EU’s Code of Conduct for defence offsets comes into play

Brussels: New European regulations for Norway and all EU member states except Romania and Denmark taking effect Wednesday now place restrictions on 'offsets' offered along with defence contracts.

"Now, for the first time ever, European countries will break new ground introducing much-needed transparency, which has often been lacking in offsets," European Defence Agency (EDA) chief executive Alexander Weis said.

With new regulations, offsets will be allowed only if they involve exchange of military research and technology and they will also be limited to no more than 100 per cent of a contract's value.

Side deals, or 'offsets', had been totally banned in most commercial transactions by European Union member states, with defence contracts being the sole exception. Observers have noted how side deals, or 'offsets', in defence contracts ended up completely distorting the market, with some countries, like Austria, demanding offsets three times the value of the original contract. 

Hungary, it is pointed out, agreed to the purchase of 14 Swedish Saab Gripen fighter jets in exchange for Sweden making investments in Hungary equal to 110 per cent of the total value of the contract. Amazingly, these included Electrolux building a new refrigerator-manufacturing plant in Hungary.

Observers say that in such conditions the needs of the defence transaction itself are lost sight of, as countries end up buying the wrong equipment, for the wrong reasons, lured by promises of a factory being established in their country or for import orders of a huge amount of goods.