontentofminimum50%byvalue;Ifindigenouscontentisbelow5%,offsetsaremandatoryonpartwhichinvolvesforeigncomponent.Direct,Indirect,ForeignDirectInvestment,DFI;

2. Direct,Indirect,ForeignDirectInvestment,DFI;3. Rs300crore(equivalenttoUS$65million).4. Multiplier:aforeigncompanycanclaimcreditsuptothreetimesofits

actualoffsetinvestment.However,multipliersarerestrictedtotwoareas:Micro,MediumandSmallEnterprises(MSME)andtechnologyacquisitionbyDRDO;

5. Whentheperiodfordischargeexceedstheperiodofthemaincontract,vendorisrequiredtofurnishaperformancebondintheformofabankguaranteeforthefullvalueoftheun-dischargedoffsetobligationfallingbeyondtheperiodofthemainprocurementcontract.Whenavendorfailstofulfilloffsetobligationandapenaltyisassessed,thepenaltymaybepaidbythevendororrecoveredfromthebankguaranteeofthemainprocurementcontract.

6. Methodofdischarge:Withincontract+2;sixwaysfordischargegovernedbycomplexrules:(1) Directpurchaseandexportorders;(2) FDIinventuresw/eligibleproductsorservices,(3) Investment“In-Kind”transferofToT,(4) “In-Kind”provisionofequipment;(5) ToTorprovisionofequipmenttoPSUs;(6) TechnologyacquisitionbytheDefenseResearchandDevelopment



36

Organization.7. Minimum5%ofunfulfilledoffsetobligation;Maximum20%ofthetotal

obligationduringtheperiodofthemainprocurementcontract;nocaponpenaltyforfailuretoimplementoffsetobligationsduringtheperiodbeyondthemainprocurementcontract.

Peru 1. OffsetrequirementsinDefense:100%ofthecontractvalue2. Mostlydirect,alsoindirect.3. UIT5,600(equivalenttoUS$7million).4. Multiplier:0.5to5.0.5. Bankguaranteesareallowedonacase-by-casebasis.6. Directoffsets:mainlytransferoftechnologyandinvestments.Indirect

offsets:investmentfortherailway,hydroelectricandenergysectors,education,healthandenvironmentprotection.

7. Bynegotiation;withblacklistingwhentherearenone.Russia Dataonoffsetrequirementnotavailable

SouthAfrica 1. Offsetrequirements:Nip/30%(civil)Dip:50%(defense).2. Mostlydirect,alsoindirect3. Threshold:Nip:US$10million;Dip:US$2million4. Multiplier:2forNipnoforDip.5. BankGuarantees:yestosupplywithin30daysforNip;tobe

establishedforDip.6. Methodofdischarge:Investment,J.V.,Education,JobCreation,

MaintenanceFacility,T.T.,Export,RulesofBBB(BlackEmpowerment).7. Penalties:5%Nip,100%Dip.8. Multiplayers:Armscor–Min.Def.forDip;Dti(Deptoftrade&industry)

forNIP.SOUTHKOREA 1. Percentage of direct offset required: The offset ratio is, 50% for

competitivecontractsand10%forwherethereisnocompetition.2. Percentage of indirect offset required: No distinction based on

accessibleActsandtheirdelegateddecreeandregulation.3. Threshold:USD10millionormore,althoughthepolicystatesthatitcan

alsobeappliedtoprogramsworthlessthanthisthreshold.4. Multipliers:Variousvaluation standardsexistdependingonareasand

items. For example, up to two times the actual offset investment fordevelopmentofSMEs.

5. Bank guarantees: Offset performance bond apart from the maincontractperformancebondinadefinitesumequalto10percentofthetotalOffsetvaluewithin30daysafter theeffectivedateof theoffsetMOA.

6. Method of discharge: securing items related to defense science andtechnology; manufacturing and exporting parts of militaryequipment; securing items related to logistics support; upgradingexisting equipment; exporting military supplies; securing overseasmaintenancework;jointparticipationinmajordevelopmentprograms;other items that contribute to the national interest with regard toKorea'sdefensecapability;exportsofrecommendedcommercialitemsforindirectoffset;andforeigndirectinvestmentinanentitytoimprovethecompetitivenessofthedomesticdefenseindustry.

7. Penalties:Forfeitureoftheperformancebond.8. Multiplayers:MinistryofDefense;PublicProcurementOffice

Summary



37

Koreahas continuouslyupdated theoffsetpolicy tomaximizeeffectiveness.15Two trends are notable. First, Korea has uses its multiplier scheme fordevelopment of SMEs. SMEs generally benefit from a 1.5x multiplier, 2x incertaincases.Second,Koreaincreasedforeignparticipationbymakingiteasierforforeigncompaniestodischargeoffsets.

Turkey 1. Offsetsrequirements:70%2. Directandindirect3. Threshold:US$5million(cumulativep/a)4. Multiplier:1to85. Pre-credit/5years6. Methodofdischarge:Thedischargeofobligationsinthecivilsectoris

notacceptableunlesstheyareforthecivilaviationandspacesectors.7. 6%

UAE 1. 60%2. Hybrid:I(30)O(70)3. ThethresholdisUS$10million.Cumulativedefenseprocurements

reachingUS$10millioninvaluewithina5-yearperiodwillalsoqualifyforoffsets.

4. Multiplier:1.0to3.05. NTE10Years6. “Hybrid”dischargefocuson“shareholdervalue”(profit)ratherthan

revenuesJV-focused–nocreditfortraditionaldirectoffsetpurchases7. LD=8.5%ofcontract


• Discharge:1yearto10years.• Banking:3yearsto10years• Transfer:Possible• Penalties:5%to20%• Multipliers:1.0to10.0• Organization:MoD/MoE/ormixedsystem(worldwide:45%/40%/15%)

15http://www.janes.com/article/59237/south-korea-prepares-to-introduce-offset-policy-update-to-boost-sme-exports



38

LEVEL6:OFFSETSANDCORRUPTION

Level6–Summary:

This level, based on the analysis of Transparency International, identifies and examines officiallydeclared cases of corruption for which countries have been indicted, and includes the followinginformationpercountry:

- Classificationunderexistingreadings;- Listofcasesofcorruptionlinkedtooffsetunderactiveinvestigation

Australia

AccordingtoTransparencyInternationals“GovernmentDefenceIndex”–Survey(2012),offsetshavearelativelylowriskofcorruption(noassociatedcorruptionrisk)inAustralia.Thecountryscoreshighest(4)in‘anti-corruptionduediligencerequirementsforoffsets’and“highstandardsoftransparencyforoffsetprogrammes”,andsecondhighest(3)in“samelevelofcompetitionasthemaincontract”.However,whilethetransparencyisrelativelyhighandAustralia’sDefenseMaterialOrganizationhaspublishedspecifictransparencypoliciesaswellasguidelinesfordue-diligencemeasuresontheirwebpage,thereisnoevidencethattheperformanceoftheoffsetcontractsiscontrolledlateronviaaudits.Also,Australiaisoneofthefewcountrieswhereacaseofcorruptioninoffsetshashappenedandhasbeendiscussedinthemedia(eventhoughthishappenedinthe1990s).Here,theoffsetagencyhasbeenbribedtoreceiveashareoftheoffsetobligationandoffsettransactionshavebeenclaimedincorrectly(seePlatzgummer,P(2013):ArmsTradeOffsetsandCasesofCorruption:TheUsageofAnti-CorruptionToolsinSpecialFormsofArmsAcquisitions).

Brazil AccordingtoTransparencyInternationals“GovernmentDefenseIndex”–Survey(2012),offsetshavearatherhighriskofcorruptioninBrazil.Brazilscoreshighest(4)in‘samelevelofcompetitionasthemaincontract’,however,“highstandardsoftransparencyforoffsetprogrammes”and‘anti-corruptionduediligencerequirementsforoffsets’havebelowaveragescores(2respectively0).Thereisnosignofanytransparencyorduediligencerequirements(withtheexceptionofoverallrequirementsintheprocurementlegislationFederalLaw8.666/1993).Auditsarecarriedout(onlyinlaterstages)bytheComptrollerGeneralandtheFederalAccountingCourt.Sofar,therehasnotbeenanyallegationofcorruptioninoffsetsinBrazil(thatfounditswayintoEnglishspeakingnewspapers!).

Canada Nodataavailable

Kuwait AccordingtoTransparencyInternationals“GovernmentDefenseIndex”–Survey(2012),offsetshavearelativelyhighriskofcorruptioninKuwait.Thecountryscoresbetween0and1(outof0to4)in“anti-corruptionduediligencerequirementsforoffsets”,“highstandardsoftransparencyforoffsetprogrammes”,and‘samelevelofcompetitionasthemaincontract’.Whiletheregulationpersedefinesveryhighstandards,TI’scountryassessorclaimsthatthereareopportunitiestoescaperegulation(whencontractsarebelowthethresholdfortransparencyregulation).Still,sofar,therehasnotbeenanyallegationofcorruptioninoffsetsinKuwait(not,atleast,thatfounditswayintoEnglishspeakingnewspapers).



39

India Onpaper,Indiahasveryhighstandardsfordue-diligenceandtransparencymeasures.But,accordingtoTransparencyInternational’s“GovernmentDefenseIndex”–Survey(2012),thesituationisdifferentinpractice.Duediligencerequirementsareimposedforalmostallcontracts,buttherearemajorloopholesduetothelevelofsecrecyinthenegotiationofdefensecontracts.Lackoftransparencyisaresultofthelimitedqualifiedtechnicalstaffavailabletomonitorthetransactionseventhoughthetransparencystandardsareveryhighintheregulation.Whilethereisformallythesamelevelofcompetitionofoffsetsandthemaincontract,thereisevidencethatthelevelforoffsetsislessstringent(changingoffsetpercentageswithinthetenderprocess,waivingoffthecompleteoffsetrequirement).Recentcorruptionallegations(bribinggovernmentofficialsduringthetenderphase,high-rankingofficialsowned/workedforoffsetreceivingcompanies).

Peru Nodataoncorruptioninoffsetsrespectivelyanti-corruptionmeasuresexist.

Russia According to Transparency International’s “Government Defence Anti-Corruption Index”therearenodirectdataonriskofcorruption inoffsetcontracts.This isprobablyduetolackofany regulationson that subject-matter. HoweverRussianFederation isoverall inhighriskofcorruptioninthedefenceandsecuritysector.Independentobserverssuggestthatdecisionsonimportsareusuallymadebecauseofthepersonalorpoliticalinterestsofkey decision-makers in the Ministry of Defence and at the highest levels ofgovernment. Reports show that there the levelof transparency inprocurement cycle indefencesectorisverylow.

SouthAfrica AccordingtoTransparencyInternationals“GovernmentDefenseIndex”–Survey(2012),offsetshaveaveryhighriskofcorruptionintheSouthAfrica.Thecountryscores1(of4)inallthreeindicators:“anti-corruptionduediligencerequirementsforoffsets”,“highstandardsoftransparencyforoffsetprogrammes”,and“samelevelofcompetitionasthemaincontract”.However,thefocusoftheassessmentisontheBAE/SaabGripencasethathasbeenhighlydiscussedinthemedia.Itisunclear,ifDTIdidordidnotchangeanyoftheregulationsregardingtransparencyordue-diligence.SouthAfricaistheonlycountrythatcouldseeallegationsofcorruptioninallpartsoftheoffsetprocessandwithallstakeholdersinvolvedintheprocess.However,notallallegationsledtocondemnations/werecorrect(seePlatzgummer,P(2013):ArmsTradeOffsetsandCasesofCorruption:TheUsageofAnti-CorruptionToolsinSpecialFormsofArmsAcquisitions,orFeinstein,Anrew(2011):TheShadowWorld,foraspecificdiscussiononthecorruptionallegationsinSouthAfrica.



40

SOUTHKOREA

AccordingtoTransparencyInternationals“GovernmentDefenseIndex”–Survey(2015),offsetshaveahighriskofcorruptioninSouthKorea.Thecountryscored0(of4)in“anti-corruptionduediligencerequirementsforoffsets”andscored1(of4)inboth“highstandardsoftransparencyforoffsetprogrammes”,and“samelevelofcompetitionasthemaincontract”.

Summary

Korea’sDefenseAcquisitionProgramActcontainsnospecificarticlesaddressingcorruptionriskinthenegotiationofoffsetcontracts.However,itisunderstandabletoacertainextent.Specificmilitaryprocurementsareconfidentialissuesandinneedofmorediscretionbytheexecutivebranch.And,subordinatedecreesandordinancesinlinewithactscouldgiveenoughflexibilitytotheexecutivebranch.Moreover,theDefenseAcquisitionProgramActhasextensivesafeguardstocontaincorruptionsinceitsenactment.TheDAPAExecutiveCommittee,inchargeofmajorpolicydecisions,mustincludeanexternalexpertparticipation.Also,theVoluntaryClinicAuditSystemisavailableforprojectmanagerswithasophisticatedauditandinspectionduringprogramsforlegalassurance.Lastly,alldefenseindustrialpersonnelmustsignoffontheIntegrityPact,whichimposescriminalliabilityfornoncompliance.

Turkey Nodataoncorruptioninoffsetsrespectivelyanti-corruptionmeasuresexist.

UAE AccordingtoTransparencyInternationals“GovernmentDefenseIndex”–Survey(2012),offsetshaveamediumriskofcorruptionintheUAE.Thecountryscores2(of4)in“anti-corruptionduediligencerequirementsforoffsets”,3(of4)in“highstandardsoftransparencyforoffsetprogrammes”,and0(0f4)“samelevelofcompetitionasthemaincontract”.TheUAErequiresaveryhighleveloftransparencyfromtheforeignsupplierbutdoesnotpublishanyinformationonitsownwebsite.Also,thereisnoevidenceofananti-corruptionprogramme.Sofar,therehasnotbeenanyallegationofcorruptioninoffsetsintheUAE(thatfounditswayintoEnglishspeakingnewspapers!).


Overall,itseemsthatthelevelofcorruptioninoffsetsisrelativelycloselylinkedtotheoveralllevelof corruption in that country. Such appears to be the case because specific anti-corruptionregulationspertaining tooffsetsappear tobe implemented following the implementationofmoregeneralanti-corruptionefforts.Also,whileanoverallsamelevelofcompetitionofoffsetsinthemaincontract could theoretically be organized relatively quickly, a high level of transparency of offsetprograms would need specific regulations that would define which indicators to control. Anunderstandingofwhatdatacompanieswouldbewillingtoincludeininternationalpublicreportsisan important point of consideration. Regarding anti-corruption due diligence requirements foroffsets, themain problem seems to be that there is not a specific understanding as towhat theywould look likeorhowtheywoulddiffer fromoverallduediligencerequirementsforprocurementcontracts.



41

LEVEL7:CULTURAL,REGIONALANDPOLITICALORGANIZATION

Level7–Summary:

Thislevelincludesthefollowinginformationpercountry:- Languages(s)andethniccomposition;

- ActualHeadofState

- Governancestructure(centralgovernment,regional/stategovernment);

- Applicationoflaws(importanceofnationalv.regional,etc.).

- Repartitionofcompetence

- Competencesininternationaleconomicrelations

CulturalOrganization Politicalorganization

Australia AustraliadoesnothaveanofficiallanguagebutthenationallanguageisEnglish.

1. Australiaisaconstitutionalmonarchywithafederaldivisionofpowers.

2. QueenElisabethIIandtheGovernorGeneralofAustraliaMalcolmTurnbull.

3. Australiahassixstates—NewSouthWales(NSW),Queensland(QLD),SouthAustralia(SA),Tasmania(TAS),Victoria(VIC)andWesternAustralia(WA)—andtwomajormainlandterritories—theAustralianCapitalTerritory(ACT)andtheNorthernTerritory(NT).

4. Eachstateandmajormainlandterritoryhasitsownparliament—unicameralintheNorthernTerritory,theACTandQueensland—andbicameralintheotherstate

5. FederalGovernmentremainsthecompetentauthorityfortradeandcommerce.

Brazil TheofficiallanguageofBrazilisPortuguese.

PopulationofBraziliscomposedof47.73%White,BrazilianofEuropeanorigin,43.13%Pardo,7.61%Black1.09%Asian0.43%Amerindian.

1. Brazilisafederalpresidentialconstitutionalrepublic,basedonrepresentativedemocracy.

2. PresidentDilmaRoussef3. Federalrepublic4. TheFederationiscomposedofalltheFederalDistrict,26

statesand5,564municipalities.5. Thefederalgovernmenthasthreeindependentbranches:

executive,legislative,andjudicial.Executivepowerisexercisedbytheexecutivebranch,headedbythePresidentwhoistheheadofstateandtheheadofgovernment.MunicipalitiesandStateshaveautonomousadministrations,collecttheirowntaxesandreceiveashareoftaxescollectedbytheFederationandstategovernment.

6. FederalGovernmentremainsthecompetentauthorityfortradeandcommerce.

Canada Officiallanguages: 1. Parliamentary Monarchy; Election of the House of



42


English,French.MajorityofCanadians(32%),English(21%),French(15,8%),Aborigines(4%);MajorityofChristian(67.3%).

Common:2011/06/02.2. PrimeMinister-StephenHarper(2011-)3. Federation4. 10provinces,3territories(powerdelegatedbytheFederal

government). Municipalities (city), called localmunicipalities. Some provinces have regionalmunicipalitiesthatincludelocalmunicipalities.

5. For the Federal State (section 91 of the Constitution):trade, military, taxation, statistics, money, banking,citizenship; For Province (section 92): taxation forprovincial purpose, health, property and civil rights,exploration, development, taxation and export to otherprovinces of non-renewable natural resources. In case ofconflict,Commonwealthlawprevails.

6. FederalGovernment remains thecompetentauthority fortrade and commerce. However, in some area as publicprocurement, Provinces and municipality are consultedsinceimpactedbytheagreement.Ex:USfirmsallowedtobidinmunicipalpublicprocurement.ProvincesincludedinnegotiationoftradeagreementwithEU.Thismightincludemechanism for sharing liability and protection ofinvestment.

Kuwait TheofficiallanguageisArabic.However,Englishismorefrequentlyspokenbecauseofthelargeforeignworkforce.

PopulationofKuwaitiscomposedof35.6%Kuwaitiand64.4%ofvariouspeople,essentiallystrangerworkers.

1. Kuwaitisaconstitutionalmonarchywithaparliamentarysystemofgovernment.

2. EmirSheikhSaadAlAbdullahAlSalimAlSabah3. Constitutionalmonarchywithaparliamentarysystemof

government.4. Kuwaitisdividedinto6governoratesandthegovernorates

aresubdividedintodistrict.5. TheEmiristheHeadofStateandhasthepowertodissolve

theparliament.TheKuwaitiparliamenthastheconstitutionalrighttoapproveanddisapproveanEmir'sappointment.

6. TheEmirandhiscabinethavetocompetentpowertoremaintheeconomicinternationalrelations.IranandtheotherArabGulfcountriesarethestrongesteconomicpartners.

India Officiallanguages:English,Hindi.114languagesspokenintotal.MajorityofHindu(80%),Muslims(13%),Christians(2,4%).

1. ParliamentaryRepublic;ElectionoftheLowerChamber:2014

2. President–PranabMukherjee(2012-);PrimeMinister–NarendraModi(2014-).

3. Formofgovernment:Hybrid4. 7UnionTerritoriesthatinclude29States.Locallevel:

MunicipalitiesandPanchayats.5. FortheUnionState(central):defense,armedforces,

atomicenergy,foreignaffairs,warandpeace,citizenship,foreigntrade,inter-statetradeandcommerce,controlofindustries,regulationanddevelopmentofmines,mineralandoilresources,andallothercompetenciesnotmentioned;FortheStates:maintaininglawandorder,



43


policeforces,healthcare,transport,landpolicies,electricityinstate,villageadministration,limitedcompetencies.Statelawprevailsincaseofconflict

6. N/APeru Theprincipallanguage

spokenisSpanish.QuechuaandAymara,alsoofficiallanguagesofPeru,arelessspoken.

1. PeruisaRepublicwithaPresidentialSystem.2. PresidentOllantaHumala3. Typeofgovernment:Peruisdividedinto25regionsand

theprovinceofLima.4. Eachregionhasanelectedgovernmentcomposedofa

presidentandcouncilthatservefouryearsterms.5. Thegovernmentsoftheregionsplanregional

development,executepublicinvestmentprojects,promoteeconomicactivities,andmanagepublicproperty.Thegoalofdevolvingpowertoregionalandmunicipalgovernmentswasamongotherstoimprovepopularparticipation.

6. ThecompetentpowerremainstotheExecutiveBranch.OnApril12,20016,afreetradehavebeensignedwiththeUnitedStates.Peru'smainexportsarecopper,gold,zinc,textilesandfishmeal;itsmajortradepartnersaretheUnitedStates,China,Brazil,andChile.

Russia OfficialLanguage:Russia,27co-officiallanguagesinotherregions.Ethniccomposition:Russian(81%),Tatar(3.7%),Ukrainian(1.4%),

1. Semi-presidentialrepublic;ElectionintheLowerchamber:2011.

2. President-VladimirPutin(2012-);PrimeMinisterDmitriMedvedev(2011-)

3. Federation4. RussianFederationincludes83"subjectsofthe

Federation,"withvariousdegreeinautonomy.Theseinclude2citiesofFederalimportance(MoskowandSaint-Petersburg).CrimeaandSebastopolarenotcounted.ThesesubjectsoftheFederationaregatheredin9federaldistricts.Thesedistrictsarenotalevelofgovernmentbutratherasublevelofcentraladministration.

5. CompetenceoftheFederalState:classicalattribution,including:internationalpolicyandtreaties,taxes,nuclearenergy,defense,foreigneconomicrelations.Sharedcompetencies:civilandpoliticalrights,internationalandforeigneconomicrelations,healthcare,environmentalprotection.ThesubjectsoftheFederationhavefullcompetenciesinothermatters.TheConstitutionandFederalLawsprevailsoverlocallaws.

6. PossibilityforsubjectsofthefederationtoimplementtheirforeigneconomicrelationsprovidedthattheMinistryofForeignAffairsagreeswiththeproject.

SouthAfrica 11officiallanguages,including:Zulu,Xhosa,AfrikaansandEnglish.Ethniccomposition:BlackAfrican(72%),

1. Political regime: Parliamentary Republic, but President isboth Head of state and head of government; Election oftheLowerChamber:2014

2. President:Zuma(2009)3. Formofgovernment:constitutionaldemocracy4. SouthAfrica iscomposedof9Provinces.Thenext level is



44


White(8.9%),Colored(8.9%)

municipality(localgovernment).5. Repartitionofcompetencescanbefoundinschedule4and

5oftheConstitution.TheSouthAfricanRepublicpresentsanoriginalmodelofpoliticalorganization,withanoverlapbetweenalllayersofgovernance(centralstate,provinces,localgovernment).Theprincipleis"co-government".Thereis a not separate competence between central state andprovinces. It is rather participation of provinces in thecentral state and local government, creating relationsbased on negotiation and cooperation. There are stillexclusivecompetenciesforthecentralstate:army,police,economy, international relations... There are sharedcompetences (schedule 4 of the Constitution): amongothers, there are indigenous laws, health insurance,environment,provincialpublicenterprises,trade.Exclusivecompetence of provinces (schedule 5): provincial roads,localplanning,...Theprovincialrulesshouldbeconformtonationalrules.RulesonpublicprocurementapplytoStateandProvinces

6. Competencesininternationaleconomicrelations:Trendofparadiplomacybyprovincessince2004,withincreasingofagreements by provinces. Even though not properlybinding as international agreements by theCentral State,there is a trend toward broader local economiccooperation.

SOUTHKOREA

Koreanistheofficialnationallanguage

1. Constitutional,unitary,presidentialrepresentativedemocraticrepublic

2. President:ParkGeun-hye(25February2013);PrimeMinister:HwangKyo-ahn(18June2015)

3. Constitutional,unitary,presidentialrepresentativedemocraticrepublic

4. Thegovernmentisdividedintothreebranches:legislative,executiveandjudicial.Allofthemoperateatboththenationalandlocallevels.Localgovernmentsaresemi-autonomous,andhavetheirownexecutiveandlegislativebodies.Koreaisdividedintonineprovinces,sixmetropolitancities,onespecialcity,andonespecialself-governingcity.5.TheCentralGovernmentremainsthecompetentauthorityfortradeandcommerce.

Turkey TheofficiallanguageofTurkeyistheTurkish,spokennativelybyapproximately85%ofthepopulation,composedof70-75%Turks,18%Kurds,7-12%variouspeople.

1. Turkeyisademocratic,secular,unitary,constitutionalrepublic.

2. PresidentAbdullahGul3. Turkeyisademocratic,secular,unitary,constitutional

republic.4. Turkeyissubdividedinto81provincesforadministrative

purposesonly.Eachprovincesisdividedintodistricts,foratotalof923districts.

5. ThePresidentoftheRepublicistheheadofstateandhasasymbolicandceremonialrole.TherealexecutivepowerisexercisedbythePrimeMinister,electedbytheparliament



45


throughavoteofconfidenceinthegovernmentandismostoftentheheadofthepartyhavingthemostseatsinparliament.

6. ThePrimeMinisterandtheirMinistershavethecompetentpowertosignalltheeconomicinternationalagreements.

UAE PopulationoftheUnitesArabEmiratesarecomposedof16.6%Emirati,23%otherArabs,42.3%SouthAsian,12.1%otherAsian,6.0%otherexpatriates.

1. TheUnitedArabEmiratesisafederationofabsolutemonarchies

2. PresidentKhalifabinZayedalNahyan

3. Federation

4. TheUnitedArabEmirates(UAE)isafederationofsevenhereditaryemirates(AbuDhabi,Dubai,Sharjah,Ajman,UmmAl-Qaiwain,Fujairah,andRasAl-Khaimah).

5. Allresponsibilitiesnotgrantedtothenationalgovernmentarereservedtotheemirates.

6. TheUAE'sliberalclimatetowardsforeigncooperation,investmentandmodernizationhaspromptedextensivediplomaticandcommercialrelationswithothercountries.Thuseachemirateshaspowertomanageitsowneconomicpolicy

Level7–Synthesis:Cultural,RegionalandPoliticalOrganization

Point2 1.Thereareanumber(limited)oftitlesforheadsofstate,mainlyincludingMonarchs(Emir,Queen,Viceroy/Governor),PresidentsandPrimeMinisters.Indifferentcountrydifferentmeaningsbehindterms.

2.Titlesarenotnecessarilyindicativeofpoliticalpower.

ImpactonanOffsetframework:

Howinvolvedisthatpersonintheexecutiveandwhatenforcementauthority.Whoisabletoimposepenalties?Howaccountableandethicalistheexecutive?Howreliableisthesystem?Howmuchisreliabilitydependentsupontheinvidividualpersonandhowmuchreliabilityisduetothesystemitself?

Point3 1.Federations,FederalRepublics,Republics,ConstitutionalRepublicsarecited.

2.Therearecountriesthatareclearlyasinglestate(Turkey),andcountriesthatarepresentedasafederationofautonomousstates(UAE).

3.Therearecountrieswherethegravitytowardonepoleortheotherislessclearlydefined(India,SouthAfrica).



46

Impactonanoffsetframework:

Verydifferentpoliticalorganizations(Turkeyv.Brazil)canhavegoodoffsetresultsbecausetheirgovernancesystemisclear(roles,responsibilities).Governmentauthoritieshavethepowerandorganizationtoimplement.Butinthatinmanygovernmentsystemsthereareroadblocks,itmightbeeasiertoputintoplaceamoreflexiblelighterframework(ex.inafirststepamodelagreementratherthanabindingagreement).

Point4 1.Eachcountryisdividedintoregionalunitsandlocalunits.

2.Thenamesusedtodescribethesub-unitsappeartobeindicativeofthewaypowerisexercisedinthecountry.ForAustralia,BrazilandIndia,theterm“state“isused;Peruusestheterm“regions”;forCanadaandSouthAfrica,thetermusedis“province”;Turkeyalsousestheterm“province”,butqualifiesthattheyareestablishedonlyforadministrativepurposes;Kuwaitusestheterm“governorates”;UAEusestheterm“HereditaryEmirates”;andRussiausestheterm“subjectsoftheFederation.”


Theregionalsubdivisionisagoodindicatorofthecountry'scomplexityindesigningasimpleenoughmodellaw.

Point5 1.Therearecountrieswithclearlydefined/separatedroleswithinFederalGovernmentaswellasbetweenFederalandRegionalGovernment:Australia,Brazil,Canada,Peru(exceptpossiblyjudiciary),Turkey.UAE.

2.Therearecountrieswithunclearlydefined/separatedroleswithinFederalGovernmentand/orbetweenFederalandRegional:Kuwait(currentgridlockbetweenEmirandparliamentonreforms),India(powertendingtowardthecenterbutregional/localpoweraswell;Russia;SouthAfrica


Inanumberofcountrieswithareasofunregulatedoverlap,itisimportantthatanyproposedoffsetmodelorframeworkberigorousenoughtobringorderwhilealsopreservingflexibility.Moreover,itmustbesimpleenoughtobeimplementedincountrieswithcomplexpoliticalorganization.

Point6 Thefederalauthorityismainlyresponsibleforinternationaleconomicrelations,withtheUAEbeingtheexception

ImpactonanOffsetframework:Thefederalauthoritycangenerallynegotiate.Ontheotherhand,theframeworkmustbesimpleenoughtobeadheredtobytheregionalauthorities.Authoritytonegotiateisimportantbutlocalneedsinmorecomplexenvironmentsmustbetakenintoconsiderationindefiningaframework.Localpushbackshouldbeexpected.


Namesofregimesarenotnecessarily indicativeof thewaypower isexercised.Example: AustraliaandKuwaitarebothconstitutionalmonarchies;forAustralia,QueenElizabethII(whoisthemonarch



47

for fifteen countries, notably of theUnited Kingdom) has a non-governing rolewith theGovernorGeneral, an Australian national and Member of the Australian Parliament actually governs; bycontrast,inKuwait,theEmirisactivelyinvolvedingoverning.Therearewidelydifferingregimetypesamongthesurveyedcountries,includingfederations,parliamentarymonarchies,constitutionalmonarchies,constitutionalrepublic,andhybridmodels.Thissituationprovesthatoffsetrequirementshavenothingtodowiththecountry’spoliticalregime.



48

LEVEL8:COMPARISONBETWEENUNCITRALMODELLAWONPUBLICPROCUREMENT(2011)ANDNATIONALPUBLICPROCUREMENTLAWS

Level8–Summary:

Acomparisonhasbeenestablishedbetweenlevel2ofeverycountriesandtheUNCITRALmodellawonpublicprocurement*

*OfficialrecordsoftheGeneralAssembly,Sixty-SixthSession,SupplementNo.17(A/66/17),annexIfromtheUnitedNationsOrganization(UNO).

ChapterI–NationalLawBasis

Australia CommonwealthProcurementRules(CPR)-July2012

Brazil Law8.666/93(PublicProcurementAct).EachBrazilianStatehavealsotheirownlegislationonpublicprocurement

Canada Manual(PWGSC)1-PublicProcurement1.1-1.3

Kuwait Law37,1964

India Chapter6oftheGeneralFinancialRules(GFR)2005.AbroaderframeworkisalsoprovidedbytheContractAct,1872,theSaleofGoodsAct,1930,theLawonArbitrationandLimitationandtheRighttoInformationAct,2005.

EachIndianStatehavealsotheirownrules,guidelinesorlegislationonprocurement.

Peru Law30.225ofJuly11,2014(notinforce)

Russia Law94-FZ(2005)andLaw44-FZ(2013).Thesetwolawsoperatesimultaneouslyuntil2017,whichistheendofatransitionperiod.Then,from2017,Law44-FZwillbecometheonlylawregulatingpublicprocurement.

SouthAfrica Therearenoprescribedlegalprocedures,onlyafewcommonprinciples(Section217oftheConstitution;StateTenderBoardAct,1968;PublicFinanceManagementAct1999(Section51(1)(a)).Eachentityhasitsowninternalpolicyandprocedures.

SOUTHKOREA TheGovernmentProcurementAct;theStateContractsAct

Turkey Law4734and4735(Ch.1)

UAE FederalOrderNo.16aswellasStateLawsinAbuDhabi(LawNo.6of2008)andDubai(LawNo.6of1997).



49

SynthesisChapterI

UNCITRAL2011model lawonpublicprocurement“recommendsthatallStatesusetheModelLawin assessing their legal regimes for public procurement and give favourable consideration to theModelLawwhentheyenactorrevisetheirlaws”.Itstipulates,“ModelLawwillsignificantlyassistallStates, in particular developing countries and countrieswith economies in transition, in enhancingtheirexistingprocurement lawsandformulatingprocurement lawswherenonepresentlyexist,andwillleadtothedevelopmentofharmoniousinternationaleconomicrelationsandincreasedeconomicdevelopment”.

For themoment, all of the ten countries reviewed have enacted procurement laws, except SouthAfrica.Threeofthetencountries(Brazil,CanadaandTurkey)includewell-definedlawsinaccordancewith the harmonized standards of the 2011 model law. Four of them (Australia, India, Peru andRussia)performmostof the chaptersof the2011model law,but fail to fulfill someof them.Twocountries(UAEandKuwait)fulfillonlypartiallyandinsufficientlytheharmonizedstandards.

ChapterII–MethodsofProcurement

Australia CPR9.Procurementmethod

Brazil Law8.666/93,Art22-26

Canada PWGSC3Chapter3-ProcurementStrategy

Kuwait SomeelementsinArticles.Article15discussesannouncementinofficialGazette.Didnotidentifyselectioncriteriafordifferentprocurementmethods

India GFR2005,Rules145-156

Peru Art21-27

Russia Art.10(94-FZ)

SouthAfrica Therearenoprescribedlegalprocedures

SOUTHKOREA theGovernmentContractsActArticle7;PresidentialDecreeonStateContractsActChapter3

Turkey Arts.18-23

UAE FederalLawprovidesforpublic,closed,negotiationanddirectordercontracts.(Specificprovisionstobeidentified.)

SynthesisChapterII

Methodsof procurements”ofUNCITRAL2011model lawonpublicprocurementstates that:“Theprocuringentitymayconductprocurementbymeansof:(a)Opentendering;(b)Restrictedtendering;(c)Requestforquotations;(d)Requestforproposalswithoutnegotiation;(e)Two-stagetendering;(f)Request for proposals with dialogue; (g) Request for proposals with consecutive negotiations; (h)



50

Competitivenegotiations;(i)Electronicreverseauction;and(j)Single-sourceprocurement”(article27ofUNICTRAL2011modellaw).

ExceptSouthAfrica(wheretherearenoprescribedlegalprocedures)andKuwait(wherethereisnoclearly selection criteria for procurementmethodsdistinction), theother eight countries reviewedhave well defined the methods of public procurement according to UNCITRAL 2011 model lawrequirements.

ChapterIII–OpenTendering

Section1

Solicitation

Section2

Presentationoftenders

Section3

Evaluationoftenders

Australia Seechapter2 CPR10.17Potentialsuppliersmustberequiredtolodgesubmissionsinaccordancewithacommondeadline.

Specificguidelinesnotidentifiedindocument

Brazil Seechapter2 Law8.666/93,Art27-37 Law8.666/93,Art38-53

Canada Seechapter2 PWGSC4.85ClosingProcedures

PWGSC4.40EvaluationProcessandMethodofSelection

Kuwait Seechapter2 Art.22-26 Art32-41

India Seechapter2 GFR2005,Rule150 GFR2005,Rules137,150,160-161

Peru Seechapter2 Art12 Pendingofanimplementationdecree

Russia Seechapter2 Arts.20-26(94-FZ) Arts.27-28(94-FZ)

SouthAfrica Seechapter2 Therearenoprescribedlegalprocedures

Therearenoprescribedlegalprocedures

Korea PresidentialDecreeonStateContractsAct

ChapterIV

PresidentialDecreeonStateContractsActArticle39

PresidentialDecreeonStateContractsActArticle41,42

Turkey Seechapter2 Arts.30-35 Arts.36-47

UAE Seechapter2 FederalandEmirateslawsincludeprocedures.(Specificprovisionstobeidentified.)

FederalandEmirateslawsincludeprocedures.(Specificprovisionstobeidentified.)

SynthesisChapterIII



51

Open tendering” of UNCITRAL 2011 model law on public procurement provides for severalmechanismsandrequirementson:“Section1–Solicitation”,“Section2–Presentationoftenderers”and“Section3–Evaluationoftenders”.

Except South Africa (where there are no prescribed legal procedures), Australia and Peru (wherespecific guidelines or implementation could not be totally identified), the other seven countriesreviewedfulfiltheharmonizedstandardssetoutin“ChapterIII-Opentendering”ofUNCITRAL2011modellaw.

ChapterIV–ProceduresforRestrictedTendering

Australia CPR9.Procurementmethod

Brazil Law8.666/93,Art22-26

Canada Bidsopentoallprinciple.Restrictiontoonerequiresjustificationinlinewithestablishedrules

Kuwait Littlecriteriaidentifiedforchoosingtorestrictatender

India GFR2005,Rules151-152

Peru Pendingofanimplementationdecree

Russia Art.30-Art.56ofFederalLaw44


SOUTHKOREA PresidentialDecreeoftheStateContractsAct,ChapterIII

Turkey Art20

UAE FederalandEmirateslawsincludeprocedures.(Specificprovisionstobeidentified.)

SynthesisChapterIV

Procedures for restricted tendering, requests for quotations and requests for proposals withoutnegotiation”ofUNCITRAL2011modellawprovidesdifferentrequirementsonthesesubjects.

Except South Africa (where there are no prescribed legal procedures), Kuwait and Peru (whereselectioncriteriaarenoclearly identified) theothereightcountries reviewedfulfil theharmonizedstandardssetoutin“ChapterIV”ofUNCITRAL2011modellaw.

ChapterV–ProceduresforTwo-StageTendering

Australia Specificguidelinesnotidentifiedindocument



52

Brazil Law8.666/93,Art22-26.Law12.462/2011(SpecialRegimeforPublicProcurements-"RDC"),Art12and26

Canada PWGSC3.25biiA

Kuwait Notinformationidentified

India GFR2005,Rule137

Peru Pendingofanimplementationdecree

Russia Art.57(44-FZ)


SOUTHKOREA PresidentialDecreeoftheStateContractsAct,Article18

Turkey Art21(NegotiatedTenders)


SynthesisChapterV

Procedures fortwo-stagetendering, requests forproposalswithdialogue,requests forproposalswith consecutive negotiations, competitive negotiations and single-source procurement” ofUNCITRAL2011modellawstateshowsuchproceduresshallberegulated.

Only Brazil, Canada, India, Russia and Turkey show satisfactory fulfilment of the harmonizedstandardsmentionedinthisChapterV.

ChapterVI–ElectronicReverseAuctions

Australia ReferencestoAustradeandCPR9.Procurementmethod

Brazil Law10.520/2010

Canada PWGSC4.75.20

Kuwait Noinformationidentified

India Noinformationidentified

Peru Art48

Russia Ch.3.1,Arts.41.1-41.12(ElectronicAuctions)(94-FZ);Art.59-71:Electronicauctions(44-FZ)


Turkey Arts.68(sub-article5)

SOUTHKOREA PresidentialDecreeoftheStateContractsActArticle10③



53

UAE NoReverseAuctionorCompetitionTendersatFederalLevel,butAbuDhabilawprovidesforAuctions,andDubailawprovidesforCompetitions

SynthesisChapterVI

Electronic reverse auctions” of UNCITRAL 2011model law provides rules on the following issues:“Electronic reverseauctionasaphasepreceding theawardof theprocurementcontract” (art.54);“Registrationfortheelectronicreverseauctionandthetimingoftheholdingoftheauction”(art.55);“Requirementsduringtheelectronicreverseauction”(art.56)and“Requirementsaftertheelectronicreverse auction” (art. 57) Only Australia, Brazil, Canada, Peru, Russia and Turkey show somesatisfactoryfulfilmentoftheseharmonizedstandards.

ChapterVII–FrameworkAgreementProcedures

Australia Specificguidelinesnotidentifiedindocument

Brazil Law8.666/93,Art24(itemsV,XVII,XIX)

Canada PublicWorksandGovernmentServicesCanadaPWGSC3.45SupplyArrangements

Kuwait Noinformationidentified


Peru Art31

Russia Noframeworkagreementprocedures


SOUTHKOREA GovernmentProcurementActArticle5;PresidentialDecreeoftheGovernmentProcurementServiceActArticle7-216

Turkey Arts.68(sub-article2)

UAE Two-parttendersandnegotiatedtendersareavailableforcomplexprocurements.Furtherinformationbeingcompiled.

SynthesisChapterVII

16Article7-2oftheEnforcementDecreeoftheGovernmentProcurementAct:WheretheAdministratorofthePublicProcurementServicedeemsitnecessarytosatisfythediversedemandofenduserswhenhe/shepurchasescommoditiesindemandcommonlyrequiredbyeachenduserpursuanttoArticle5-1oftheAct,he/shemayenterintoacontractforsupplywithtwoormorepersonsaspartiestoacontractsothateachendusermayselectcommoditiesindemandequalorsimilartooneanotherinquality,performance,efficiency,etc.



54

Frameworkagreementprocedures”ofUNCITRAL2011modellawprovidesforseveralmechanismsand requirements for both closed and open, single-stage and two-stage framework agreements.OnlyBrazil,Canada,PeruandTurkeyshowsomefulfilmentofthisChapter.

ChapterVIII–ChallengeProceedings

Australia Tobemanagedasmuchaspossiblewithintheadministration

Brazil Law8.666/93,Art109

Canada CanadianInternationalTradeTribunal(CITT)

CanadianCompetitionBureau

PublicprocurementrulesareenforcedbythecourtsinCanada

Kuwait Independentinstance/rulesforchallengingdecisionsnotidentified


Peru Art41-45

Russia Ch.8,Arts.57-62(94-FZ);

SouthAfrica JudicialReviewiscommonlyallowed

SOUTHKOREA ComplaintsaboutinternationalbiddingcanbefiledinaccordancewithArticle28oftheActonContractstowhichtheStateisaParty.Ifthereiscomplaintagainstthereviewresults,itcanbefiledwiththeStateContractDisputesConciliationCommitteeaccordingtoArticle29.ThecomplaintforthebreachoftheactasproscribedbyArticle28oftheActonContractstowhichtheStateisaPartyshouldbemadetotheprincipalofacentralexecutiveagencywithin15daysafterthebreachhasoccurredorwithin10daysafterknowingthatsuchbreachoccurred.

Turkey Arts.54-57


SynthesisChapterVIIIChallengingproceedings”ofUNCITRAL2011modellawregulatesthefollowingissues:“Righttochallengeandappeal”(art.64);“Effectofachallenge”(art.65);“Applicationforreconsiderationbeforetheprocuringentity”(art.66);“Applicationforreviewbeforeanindependentbody”(art.67);“Rightsofparticipantsinchallengeproceedings”(art.68);and“Confidentialityinchallengeproceedings”(art.69).OnlyBrazil,Canada,PeruandSouthAfricashowsatisfactoryfulfilmentofthisChapter.


CompliancewithUNCITRAL2011ModelLawonpublicprocurement:

1. Fullycompliant:Brazil,Canada,Turkey.



55

2. Partiallycompliant:Australia,India,Peru,Russia.

3. Insufficientlycompliant:UAE,Kuwait.

4. Non-compliant:SouthAfrica.

All of the ten countries reviewed aremembers of the UN and therefore recognize the UNCITRAL2011ModelLawonpublicprocurement,whichprovidesforrigoroustransparencymechanismsandrequirementstopromotecompetitionandobjectivity.Threeofthetencountries(Brazil,CanadaandTurkey) includewell-defined laws inaccordancewiththeharmonizedstandardsof theModelLaw.Fourofthem(Australia,India,PeruandRussia)performmostofthechaptersoftheModelLaw,butfailtofulfillsomeofthem.Twocountries(UAEandKuwait)fulfillonlypartiallyandinsufficientlytheharmonizedstandards.SouthAfricahasnotyetprescribedlegalproceduresonpublicprocurement.

ThoughthiswasnotinfluenceddirectlybyUNCITRALModelLaw,itisasimilarenactmenttothatofUNCITRALModellaw.WhereastheModelLawappliestoallprocurement,Korea’slegalframeworkaddress specific industries separately. For example, the pre-qualifications procedure is only beingappliedinconstructioncontracts.TheKoreanActitselflacksspecificdetailsandreservesuchdetailsto enforcement decrees and ordinances. This procurement regime allows flexibility for thegovernment.

W O R L D B A N K C OMM I T T E E

CHAPTER 2 : ANALYS IS BY COUNTRIES

Summary

An analysis has been made in order to identify the different major partnership contracts,determining the different legal frameworks (BOT, FBO, offsets, etc.) and sectors (mining, water,infrastructures,etc.)inthefollowingcountries:

- Australia- Brazil- Canada- India- Kuwait- Peru- Russia- SouthAfrica- Turkey- UnitedArabEmirates

The text pinpoints the techniques used to create these major contracts, as well as the inter-normativity phenomena at work, notably in international calls for tender. Although apparently asimple process, such constitutional democracy a foundation is fundamental as the majority ofgovernmentprocurementcontractsareshroudedinsecrecy.



57

AUSTRALIA

Australia does not have a standard offset or industrial participationpolicy.RatherthanwaitforopportunitiestobeofferedthegovernmentwillactivelyseektoleverageitsbuyingpowertocreateopportunitiesforAustralian(andNewZealand)firmsininternationalprograms.

Forcivilprojects,theAustralianJobsAct,2013requiresAustralianIndustryParticipationPlansforprojectsvaluedatmore thanA$500million. Thepolicyactuallyoffersaseriesofquestions thathavetobeansweredinaRequestforTender(RfT).Evenwithoutanenforceableoffsetpolicythegovernment requires contractors to sign up to various contractual obligations either through anAustralian IndustryCapability (AIC) plan as part of the tender response, or separately through aGlobalSupplychaindeed

The government identifies areas of industrial capability which it regards as critical. IfthoseareasrelatetotheproductortechnologyunderpurchasetheywillbeincludedintheRfT.

Australia’srevisedDefenceIndustrialPolicy,entitled“APolicyforaSmarterandMoreAgileDefenceIndustry Base”,which is neither a law nor a regulation, provides foreign supplierswith additionalinformation on governmental objectives, as well as how suppliers are expected to work with theAustraliandefenseindustry.

TheDefenceIndustrialPolicyrequiresarelativelylargeamountofveryspecificactivitieswithinthetender phase and the procurement contract. For instance, the “Australian Industry CapabilityProgrammes” (AIC), which impact upon the tender evaluations. The Policy also actively exploresopportunitiesofAustralianfirmsininternationalprograms(forexample,viathe“GlobalSupplyChainProgramme” (GSP)). The DefenceMaterial Organization (DMO) has produced aweb-based toolkitwithadditionalinformationforallstakeholdersandisalsopubliclydisclosesdetailsofAICplans.

Especiallyduringrecentyears,Australia'soffsetapproachhasshiftedfromaratherliberaltoamuchmorerigidmannerofhandlingoffsets.AICplansmustbe includedforallcontractsvaluedatmorethanA$20millionandneitherbankingnormultipliersareapplicable.Also,companiesneedtohavecomprehensiveevidenceoftheiractivitiesandfailuresinordertofulfillobligations;failuretodosowillleadtoablacklistingofcompaniesandexclusionfromtenders.

Conclusion:

1. Event/Challenge/Accomplishment

MemorandumofDiscussion1973.AustraliasignedthefirstmodernoffsetagreementwiththeUSA.

2. Significanceindraftingthemodellaw

Providesanexampleofanagreementthatissimpleandgood



58

BRASIL

Brazil is a Latin American country with 200 millioninhabitants and a GDP of US$2246 billion. The officiallanguage is Portuguese. It is a federal presidentialconstitutional republicbasedon representativedemocracy.The Federation is composed of 27 federative states and5,564 municipalities. The federal government has threeindependent branches: executive, legislative and judicial..ThecurrentPresidentandheadoftheExecutiveisDilmaRoussef(oftheWorkers’Party).Statesandmunicipalitiesenacttheirown laws,haveautonomousadministrations,collect theirowntaxesandreceiveashareoftaxescollectedbybothfederalandstategovernments.Thefederalgovernmentisthe competent authority for trade and commerce. Brazilian federal government total spending isUS$406.5 million , including: US$31.44 million (1.40% of GDP) on defense, R$30.76 million onenergy,andR$21.98millionontransport.

BrazilisamemberoftheInternationalMonetaryFundsince1945andaWorldCustomsOrganizationmembersince1981.ItisalsoamemberoftheWTOsince1995butanon-signatoryoftheGPA.BrazilisnotamemberoftheOECD.BrazilianlawsonpublicprocurementshowcloselytracktheUNCITRALModelLawonpublicprocurement.BrazilismemberoftheMercosurtraderegionalbloc.17Althoughnotexplicitlyspeakingtogovernmentprocurements,MercosurMemberStatesagreedonaProtocolonGovernmentProcurement.18Further,actingonbehalfof itsmembers,Mercosursignedbilateral(orbioregional)tradeagreementswiththeotherSouthAmericancountries,aswellaswithMexico,Israel, India, Egypt (not in force), Palestine (not in force), and the Southern African CustomsUnion/SACU (not in force). Similarly, such agreements do not include specific provisions onGovernmentProcurement.

Brazil's system includeswell-defined, robust laws and practice on public procurement.However itdoesnotyetincludeagenerallegalframeworkonoffsets.Civiloffsetsareused–eventhoughtheyare not always called as such – inmajor national projects, such as high-speed rail transportation,hydroelectric plants and hydrocarbon offshore. In the defense sector, each branch of the armedforces19has itsownorganizationandinternalrulesonoffsets.MandatoryaboveUS$5million,theycan include indirect offsets (mostly restricted to the defense sector),multipliers, penalties and tosomeextentbankguarantees.

Relevant legislationonoffsets:FederalConstitution,articles37and175;FederalLawNo.8.666/93(Public Procurement Act); Federal Law No. 8.987/95 (Public Procurement for Public ServiceConcessions); Federal Law No. 10.079/04 (public-private partnerships - PPPs); Federal Law No.12.462/2011 (Special Regime for Public Procurements – "RDC"); Law 12.598/2012 (DefenseProcurement);Order764/MD–MoDPolicyDirectiveonOffsets,Dec27th2002(regulatingoffsetsinthe defense area); Order nº 1.395/GC4 – Commercial, Industrial and Technological Cooperation

17CreatedbytheTreatyofAsunción,signedonMarch26,199,1MercosurmembersincludeArgentina,Brazil,Paraguay,Uruguay,andVenezuela.18DecisionCMC40/03,ofDecember15and16,2003.19AirForce,NavyandArmy.



59

(Offset)PolicyandStrategyfortheAirForceCommand;PolicyandStrategyforOffsetAgreementsupdatedDec13th,2005(AirForceRegulationDCA360-1);Ordernº1.397/GC4–GuidelinesfortheNegotiationofCommercial,IndustrialandTechnologicalCooperation(Offset)Agreements,Dec13th,2005 (AirForceRegulation ICA360-1);andNationalStrategyofDefense (Decreenr.6.703,18Dec2008describinghowBrazilviewsitdefenseobjectivesandtotheconceptofdefense-relatedsocialbenefits).

A 100% obligation is required for Defense purchases greater than R$5 million. For Defensepurchases,offsetsaremostlydirectbutpartoftheobligationcanbefulfilledthroughindirectoffsets.Multipliersarepossiblefrom1to10.ForDefensepurchases,Bankguaranteesareallowedonacase-by-casebasisandundercertainconditions:(a)tobesignedbybothparties;(b)five-yearmaximumvalidityperiod;(c)transferislimitedtocompanieswithinthesameholding;(d)creditscanbeusedtothemaximumextentof50%ofanobligationunderanewcontract.Transfersofcredits(swaps)andpre-offsetsareusuallynotacceptablebutmaybeconsideredonacase-by-casebasisaswell.

Direct offsets in the defense sector are fulfilled mainly through the following categories: co-production; production under license; subcontracted production; foreign direct investment (FDI);training; transfer of technology; purchase of Brazilian products/services; donations/leasesequipment; costs in development.Offset penalties forDefense encompass 5%of unfulfilledoffsetobligations;blacklisting.

AccordingtoTransparencyInternational’s“GovernmentDefenseIndex”–Survey(2012),offsetshavearatherhighriskofcorruptioninBrazil.Brazilscoreshighest(4)in“samelevelofcompetitionasthemain contract”, however, “high standards of transparency for offset programmes” and “anti-corruptionduediligencerequirementsforoffsets”havebelowaveragescores(2and0,respectively).There is no sign of any transparency or due diligence requirements (with the exception of overallrequirementsintheprocurementlegislationFederalLaw8.666/1993).Auditsarecarriedout(onlyinlaterstages)bytheComptrollerGeneralandtheFederalAccountingCourt.

Conclusion:


Brazilleveragedoffset(EmbraerwaslicensedtoproduceAermacciairplanes)todevelopitsindustryleadingaeronauticalcompanyEmbraer.

Howeveritcanbedifficulttofindtherightcontactbecausetherearemanydifferentoffsetactorsinplace.


Havingveryclearandrealistic(evenifambitious)industrialprioritiesandusingoffsetasameanstoaccelerateprogressiskeytoanoffsetprogram'ssuccess.



60

CANADA

I.OverviewofCanadianGovernmentProcurementLaw

• TheGovernmentofCanadaisoneofthelargestpublicbuyersofgoodsandservicesinCanada,purchasingapproximatelyC$16.05billion worth every year on behalf of federal departments andagencies(federallevel).

• PublicWorksandGovernmentServicesCanada(PWGSC)isthegovernment’smainpurchaserofgoodsandservices(includingbothcivilanddefensesectors).

• PWGSC procurement activities are principally carried out pursuant to the following legalframework: the Department of Public Works and Government Services Act; the FinancialAdministration Act; the Defence Production Act; the Federal Accountability Act; and theGovernmentContractsRegulations.

• Subsequent purchasing (provincial and territorial level) is done by the 10 provincialgovernmentsandthethreeterritorialgovernments,aswellasbywhatisalsoknownastheMASHsectors(municipalities,academicinstitutions,schoolsandhospitals).

• Each provincial, municipal, and institutional purchaser has unique procurement policiesand/orbylaws.

• TheCanadiangovernmentprocurementprocessbeginswhenadepartmentoragencysendsarequisitiontoPWGSC.PWGSCsubsequentlypublishesitsprocurementopportunitiesonawebsitecalledMERX(www.MERX.com).In keeping with the Government Contracts Regulations, PWGSC procurement is done bymeans of a competitive procurement process whenever possible, or a non-competitiveprocurement process (only used in special circumstances). Through the competitiveprocurement process, PWGSC buys goods and services using the following 2 methods ofsupply:contracts,andstandingoffersandsupplyarrangements.

• ContractsvaluedatoverC$25,000(threshold)mustfollowthespecificPWGSCprocurementprocess (definition of requirement, validation of requirement, governmental approval,creationofanofficial StatementofRequirement (SOR), selectionofprocurement strategy,bid solicitation and source selection, negotiation and award of contract, final delivery ofproduct).

• For requirements below C$25,000, contracting officers may request quotations fromsuppliers directly. These requirements are considered by PWGSC as low dollar valueprocurement. In this case, contracting officers will determine the most appropriateprocurementstrategy foreachrequirementtoobtainbestvalueandensurethetimelinessandcost-effectivenessofeachcontract.Theymayusevariousmethodsofsupplytoidentifyandselectasupplieroneitheracompetitiveornon-competitivebasis.

• Standingoffersandsupplyarrangementsaretwotypesofnon-bindingagreementsbetweenthe federal government and potential suppliers of specified goods or services. Theseagreements outline the terms and conditions thatwill apply to future requirements to beorderedonanasandwhenrequiredbasis.

• The non-competitive procurement process, on the other hand, is only used in specialcircumstances:



61

o The need is one of pressing emergency in which delay would be injurious to thepublicinterest;

o Theestimatedexpendituredoesnotexceed:" C$25,000 for goods and services (contracting officers are still expected to

solicitbidsbelowthisvaluewheneveritiscosteffectivetodoso);" C$100,000 for architectural, engineering and other services required in

respect of the planning, design, preparation or supervision of theconstruction,repair,renovationorrestorationofawork;

" C$100,000 for the Canadian International Development Agency (CIDA)servicecontracts related to internationaldevelopmentassistanceprogramsorprojects;

o Onlyonepersoniscapableofperformingthework,suchaswhenasupplierownsacopyrightoralicense;

o Thenatureof thework is such that itwouldnotbe in thepublic interest to solicitbids.

• When PWGSC decides, based on one or more of the above exceptions, to sole source acontract thatwouldotherwise require a competitiveprocess, it posts anadvance contractawardnotice(ACAN)onMERX.

• AnACAN isapublicnoticepublished foraminimumof15calendardays, indicating to thesupplier community that a department or agency intends to award a contract for goods,services or construction to a pre-qualified supplier believed to be the only one capable ofperformingthework,thatwayenablingothersuppliersduringthepublishingperiodtosignaltheir interest in bidding by submitting a statement of capabilities. If no other suppliersubmits a statement of capabilities thatmeets the requirements set out in theACAN, thecontracting officer may then proceed with awarding the contract to the pre-qualifiedsupplier.

• Existing alongside the framework of Canadian statutes, regulations and policies thatimplementCanada’stradeobligationsaretradeagreements.Indeed,CanadaisasignatorytointernationalanddomesticagreementsthatpromotetradeopportunitieswiththeCanadiangovernmentforbothforeignanddomesticsuppliers.

• Canada is a signatory to two international trade treaties aimed at reducing trade barriersbetweenthesignatories:theNorthAmericanFreeTradeAgreement(NAFTA)andtheWorldTradeOrganizationAgreementonGovernmentProcurement(WTO-AGP).

• The procurement provisions of all trade agreements are similarly structured in that if aproposedcontractmeetscertaincriteriaitiscoveredbytheagreement;ifitdoesnotmeetall the stated criteria then it is not covered. A proposed contract can be, and often is,coveredbymorethanoneagreement.

• TheNorthAmericanFreeTradeAgreementsetsoutCanada'scommitment to reduce tradebarriersbetweenCanada,theUnitedStatesofAmericaandMexico.

• The use of measures to improve socioeconomic development (offsets) for procurementscoveredbyNAFTAisprohibited.

• A procurement is subject to NAFTA: if its value is equal to or greater than the relevantthreshold; if thetypeofrequirement iscovered; if theentity forwhichtheprocurement isbeingdoneiscovered,andifthereisnospecificexceptionapplicableorinvoked.

• TheWorld Trade Organization Agreement on Government Procurement (WTO-AGP) is, asdiscussed, an agreement, which aims to secure greater international competition forgovernmentprocurement.ItprovidesprocurementprocedureswhichCanadaabidedto.



62

• The use of measures to improve socioeconomic development (offsets) for procurementscoveredbyWTO-AGPisgenerallyprohibited.

• A procurement is covered by the WTO-AGP: if its value is equal to or greater than therelevant threshold; if the type of requirement is covered; if the entity for which theprocurement is being done is covered, and if there is no specific exception applicable orinvoked.

TheIndustrialandRegionalBenefits(IRB)Program

• The IRB Program provides the framework for ensuring long-term industrial and regionaldevelopment benefits from Government of Canada defense and security purchases. ThePolicy ensures that business activities equal to the value of the contract are generated inCanadafromcompanieswhowinthesecontracts.

• The IRB obligation is a contractual commitment and part of the overall governmentprocurementcontract.

• Canadacurrentlyhasmorethan60defenseandsecurityprocurements thataresubjecttotheIRBPolicy.Together,theseIRBobligationsrepresentinexcessofC$20billionincurrentandfuturebusinessactivitieswithCanadianindustries.

• The Policy applies toGovernment of Canadadefense and security procurements that areexempt from international trade agreements to which Canada is a signatory, such as theWTO-AGPandNAFTA.

• Moreover,theIRBProgramdoesnotapplyinthefollowingsituations:o ForeignaidbyoronbehalfoftheCIDA;o Procurements by the Canadian Commercial Corporation on behalf of entities not

subjecttothispolicy;o Acquisition,modificationandroutinemaintenanceofrealproperty;o SecurityrequirementsbyoronbehalfoftheCommunicationsSecurityEstablishment

of theDepartmentofNationalDefence; theCanadianSecurity IntelligenceService;and the Royal Canadian Mounted Police for the purpose of pursuing criminalinvestigations,and

o Incasesofapressingemergency.• When applicable, the Policy is mandatory for projects greater than C$100 million and

discretionaryforprojectsbetweenC$2andC$100million.• Industry Canada takes a number of factors into accountwhen decidingwhether or not to

applythePolicytogovernmentprocurementsunderC$100million.Considerationsinclude:o IstheprocurementstrategictoCanadianindustry?o Are the potential bidding companies of interest to Canadian industry and are they

capableoffulfillinganIndustrialandRegionalBenefits(IRB)obligation?o Istheprojectasmallerpartofalargerone?

• TherearetwotypesofIRBbenefits:directandindirect.• DirectIRBbenefitsaretransactionscontainingworkdirectlyrelatedtotheproductorservice

thatthegovernmentisprocuring.o Example:providingpartsormaintenanceforthepurchasedCanadianequipment.

• IndirectIRBbenefitsaretransactionscontainingworkorinvestmentsthatarenotrelatedtotheCanadianpurchase.

o Example: investments in post-secondary institutions and non-profit research anddevelopmentinstitutions



63

• TherearefiveeligibilitycriteriathatanIRBcontractormustdemonstratewhentheysubmitanIRBtransactiontoIndustryCanadaforreview:causality,incrementality,CanadianContentValue(CCV),timingandeligibleparty.

o Causality: IRBcontractors must demonstrate that their decisions to place businessactivitieswithaCanadiancompanyhavealinktotheirIRBobligation.TheyneedtoprovetoIndustryCanadathatthebusinessactivitywouldlikelynothavehappenedhaditnotbeenfortheIRBrequirement.

o Incrementality: Allows IRB contractors to use current suppliers on a particularbusinessactivity. Ifan IRBcontractorhasanestablishedbusiness relationshiponaparticularpartorserviceand,becauseofanIRBobligation,theychoosetoincreasethiswork,theincreaseiseligibleforIRBcredit.ThisensuresthatthenewworkthathasalinktotheIRBobligationiscountedbutworkthatwasoccurringbeforetheIRBobligationisnotfactoredin.

o CCV: All proposed IRB transactions must be valued in terms of the CCV. CCV ismeasured inCanadiandollarsand istheportionofthesellingpriceofaproductorservice associatedwith thework actually performed inCanada.Only theCanadianlabor and materials of a particular work package is counted toward an IRBcontractor's obligation; all foreignoverhead, labor andmaterials for any particulartransactionisexcludedfromCCV.

o Timing: 30 percent of obligations will need to be identified at time of contractsigning,30percentoneyearlater,andtheremaining40percentwithinthreeyears.

o Eligible Party: Benefits must be completed by either the contractor himself or itsparentcorporations.

TheCanadianContentPolicy

• TheCanadianContentPolicyisaCabinet-mandatedpolicy.ThePolicyencouragesindustrialdevelopment in Canada by limiting, in specific circumstances, competition for governmentprocurementopportunitiestosuppliersofCanadiangoodsandservices.

• The Canadian Content Policy is not an offset policy so to speak; it limits procurementopportunitiesforforeignersthusprovidingCanadianenterprisesasubstantialadvantage.

• The Policy applies to competitive procurements with an estimated value of C$25,000 ormore,exceptforthefollowing:

o Governmentprocurementssubjecttotheinternationaltradeagreements;o Procurementsmadeinfurtheranceofaidtodevelopingcountries,butdoesapplyto

purchasesmade by the Canadian International Development Agency (CIDA) on itsownaccount;

o ProcurementsmadebyPWGSCAcquisitionsofficeslocatedoutsideCanada;o Cabinet-mandated sourcing, including sourcing related to industrial and regional

benefits,shipbuilding,shiprepair,refitandmid-lifemodernization.• When applicable, eligible bidders will be considered as those supplying Canadian goods

and/orservices.• One ought to note that only goods wholly manufactured or originating in Canada are

consideredtobeCanadian.• Nonetheless,aproductcontaining importedcomponentsmayalsobeconsideredCanadian

for the purpose of this policy when it has undergone sufficient change in Canada, in amannerthatsatisfiesthedefinitionspecifiedundertheNAFTARulesofOrigin.



64

• Moreover, a service provided by an individual based in Canada is considered a Canadianservice.

• Thus,whenarequirementiscoveredbytheCanadianContentPolicy,thebiddermustcertifytheCanadiancontentbysubmittingacertificationthatthegoodorserviceofferedmeetsthedefinitionofCanadiangoodsand/orservices.

• Forrequirementsconsistingofmorethanoneservice,aminimumof80percentofthetotalbidpricemustbeprovidedbyindividualsbasedinCanada.

• Forrequirementsconsistingofamixofgoodsandservices,80percentofthetotalbidpricemustconsistofCanadiangoodsandCanadianservices.Conclusion


RequirementsforfulfillingIRBobligationsareveryclearandstraightforward,butmeetingthem(forexampleacompanythatwishestotradeoffsetcreditsmustbenofurtherthanatier1suppliertotheprimecontractor.Thisrequirementcaninsomecasesbedifficulttofulfill)


Alongwithclearrules,thereshouldbesomeflexibility(possibilitytoproposeindirectoffset).



65

KUWAIT

Kuwait’soffsetprogramhasbeeninforcesince1992,dealingwithbothmilitaryandcivilprocurements.

The Council ofMinisters decisionNo. 863 of 2005 transferred responsibility for implementing theoffsetpolicytotheNationalOffsetCompany(NOC),whichsignedamanagementcontracttomanagetheKuwaitOffsetProgrammeonbehalf of theMinistryof Finance. TheNOC startedoperatingon2nd September2006, andofficially announce the launchof its operationson1stNovember2007,withthenewguidelines(No.9-2007)enteringintoforceon9thSeptember2007.

TheNOC’s Board of Directors comprises the Chairman, Vice-Chairman, and three othermembers.TheGeneralManager’s office oversees the ConsultantsUnit, the LegalUnit, and both theObligorCommitteeandthetemporaryTransition&ChangeManagementCommittee.

The Obligor Committee reviews all projects concept papers and business plans submitted forapproval.ThefinalapprovalofBusinessPlanslieswithinthemandateoftheNOCBoardofDirectors.

TheNOCassistsobligorsbyacceleratingtheprocessofissuinglicensesandgovernmentapprovalsforoffsetprojects. It identifiespotential thirdpartyoffsetperformers,andpromotes financialservicesandtheuseofoffsetfunds.



66

A Planning Department addresses strategic planning (business plans and follow-up), marketintelligence,andmarketingactivities.

Foreigncontractorsthatareshort-listedafterthebiddingprocessarerequiredtosignMoAwiththeNOCandpresentoffsetprojectproposalspriortosigningtheSupplyContract.

The Kuwait Foreign Investment Bureau (KFIB) together with other concerned ministries andgovernmentagenciescooperateinthedevelopmentofoffsetprograms.

Acceptable third partiesmay be brought in to fulfill obligations on behalf of the obligor, but theobligorwillalwaysremainresponsibleforfulfillmentoftheobligation.

Relationship:

• TheprimecontractorneedstobeactivelyengagedwiththeNOCthroughouttheprocess.• TheNOCintendstopreservethecontinuityoflong-termpartnershipsbetweenKuwaitiand

foreign investors. The foreign partner will be responsible for management in the jointventure and is required to employ and train localmanpower, appoint anexternal auditor,andsubmitmonthlyreportshighlightingworkprogress.

ProcessandProcedures:

• Foreign companies may satisfy their offset obligations by proposing direct and indirectprojectsandbyselectinga localpartner,whichmayormaynotbe involved intheproject.KuwaiticompaniesmayalsosubmitprojectsforconsiderationbytheNOC.

• Thecontractor shallpresentabusinessplanwith five-yearprojections.This should includeestimatesofmanpowerrequirements,financialstatements,detailsoftrainingprograms,andparticulars of anymarket research that the contractor has carried out. The business planshouldbefinalizedwithinfourmonthsofsigningtheMoA.

• TheConceptPaperStagecomprisesashortdocument(3or4pages)tobepreparedpriortosignatureontheSupplyContract.

• TheMemorandumofAgreementissignedbythecontractorandtheNOCpriortooratthesametimeastheSupplyContract.

• TheBusinessPlanPreparationStageprovidesoffsetprojectdetails.TheBusinessPlanshouldbe finalized within four months of signing the Supply Contract, though an extension isnegotiable.Contractorsshouldprovide implementationdetailscovering5years.EvaluationoftheBusinessPlanshouldtakeabouttwomonths.

• Thereisasix-monthgraceperiodforprojectexecution.Extensionsofuptooneyearmaybenegotiable.

• Evaluated by NOC within 2 months from the date of receipt; may require additionalinformation.

StepsintheProcess:

• TheprimecontractorsubmitsaconceptpaperwhichtheNOCapproves,rejects,oramends.• Onceapproved,thecontractorsubmitsafeasibilitystudy.

Conclusion



67


TheKuwaitoffsetauthority(NationalOffsetCompany(NOC))hasbeenstopped.CurrentobligationsarebemanagedbytheDirectInvestmentPromotionAuthorityincoordinationwiththerelevantbodiestofulfillcommitmentsoftheexistingoffsetprojects.


Itisimportanttodefinewhathappensiftheoffsetprogramissuspendedorstopped



68

INDIA

India’s defense offset policy is the responsibility of theMinistry of Defence(MoD).Therehavebeen several amendments to theoffset regulations sincetheywerefirstpublishedin2005.Hereishowthepolicyhasevolved:

The offset clauses in the Defence Procurement Procedure policy documentpublished 2005 (DPP 2005), established broad guidelines for implementing offsets in defenceacquisitions. They became effective 1st July 2005. DPP 2006 was established to providecomprehensivepolicyguidelines forall capitalacquisitions for theArmedForces,and introducedanumberofimportantnewdefinitions.

FurthermodificationstopolicyweresettledinApril2007bytheDefenceOffsetFacilitatingAgency(DOFA). The government would allow dual-use technology within the defense sector. AcceptablesoftwareapplicationsqualifiedforoffsetcreditsfromApril2007.

The government introduced the banking of offset credits with publication of the DefenceProcurementProcedure2008(DPP2008)policydocumenton1stAugust2008.A2009amendmenttotheDPP2008becameeffectiveon1stNovember2009.

In March 2010 the Department of Telecommunications introduced specific requirements for thesupplyofbothhardwareandsoftware

Havingeffect from1st January2011,DPP2011,adocumentof291pages,expanded thescope foroffset fulfillment to includemostaspectsof civil aerospace,marking the firstofficial intrusion intothecivilsector.

Internalsecurityandtrainingnowalsoqualifyforoffsetprojects,andawiderangeofweaponsandcounterterrorismservicesareincludedinthelistofeligibleproductunder“internalsecurity”.Therearemeasurestopromoteindigenizationoftheprivateshipbuildingindustryfordefensecontracts.

Amendments to DPP 2011 were announced on 2nd April 2012. They cover technology transfers,multipliers, banking periods, and penalty provisions. Details are provided below. The provisionsdetailed below are in force for offset contracts established from 1st August, 2012 under revisedguidelines known as Appendix D. For offset guidelines for earlier contracts please refer to ourpreviousissues.

TheseprovisionsapplytoallCapitalAcquisitionscategorizedas“Buy(Global)”(i.e.,outrightpurchasefrom foreign/Indian vendor) or “Buy andMakewith transferof technology” (i.e., purchase fromaforeignvendorfollowedbyLicensedProductionwheretheestimatedcostoftheacquisitionproposalis300croreormore(1croreisRp10million).).

AppendixDpermitsthedischargeofoffsetobligationsbyforeignOEMsby:

1. Permittinginvestmentin“kind”inIndianindustry;

2. AllowingtheDefenceResearchandDevelopmentOrganization(DRDO)toacquireaselectlistofhightechnologies;and

3. IncreasingthenumberofIndianOffsetPartners(IOPs).



69

TheoffsettermswillformapartoftheRFPandsubsequentlyofthemaincontract.Aseparateoffsetcontractwillbeexecutedsimultaneouslywiththemaincontract.

Objectives

The key objective is the development of the Indian defense industry. Secondary objectives are tofoster thedevelopmentof internationally competitive enterprises, augment capacity forResearch,DesignandDevelopmentrelatedtodefenseproductsandservices,andencouragedevelopmentofsectorssuchascivilaerospaceandinternalsecurity.

CivilOffsets

ForTelecommunicationContracts:

The Department of Telecommunications has declared it mandatory for equipment vendors totransfertechnologytoIndianmanufacturerswithinthreeyearsofsellingequipmenttoanyoperator.Thisisapplicableforbothhardwareandsoftware.

Theconditionwillbestrictlyenforced.Ifthereisnon-compliancetherewillbefinancialpenaltiesandcriminalproceedingswouldalsobestartedagainstthevendor.Particularsofthepenaltieshavenotbeenannounced.

TheDepartmentofTradeisimplementingthepolicyandhassaidthatithasaskedserviceprovidersto ensure that their networks are entirely operated and maintained by Indian engineers, withminimalornildependenceonforeignengineers.

Countertrade Policy Implemented by State Trading Corporations (STCs) for Civil SectorProcurements

Countertradeisnotmandatoryanddependsuponthedecisionofthepurchasingcommitteeoftherelevantministry. The government instructs the STC to implement andmonitor the countertraderequirement. The STC is referred to as a nodal agency and it is the commercial arm of thegovernment.

Thequotapercentagesareusuallyappliedhaphazardly. Insomecasestheymayamountto just30percentofimportcontentvalue,inothercases70percent.

Counterpurchaseobligorsusuallyhavetoprovidebankorcorporateguaranteescovering3percentofthecounterpurchasevalue.

The STCs use the expression “offset” and “countertrade”, but apply to them the same meaning.Whilecountertradehashistoricallybeenusedtoencouragetradeinbothsoftandhardcommoditiesunder bilateral trade agreements, and for selective government acquisitions in the civil sector,bilateralcountertradeagreementsareencouraged,thoughmainlyforexchangesofagriculturalandfoodstocks.

The principal nodal agency designated for implementing countertrade agreements is the StateTrading Corporation of India Ltd. There are also MMTC and PEC, which are designated by theMinistry of Commerce tomonitor countertrade performancewhenever it is chooses to do so. AtpresentonlytheStateTradingCorporationofIndiaLtdisactive.

Transactions are routed through major government owned corporations (also known as nodalagencies). The Indian Oil Corporation handles petroleum crude; the Minerals and Metal Trading



70

Corporationdealsinmineralsandmetals;theSteelAuthorityofIndiahandlessteel;NAFEDhandlespalmoil; and theCouncil for LeatherExports specializes in leatherproducts. ThesenodalagenciesallocatecountertradeopportunitiestoIndianexportersandimporters.

Conclusion


FirstciviloffsetagreementinIndiawithBoeing.Itincorporatesmanyimportantfacts.Also,inIndia,actorsdonotlikemakingdecisions.


Modellawshouldtakeintoaccountbothdefenseandciviloffsets



71

PERU

Peru is a Latin American country with 30 million inhabitants. The principallanguagespokenisSpanish.QuechuaandAymara,alsoofficiallanguages,areless frequently spoken. Peru’s economy is one of the most dynamic in itsregion.ItsGDPhasgonefromUS$26billionin1990toUS$202billionin2013,with an inflation rate in 2013 of only 2.9% (down from 3.7% in 2012), thelowest in the region. It is a Republic with a presidential system. The current president is OllantaHumala. Peru is divided into 25 regions and the province of Lima. Each region has an electedgovernment composedof apresident and council that serve four-year terms. Thegovernmentsofthe regions plan regional development, execute public investment projects, promote economicactivities,andmanagepublicproperty.ThecompetentpowerremainstotheExecutiveBranch.OnApril 12, 2016, Peru'smain exportswere reported as copper, gold, zinc, textiles and fishmeal; itsmajortradepartnersaretheUnitedStates,China,Brazil,andChile.

Peru’stotalgovernmentspendingis10.8%ofGDPorUS$23billionincludingUS$2.83billionspentonDefense, or 1.4% of GDP. It spends annually US$0.6464 billion on energy and US$3 billion (PEN-Peruvianmoneycurrency)ontransportinfrastructure.

PeruhasbeenaWTOmembersince1January1995andamemberofGATTsince7October1951.PeruisaGPA(Observer).IthasbeenamemberoftheInternationalMonetaryFundsince1945andaWorldCustomsOrganizationmembersince1971.Peru iscited in the IBRDGuidelinesand itsdraftlaw on public procurement shows a strong adhesion to the UNCITRAL Model Law on publicprocurement.PeruisinvolvedinGATSArticleXIIInegotiation;PeruisnotamemberoftheOECD.

AndeanCommunityDecision439ofJune11,1998–PrinciplesandRulesforServicesLiberalization(articles3and10)wassignedinLimaPeruonJune11,1998.PeruhassignedtradedealswiththeUSA,Canada,Singapore,China,Korea,Mexico,Japan,theEU,theEuropeanFreeTradeAssociation,Chile,Thailand,CostaRica,Panama,Venezuela,concludednegotiationswithGuatemala,andbeguntrade talkswithHondurasandEl Salvador, Turkeyand theTrans-PacificPartnership.Perualsohassigned a trade pact with Chile, Colombia, and Mexico, called the Pacific Alliance, that rivalsMercosur.20

Offsets are regulated by the Law n° 28.269, amending Law n° 26.850 (Public Procurement Act),Presidential decree n° 031-2002-PCM (electronic system of public procurement – SEACE);Presidentialdecreen°067-2003-PCM(PowersoftheCouncilofMinister'sPresidenttosetoutPublicProcurement Policy) andGuidelines ofAugust 2010 (defense acquisitions from foreign sources) aswellasDirectiveNo.08-2010MINDEF/SG/VRD.A100%obligationisrequiredforDefensepurchasesgreaterthanUS$7million.ForDefensepurchasesoffsetsaremostlydirectbutpartoftheobligationcan be fulfilled through indirect offsets. Multipliers are possible from 0.5 to 5.0 For Defensepurchases,Bankguaranteesareallowedonacase-by-casebasis.

Directoffsetsarefulfilledmainlythroughtransferoftechnologyandinvestments.Indirectoffsetscanbefulfilledthrough investmentfortherailway,hydroelectricandenergysectors,education,healthand environment protection. Offset penalties for Defense are defined by negotiation; withblacklisting when there are none. There is no data on corruption in offsets but respectively anti-corruptionmeasuresexist.

20Sourcewww.indexmundi.comPeru.



72

TheLaw30.225ofJuly11,2014(notyetinforce)ishighlyalignedwiththeUNCITRALModelLawonpublicprocurement.

Conclusion


Peru'soffsetpolicyisflexibleandallowstheuseofindirectoffsetprojectstofulfillpartofobligations.Peruisalsoveryclearontheinfrastructureprojectsrequiredtoincreasecountryproductivity(transportationinfrastructureandinparticularroadsHavingaflexibleoffsetpolicy(includingthepossibilitytoproposeindirectoffset)aswellasveryclearandrealisticcountryindustrialdevelopmentprioritiesfavorsprogramsuccess.



73

RUSSIA

GeneraldataTheRussianFederationhasapopulationof143.7million.MostofthemareofRussian ethnicity (81%). The most numerous minorities are Tatar (3.7%) andUkrainian (1.4%). As a multi-ethnic state (5 religious groups and over 60differentethnicgroups),Russian is theofficial languageacross theFederationbutthereareother27co-officiallanguages.Russia is a Federal state that includes 83 "subjects of the Federation," with various degrees ofautonomy.These include twocitiesof Federal importance (MoscowandSaint-Petersburg).CrimeaandSebastopolarenotcounted.ThesesubjectsoftheFederationaregatheredin9federaldistricts.Thesedistricts arenot a level of governmentbut rather a sublevel of central administration. Eachsubjectisdividedintoadministrativedistrictscalled"raions."Lowerlevelsarecitiesandtowns.A federal state, competences are classically distributed between the central and provincialauthorities.The federal statehascompetenceover internationalpolicyandtreaties, taxes,nuclearenergy,defense,foreigneconomicrelations.Thefederalstatesharesvariouscompetencieswiththesubject of the federation, such as civil and political rights, international and foreign economicrelations, healthcare, environmental protection. The subjects of the Federation have fullcompetencies in all other matters. The Constitution leaves the possibility for subjects of thefederation to implement their foreign economic relations, provided that the Ministry of ForeignAffairsagreeswiththeproject.TheRussianFederationisasemi-presidentialrepublic.ThecurrentheadofstateisV.V.Putinelectedin2012,PrimeministerisD.A.Medvedev,andthelastparliamentaryelectionswereheldin2011.RussiaininternationaltradeRussia isamemberof theWTOsinceAugust2012andhas signed73bilateral investment treatiesand 4 multilateral investment agreements (including Eurasian Investment Agreement and anAgreementonpartnershipandcooperationwiththeEU).RussiaisamemberoftheCommonwealthofIndependentStates.Government procurements remain an important sector of Russian economy and policy, moreparticularlytostimulatethedevelopmentofSME.ThisexplainsthatRussiaisonlyanobserverintheGPAcommittee.Moreover, it seemsthat investmentagreementtreatiesof theRussianFederationdonotdealwithgovernmentprocurements.1.GovernmentProcurementintheRussianFederation:DataandLegalFrameworkAs mentioned earlier, government procurement remains an important part of public policy anddevelopment.TheRussianFederation infrastructureneedsaresubstantialbuttherecenteconomiccrisis has led the government to modify its plans for procurement in infrastructure and to favorprivateparticipationinprojectfinance.ProcurementisregulatedbytheFederallaw“OntheFederalContractSystemintheSphereofPublicProcurement”(enteredintoforcein2014),andaspecialregimeisprovidedformilitaryprocurement



74

(Federal LawN275,2012, "OnDefencegovernmentprocurement"). Theprinciplesofprocurementaretransparency,openness,competition,andstimulationofinnovation…Thepreviousregulation(FederallawNo.94,2005)wasnotefficientenoughand,inspiteofthemanyamendments, theProsecutorGeneral’sOffice foundmore than74,000procurement lawviolationsfor2013.In2010,anassessmentofRussianprocurementlegalframeworkhasidentifiedregulatorygapswereidentifiedinseveralkeybenchmarkindicators.Moreover,thenumerousamendmentsandcomplex enforcementmechanism gave the impression that the legal framework is not stable andunpredictable.Thenewregulationsaimsatmodernizingtheprocessforcreatingandmonitoringordersforpublicgoodsandservicesandintroducingtransparency,professionalism,andunityofthecontractsystemin the field of procurements. It creates a unified information system to access procurementinformation, provides antidumping measures, mandatory planning of procurement, and possibleaudit by the Account Chamber. The Federation’s accession to theWTO is oftenmentioned as anadditionalreasonforprocurementregulationreform.A common initiative of the EBRD and UNCITRAL is currently going on, aiming at enhancingprocurement process in Russia. A first assessment has been made in 2010 (on the previousregulation) against the UNCITRAL Model Law on public procurement. Recent information on thisinitiative and assessment of the new law has not been carried out or published yet. CoPCompensatorymeasuresininternationalgovernmentprocurement.2.CompensatorymeasuresintheRussianFederationTheRussian Federationdoes not haveoffset rules or any compensatorymeasure requirement forgovernment procurement. The new procurement regulation introduces in its article 14 a “buyRussian” and localization obligation for foreign companies. The RussianGovernment can establishconditionsforaccessofgoodsandservicesoriginatinginforeigncountriestopublicprocurementinorder to stimulate local economic development. The implementation decree has been adopted inMach2013(DecreeoftheMinistryofEconomyNo155,25.03.2014,ontheconditionsrelatedtotheadmissionsofgoods,servicesandworks forpubliccontracts).Thedecree includesawiderangeofgoods,suchas light industry (includingtextile),vehicles, transportationequipment,pharmaceuticalgoods.Therequirementoflocalizationiseffectiveifthegoodsofforeignoriginconstitutesmorethan50%ofthetotalgoodsintheprocurement(tobeverified).Nevertheless,inspiteofthelackofclearpolicy,principles,andlimitintheconductofoffsetdeals,in2010, the Ministry of Economic Development elaborated a document called “Introducing basicprinciplesofanoffsetmechanisminRussianFederation”,whichwerelatervalidated.Similarly,fewamendmentswerepreparedtoallowoffsetrequirementsintheprocurementprocess(thenewlawdoes not contain such requirement however). More recently, in March 2015, the governmentadoptedaworkplanfor2015thatincludetheadoptionofareportonhowtospreadthepracticeofoffsetdealsandtodeterminatewhichspherearemorevaluableforoffsetdeals.The lackofoffsetpolicyand legislationmakes itdifficult toanalyze the levelof corruption in suchdeals.It is important tonote that this legislation still leaves thepossibility to thegovernment to requirecompensatorymeasures, aswas thecase in thecontractof “Mistrales”warshipwhere technologytransferandshipbuildinginRussiawerekeyelementsofthecontract.



75

Conclusion


TheMistralshipexample:RussiacontractedwithFrancefor2Mistralships.Inthesamecontractitwasagreedthat2additionalshipswouldbedeliveredandweretobeproduced80%inRussia.FrancehasstoppedthemaincontractinthecontextoftheUSembargoonRussiaandhasrepaidRussia1Billion€.Question:WhathappenstotheoffsetcontractSignificanceindraftingthemodellaw

Modellawshouldhaveprovisionstocoverwhathappenstotheoffsetcontractifthemaincontractisstopped.Agoodoffsetmodellawshouldallowtocreatealltypesoflocaleconomicbenefitsallowing.Itshouldbeeasilyverifiable

Sourcesbibliography:

Legalacts:http://base.garant.ru/70309020/-themaindirectionsofactivityoftheGovernmentoftheRussianFederationfortheperioduntil2018https://www.consultant.ru/document/cons_doc_LAW_140175/http://www.rg.ru/2012/12/30/zakon-dok.htmlhttp://en.fas.gov.ru/netcat_files/File/44-FZ%20eng.pdfhttps://docs.eaeunion.org/ru-ru/Pages/DisplayDocument.aspx?s=bef9c798-3978-42f3-9ef2-d0fb3d53b75f&w=632c7868-4ee2-4b21-bc64-1995328e6ef3&l=540294ae-c3c9-4511-9bf8-aaf5d6e0d169&EntityID=3610Articles:https://russiamil.wordpress.com/2012/12/11/taking-armaments-imports-seriously-part-2/http://www.castren.fi/Page/c1ccbac8-1bad-436e-bb79-e1ffaa00df14.aspx?groupId=69bd90ab-70bd-4fdc-be39-0b8c85707796&announcementId=5985e5b3-f288-4efe-b95e-f7f788c638c2http://cyberleninka.ru/article/n/rol-ofsetnyh-sdelok-v-mirovoy-i-rossiyskoy-vneshney-torgovlehttp://www.iep.ru/files/RePEc/gai/recdev/78Zatsepin.pdfhttp://www.herbertsmithfreehills.com/-/media/Files/PDFs/2015/The-Government-procurement-review-Russia-May-2015.PDFhttp://government.defenceindex.org/countries/russian-federation/http://www.rfej.ru/rvv/id/9004EA1ED/$file/63-70.pdfhttp://www.ippa.org/IPPC4/Proceedings/01ComparativeProcurement/Paper1-9.pdf(częściowonieaktualny)



76

SOUTHAFRICA

South Africa has not yet ratified the WTO-AGP and its law on publicprocurementdoesn’tfollowtheUNCITRALModelLaw.However,ithasagoodregulatorypracticeregardingoffsets.Threemainprogramsmanagetheoffset:the DIP program for the defense sector, the NIP for commercial and non-defensegovernmentsales,andSupplierDevelopmentandLocalisation (SD&L)programforEnergy.OffsetismandatorywhenthevalueoftheacquisitionisaboveUS$10m.Thereisa complex mix of non-discretionary requirements that obligors must accept, including the BlackEconomicEmpowerment(BEE)requirement..

The Armaments Corporation of South Africa (ARMSCOR)manages Defense Industrial Participation(DIP) programs on the defense side, and the Department of Trade and Industry (DTI) managesNationalIndustrialParticipation(NIP)programsinthecommercialornon-defensesectors,exceptforEnergy,whereoffsetsaremanagedbyESKOMthroughtheSD&Lprogram.

TheNationalIndustrialParticipationProgram(NIPP)isapplicabletocommercialsalestogovernmentand seeks to leverage economic benefits and support the development of industry by effectivelyutilizinggovernmentprocurement.TheIndustrialParticipation(IP)programismandatorywhenthevalueoftheacquisitionisabovethethreshold.

There is no legislation or Act of Parliament regulating the programother than a Cabinet directiveissuedin1997.

There is a complex mix of non-discretionary requirements that obligors have to accept. ThesecomprisetheNIPandDIPprograms,aswellastheBlackEconomicEmpowerment(BEE)requirementandtheCompetitiveSupplierDevelopmentProgram(CSDP).TheCompetitiveSupplierDevelopmentProgram (CSDP) is a Department of Public Enterprises initiative intended to capture local supplierbenefitsonexpendituresinthecivilandcommercialsectors’infrastructureprogram.Astate-ownedutility, Transnet, has signed up to the scheme, replacing theNIP requirementswith this program.However, CSDP is not yet applicable to other government agencies such as those responsible forSouthAfricanAirways,Metrorail,PetroSA,orthepolice,whicharestillsubjecttotheNIPprogram.

ESKOMhassignedtheSD&Lprogramwhichhasbeendesignedforbiginvestment.ItstoppedCSDPwhichhasbeenappliedinonlyaverysmallnumberofprojects.

ThepresentNIPPprocess isconductedpost-tenderandoffset requirementsarenegotiatedafteratenderhasbeenawarded.TheNIPPwillbestrengthenedtomakeitapre-tenderprocessinrelationto strategic tenders, with domestic production and supplier development requirements built up-front.

TheCSDPisaboutaddednationalvalue,notjustaboutlocalizingaspectsoftheproducts.Thereareno clearly prescribed obligations, as it is different for each state-owned enterprise, nor is there aclearaccountingmethodology.Oneobjectiveistoincreasecapacity,capabilityandcompetitivenessof the local supply base. Another aim is to contribute to economic growth, skills development,employmentcreation,andbroad-basedBEE.

SD&L (applicableonly toESKOM),which isbasedonan imposedpercentageof local content (onlySouthAfricanvalueaddedistakenintoaccount),variesfromonecallforbidstoanotherandfrom



77

onepackagetoanotherwithintheonecallforbids,andoncomplexsocialcriteriaincludingtrainingfortheunemployed.

SD&Laccountsfor20%ofthetotalbidpointsandbiddersmustdemonstrateatleasta60%scorefortheir bids to be evaluated. In other words, if a foreign company fails to proposemore than 12%SD&L,itisdisqualified.Thismeansthatbidqualityandpriceaccountforonly70%ofthetotalpoints.Unlike its predecessors, SD&L is an offset program which is fully integrated into the purchasingprocess,meaningthatitradicallychangesthesalesapproach.Inaddition,itcanresultinbidsbeingdisqualified.

ThereisnomechanisminplaceatthistimetoallowobligorswhohaveperformedontheNIPsidetomigrate to theCSDPorSD&Lprograms.Nor is thereany formalpolicy inplaceyet for transferringproperly earned credits.Changeswould have to bemade to the current Preferential ProcurementPolicyFrameworkActtoachievethefollowingobjectives:

• Align discretionary points with broad-based black economic-empowerment (BBEEE) codesandlocalprocurement;

• Eliminate"importfronting",wherebysmallBEEfirmsareusedtosupplyfullyimportedgoodsandservices;

• Thedesignationof"fleets"andother"criticalindustries"fordomesticproduction;

• Allowpricematchingbydomesticproducers.

BlackEconomicEmpowerment(BEE):

BlackEconomicEmpowerment(BEE)isasignificantrequirementandobligorsmusttreatitseriously.TheintentionistoleverageprocurementstobenefitblackandcoloredSouthAfricans.

Between2010and2011,theBEErequirementintheDIPprogramwasestablishedat25.1percentofthevalueoftheoffsetobligation.Afterthosetwoyears,theblackshareholdingroseto35.1percent.Two years later, the level rose again to 50.1percent. These requirements do not apply to earlierdefensecontracts.State-ownedenterprisessuchasDenelarerecognizedasBEEsforthepurposesofDIP.

TheDTIhasissuedso-calledBEECodesofGoodPractice,whichbecameeffectiveinFebruary2007.Armscor,too,hasadedicatedBEEdivisionthatsupportsinquiriesforthistypeofactivity.

Contractors have to fulfill seven categories of activities. The vendor will be rated on BEEimplementationat 10 to20percent aspartof the tender score. In theory, importedproducts areexempt,butsomecontractorssaythatthat isnottheirexperience.Thegovernmentisexpectedtorequirethattenoutof100points inanygovernmenttendershouldbeattributedtotheBEEscoreforlargerprocurements,andforsmallerprocurementsofuptoZAR20mthefigurewillbe20points.Thelawproposingthisisinprocess.

TheBEEpolicyadoptsascorecardapproachdevelopedmainlybytheDTI,butthescorecardisvalidforonly12months.ObligorsmustgettheirBEEscorecardsapproved.



78

NIPPolicy:

OnSeptember1,1996,SouthAfrica introducedanoffsetpolicyknownasNIPP(National IndustrialParticipationProgram).IthadjustbecomeamemberoftheWTOandtheinternationalcommunityhad given the go-ahead on the grounds that the country had to catch up economically after longyearsofapartheid.NIPPisanindirectoffsetprogramwhichconsistsincreatingeconomicbenefitinSouthAfricatothevalueof30%oftheimportedamountofallgovernmentprocurementcontractssignedwithforeigncompanies.ThisprogramonlyappliestocontractsworthmorethanUS$10mandhasnoinfluenceonthedecisiontobuy.Itcomesintoforceoncethemaincontracthasbeensigned.It ismanagedby theDTI (Departmentof Trade& Industry), and is completely independentof theSOE.IndirectNIPreferstoactivitieswheretheoffsetiscarriedoutinindustriesnotrelatedtothatoftheprocurement.

Conclusion:


BEEisincludedintheoffsetpolicy-theneedtodevelopBlackEconomicEmpowerment.

Difficultieshavebeenencounteredwhenpolicieshavechangedandnewpoliciesareintroduced.Contractsputinplaceunderoneregimearenolongerrecognizedunderanewregime.Significanceindraftingthemodellaw

Themodellawmusttakeintoconsiderationoffsetobligationsthattakeintoaccountapproachessuchas"affirmativeaction","positivediscrimination","employmentequity"thatfavormembersofgroupsthathavesuffereddiscrimination.

Incaseofachangeofpolicy,therulesoftheformerregimemustremainapplicableunderthenewregime.



79

SOUTHKOREA

Korea is one of the only four OECDmember countries in Asia. It has a strong economy and lowunemployment rate. Korea’s population has been steadily increasing. It has increased from 50.22millionpeople in2013to50.50millionpeople in2016.Thepopulation ishighlyeducatedandwellequipped,withtheworld’sfastestbroadbandandstrongdigitaleconomy.It ismostlyhomogenoussocietywithagrowingnumberofforeignersfromChinaandotherAsiancountries.TheSouthKoreansocietyplaceshighimportanceonhierarchy,respect,loyalty,andcourtesy.

Over the last five decades, Korean economy has experienced substantial growth. It grewfromabout$8billion1970to$1.38trillionin2015thatis11thintheworld.Ithasbeenincreasingbyapproximately3%annuallyforthepastdecade.Theleadingindustriesareelectronics,shipbuilding,automotive, petrochemicals,metal andmachinery products. The public procurement amountwasKRW11,428millionin2015.It’spercentageoftheGDPisamongthehighestintheworld.Koreaisamember of over 70 international organizations. Notable memberships include UNICTRAL ModelLaws,GATS, IBRD, IMF,WTO,GPA,OECD, andWCO.Majority of Korea’s FTA agreements prohibitoffsetsbyexpressprohibitionorbyaclauseincorporatingtheWTO’sGPA.

ThePublicProcurementService(PPS)istheprocurementagencyofKorea.PPS’missionis“toprovide the best value service to its clients, save national budget spending and contribute toeconomicdevelopmentbyprocuringandmanagingresourcesforpublicadministration.”It isunderthe Ministry of Strategy and Finance, the primary ministry for central procurement. The Act onContracts to Which the State is a Party (“State Contract Act”) is the chief legal authority forprocurementby central governmententities. It applies to “contracts towhich theState is aparty,including government procurement contracts entered into through international tenderingproceduresandcontractssignedbetweentheStateasapartyandanationaloftheRepublicofKoreaasthecounter-party(includingcontractsthatbecomesourcesofrevenue).”Asimilarauthorityexistsfor local government entities called Local Government Contract Act. The State Contract Act wasinfluenced by theWTOGPA, as theywere enacted in response to theWTOGPAmembership. Inaddition,therearenumerouslegalauthoritiesinvolvedinpublicprocurement,including:

" ActontheManagementofPublicInstitutions" FrameworkActontheConstructionIndustry" ConstructiontechnologyPromotionAct" ElectricalConstructionBusinessAct" SmallandMediumEnterprisesPromotionAct" ActonFacilitationofPurchaseofSmallandMediumEntreprises-ManufacturedProductsand

SupportforDevelopmentofTheirMarkets" FrameworkActonSmallandMediumEnterprises" IndustrialStandardizationAct" QualityControlandSafetyManagementofIndustrialProductAct" QualificationControlandSafetyManagementofIndustrialProductsAct" GovernmentOrganizationAct" FrameworkActonLow-CarbonGreenGrowth" SpecialActonthePreferentialPurchasesofProductsManufacturedbyPersonswithSeveral

Disabilities" ActonSupportforFemale-ownedBusinesses" IncomeTaxAct



80

" Value-addedTaxAct" SpecialEnterprisePromotionAct

Koreanoffsetprogram is limited tomilitarycontracts,adhering to its internationalobligationsandtheWTOGPA,asKoreadidnotopenMinistryofNationalDefense(MND)fullyinWTOGPA.NotestoAnnex1providesasfollows:

“The Defense Logistics Agency shall be considered as part of the Ministry of National Defense.SubjecttothedecisionoftheKoreanGovernmentundertheprovisionsofparagraph1,ArticleXXIII,forMNDpurchases,thisAgreementwillgenerallyapplytothefollowingFSCcategoriesonly,andforservices and construction services listed in Annex4 and Annex5, it will apply only to those areaswhicharenotrelatedtonationalsecurityanddefense.”

DefenseoffsetsaregivenemphasisasKoreafacesstablehostilityfromNorthKorea.Koreanmilitaryisthe7thlargestintheworldandheavilydependsonexportsfordefenseacquisition.TheimportanceofforeignweaponprocurementcontractsintheRepublicofKoreaisreflectedinitspolicy.ThepolicyrequiresoffsetprogramsforforeigndefenseacquisitiongreaterthanUSD10million.Forcompetitivebidding contracts, theoffset ratio is 50%valueof the amount in thedefense acquisition contract,whereas,forsinglebidprojects,theoffsetratiois10%.

The Defense Acquisition Program Administration is the primary government agency indefenseprocurement.ItwasformedinJanuary2006toraisethetransparencyandeffectivenessintasksformerlyhandledbytheDefenseMinistry.ThefivecorefunctionsofDAPAare(1)acquisitionplanning, (2) defense industry promotion and export cooperation, (3) analysis, testing, andevaluation, (4) national security improvement project management, and (5) military supplies andcontract management. Tasks are divided into DAPA’s four bureaus, three departments, and twoagenciesincludingtheAgencyforDefenseDevelopment(ADD)andtheDefenseTechnologyQualityBoard (DTaQ). Since its introduction, DAPA has improved the efficiency of programmanagementthrough the introduction of the Integrated Project Teams (IPT). Once the acquisition plan anddefense industry promotions are set forth by the DAPA headquarters, its management is passeddown to the Integrated Project Teams (IPTs) of Program Management Agency. IPTs manage allprocessesfromthedeterminationofrequirementstoprojectcompletion.Throughthisimprovementoftheprocurementprocess,DAPAhasreducedthetimerequiredforacquisitionandultimatelycutthe project costs. DAPA handles military procurement under the framework set by The DefenseAcquisitionProgramAct.UndertheAct,DAPAmustprioritizedomesticpurchases.

Korea’s law is very flexible and malleable. It gives considerable discretion to the OffsetCouncil.TheOffsetCouncilwasintroducedtoreducecorruption.TheOffsetCouncil’shandlestasksrelatedtooffsetratio,separationofthemaincontractandoffsetMOA,banking,andintegrationofoffsetprogramsapproval,andoffsetrequirements.ThelegalframeworkpermitstheOffsetCounciltodeviate,inexceptionalcases,fromthesetvalues.

Since its introduction,Korea’soffsetprogramshaveplayedamajor role inKorea’sdefensemarket.Toillustrate,SouthKorea’sdefenseexportsreachedUSD1billionin2008.In2013and2014,theyreachedUDS3.4billionand3.6billion,respectively.Inrecentyears,DAPAhassupportedSMEsthroughpoliciesandschemesaimedat industrialgrowthandcompetition inthedefensesector. In



81

2014, DAPA introduced a clause that included a provision of a multiplier of up to 1.5 times forfacilitationofexportsfromKoreanSMEs. In2015,DAPAhas increasedthemultiplierto2timesforsomecasesand introducedadefenseoffsetportalbetweenforeignequipmentmanufacturersandSMEs.

Overall,Koreahasaflexibleandrapidlydevelopingmilitaryoffsetmarket.



82

TURKEY

Turkeyisafree-marketcountrywithstrongindustryandservicesectorsandapopulationof80.6million.TheofficiallanguageofTurkeyistheTurkishTurkiclanguage spoken natively by approximately 85% of the population, which iscomposed of 70-75% Turks, 18% Kurds, 7-12% various people. The currentpresident of Turkey Recep Tayyip Erdoğan and the current prime minister is Ahmet Davutoğlu.Turkeyisademocratic,secular,unitary,constitutionalrepublic.Itissubdividedinto81provincesforadministrativepurposesonly.Eachprovince isdividedintodistricts, foratotalof923districts.ThePresident of the Republic is the head of state and has a symbolic and ceremonial role. The realexecutivepowerisexercisedbythePrimeMinister,whoiselectedbytheparliamentthroughavoteofconfidenceinthegovernmentandwhoismostoftentheheadofthepartyhavingthemostseatsin parliament. The PrimeMinister and their Ministers have the competent power to sign all theeconomicinternationalagreements.

Turkey’s GDP in 2013wasUS$820.21 billion. Spending on government procurement amounted toUS$126billionwith2.31%ofGDPor approximatelyUS$19billion,dedicated toDefense spending,US$2.13 billion to energy and $0,6 billion on transport annually. Turkey has been a WTO-GPAobserversinceJune4th,1996.TurkeyisalsoinvolvedintheGATSArticleXIIInegotiation,adherestoOECDprinciplesandIBRDguidelines.

Turkey has a number of free trade agreements. Many of them include provisions about publicprocurement but none include strictly concrete commitments for Turkey to realize. AgreementsincludeTurkey-EFTA(FreeTrade),Turkey-Israel(FreeTrade),Turkey–Romania(FreeTrade),Turkey–Bulgaria(FreeTrade),Turkey–Macedonia(FreeTrade)Turkey–GRECO(AgainstCorruption);Turkey–Croatia(FreeTrade),Turkey–Tunisia(FreeTrade),Turkey–PalestinianAuthority(FreeTrade).

Procedures and principles to be applied to public procurement in Turkey are established withinPublicProcurementLaw4734(2002).Thelawsetsforthrulesofparticipationinpublictenders,suchas principles about threshold values, estimated costs, rules on qualification, ineligibility, tendernoticeperiods,priornotice,subcontractors,cancelationof tenderprior tothepredeterminedtimefor submission of tenders, prohibited acts or conduct; rules governing principles of procurementprocess such as procurement procedures and implementation, principles of open, restricted,negotiated,directprocurementprocedures,contentsofprequalificationandtenderdocumentsandadministrativespecificationsandsuchprinciples.IneligibilitytoparticipateinprocurementtendersisregulatedunderArticle11ofthelaw.

Turkeyhasafavorableenvironmentforoffsets.TheLaw3238relatingtooffsetsindefensecontractswas established in 1995 (and also established the SSM Turkey’s Defense offset authority). It hasundergone5roundsofrevisions,mostrecentlyin2007.Therulesincludea70%offsetrequirement(notas strict asothers),using standardmultipliers (1 to8),withopportunities forbothdirect andindirect compliance. In addition, potential penalties are lower than other regimes at 6. To dateTurkeyhasbeensuccessfulwithitsoffsetprogramforDefensecontracts,andislookingtoextenditsoffsetpolicytoothercontracts,includingenergy,transportandhealth.(Notethat,asan"Observer"in the GPA, there may be implications with respect to the offset prohibition for non-defensecontracts.)



83

Turkey’s public procurement is governed by the Law 4734 and 4735. This has a high degree ofconformitywiththeUNCITRALModelLawonpublicprocurement.

Conclusion:


Turkeyhasputun-officiallyciviloffsetintoplace.Sectorsthataretargetedincludehealth/medicine,energy,communications,andtransport.


Civiloffsetmustbetakeninconsiderationindraftingthemodellaw



84

UAE

UAE’sextensivedefenseprocurement

• UAEistop5largestdefenseimporterintheworld(2014)1

• UAEtobeintop3countriesgloballywithdefenseobligationsaccrued(2012-2022)2

• NationalpriorityforUAEtobuilddomesticdefenseindustry

AsofJune2012,theUAEmanagesoffsetsthroughitsTawazunEconomicCouncil(TEC).

Thefocusoftheoffsetprogramremainsfirmlyonthematterofdefenseacquisition.TheTECalsohassignificantinterestsinmanynon-offsetcommercialprojects.

PolicyguidelinesupdatedinNovember2015

RoleofTawazunEconomicProgram

Before (2010/2011 edition) After (2015/2016 edition)



85

DriveeconomicvaluefromUAE’sextensivedefenseprocurementbyfiveobjectives:

• Designindustrialdevelopmentsectorfocusandprogramguidelines • Agreewithforeigndefensecontractorstoinvest/participateinUAEindustry • Evaluateandapproveprojects • FacilitateforeignDCpartnershipswithlocalcompanies,provideothersupport • Monitorsuccessofindustrialparticipation

SixkeyobjectivesofTheTawazunEconomicProgram

• Buildcriticalnationaldefenseindustry• Createknowledgebasedeconomy• CreatebusinessopportunitiesforUAEprivatesector• Generatehighvalueexports• DiversifyUAE’seconomybygrowingthecountry’sIndustrialbase• ProduceemploymentandinvestmentopportunitiesforUAENationalsinhigh-techfields

Establishedin1992,theprogramhaslaunchedover60initiativesinavarietyofsectors

The guidelines require defense contractors to customize their programs by selecting credit-generating components fromboth input andoutput activities in specifiedpercentages. Credits foroutputactivitiesareawardedonlywhenprojectsareprofitable.

Thecontractawardprocessislinkedtothesigningofanoffsetagreement.Defensecontractorsmustdevelopanoffset fulfillmentplanwhilenegotiatingtheprocurementcontractwiththeUAEArmedForces.Approvalprior to thePurchaseContract ismandatory.Abankguarantee in supportof theoffsetpenaltyprovisionsistobeestablishedwithin30daysofthecontract.

ContractsaresubjecttoSwissfederallaw.

Objectives:

Theobjectiveistoenableindustrieswithknow-how,technologytransfer,trainingofnationals,andinvestment.Theobjectivesareoutputandprofitability,andensuring thatprojectsaresustainable.Exportsalesareaparticulartarget.

Thefocusisabout80percentondefenseanddefense-relatedprojects,and20percentonhigh-tech,dualusetechnologiessuitedtotheUAE’srequirements.

In particular, obligors should assistwith developing the industrial anddefense infrastructure, helpdeveloptheprivatesectorwithnewbusinessventures,andprovidemanagementskillswithregardtotheUAEdefenseindustry.

Long-termcommercialviabilityandcausalityareimportantfeaturesofthepolicy.



86

Threshold:

ThethresholdisUS$10million.

Cumulativedefenseprocurements reachingUS$10million in valuewithin a 5-yearperiodwill alsoqualifyforoffsets.

Quota:

Sixtypercentofpurchasecontractvalue.

InputandOutputbasedRequirements:

No more than 30 percent of the obligation can be satisfied through input-based projects. Theminimumlevelofoutput-basedprojectsis70percent.

Input contributions may include equity contributions, apprenticeships, knowledge improvementprograms,andcontributionofspecialistequipment.

Outputcreditsarecalculatedonnetprofitsgeneratedbyprojects,exportpotential,andemploymentforUAEcitizens(seeMultipliers).

FulfillmentPeriodandMilestones:

Contractorsmustfulfilltheiroffsetobligationswithin7years.

Agraceperiodhasbeenintroducedtoallowdefensecontractorstoestablishtheirjointventuresintermsof infrastructure, construction, training,etc.,with regard to the inputpartof theirprogram.Thegraceperiodisfornegotiation,butupto3yearsisavailable,dependingonthecomplexityandsizeoftheproject.Thisallowsinput-basedactivitiestobegeneratedinthegraceperiodandrealizedasoffsetcreditsatthestartofthe7yearsprogramperiod.

Milestonesareannual.Thepercentagesof theobligation tobeachievedateachannualmilestoneare: 5 percent, 10 percent, 10 percent, 15 percent, 15 percent, 20 percent, and 25 percentrespectivelyforeachyear.

Pre-Offsets:

Pre-offset activity is encouraged. Defense contractorsmay transfer their offset credits to anothercontractororusethemforfutureobligations.

Multipliers:

Inputsqualifyformultipliersof1to2.

Outputsqualifyfor2to5.Acomplexformulaisusedtoallocateoutput-basedmultipliersaccordingtotheprofitability,exportactivity,andtheemploymentlevelofUAEcitizensinthepartnership.

Penalties:

Liquidateddamagesof8.5percentwillbeassessedforunder-performance.Theywillbechargedontheunfulfilledportionoftheobligation,calculatedateachannualmilestone.

Fiftypercentofthepenaltypaymentateachmilestonewillbecashedunderthebankguaranteeandtheother50percentwill be rolledover to adefault account. The rollovermay thenbe refunded,



87

dependingon theoverallperformanceof thenextmilestoneorat theendof theprogram.At theend of each milestone, the TEC will release back to the contractor all penalties paid at interimmilestonesiftheyhavecaughtupwiththeshortfalls.

TheTECreserves theright towithholdpaymentsunder thepurchasecontractandtopublicize thenamesofcompaniesthatarenon-compliant.

Banking:

Offsetcreditsmaybebankedfor10years.Theyaretransferableandmaybeswappedortraded

Conclusion:


Offsetcreditsaregeneratedbyjointventurecompanyresultsandastherearecurrentlymanycompanieswithobligationspursuingjointventures,thereisconcernthattheeconomylacksthecapacitytoallowthesuccessofeachventurewithintherequiredtiming.


Integrate sufficient flexibility into themodel law to accomodate successful fulfillment of differentformsof obligation fulfillment projects such as launchof JV's.Offset credit allocationneeds to bebasednotonlyontheresultofaninvestmentbutalsoontheinitialinvestment.



88

TransportationandManufacturinginMyamar

Photocredits:ChristianSYLVAIN

CROSS ANALYSIS ON COMPENSATORY MEASURES IN ...

Documents

Transcript of CROSS ANALYSIS ON COMPENSATORY MEASURES IN ...