Mandated defence offsets: can they ever deliver?

Abstract

Defence offsets are elements of defence procurement deals additional to the primary content. Offsets are usually expected to yield technological or industrial benefits to the purchasing country (e.g. countertrade, technology transfers, or additional jobs) and military buyers often require suppliers to make offsets available “cost-free.” The authors argued previously that such strategies achieve little of value to buyers that lack market power and are unnecessary otherwise, since purchasers with the market power to extract more value for money from foreign suppliers can do so anyway. This article also focuses on the supply side of offset deals. The USA is the world's largest defence offsets supplier but the US government opposes offsets demands as economically inefficient and trade distorting. Even if offsets are inefficient and trade distorting, they may still benefit a materiel-exporting country such as the USA as they may induce exports and create associated benefits for the offsets provider.