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OFFSET IN HUNGARY

OFFSET IN HUNGARY. Summary: Offset’s Main Functions, Legal Background Offset Policy Development Main Programmes Success Stories and Problems Future of O ffsets. 1. OFFSET’S MAIN FUNCTIONS IN HUNGARY:.

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OFFSET IN HUNGARY

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  1. OFFSET IN HUNGARY

  2. Summary: • Offset’s Main Functions, Legal Background • Offset Policy Development • Main Programmes • Success Stories and Problems • Future of Offsets

  3. 1. OFFSET’S MAIN FUNCTIONS IN HUNGARY: 1.1. Defence Expenditures’ A tool for supporting Compensation economic development 1.2. Cost Saving in Defence A tool for efficient Expendituresdefence spending 1.3. National Defence & A tool for supporting the Security Industrytransition of defence industry Development &development of security Industry

  4. 1.1. Defence Expenditures’ Compensation – A tool for supporting economic development Overall Offset Obligation for 1,1 Billion Euros Offset to Support Economic Policy Goals Support knowledge-based economic development Provide inclusion of subcontractor SMEs in main supply chains and systems Help job creation and maintenance of employment, human resources development Enhance regional development Access to new markets Develop national defence and dual-use industries FDI, technology transfer, know-how, grants, R+D, marketing assistance, export of new products, training, subcontracting, offset abatement. Variety of tools

  5. Priority sectors and Project Based Fulfilment Technology intensive branches and activities to increase economic competitiveness • IT • Telecommunications • Nanotechnology • Biotechnology • Electronics • Environmental protection technologies • Renewable energies • Defence Industry • Aerospace/Aircraft Manufacturing • Realisation of complete projects as new fulfilment possibility • Projects databases elaborated together with professional associations • Fulfilment rewarded with multipliers 3-5 to be negotiated case by case Project Based Fulfilment in Priority Sectors:

  6. Creation of Modernized Professional Armed Forces versus Decreasing Defence Spending 1.2. Cost Saving in Defence Expenditures – A tool for efficient defence spending Offset to achieve Cost Saving/ Cost Avoidance • Savings by receiving services free • of charge as(direct) offset fulfilment • Obtaining of new technical servicing • and upgrading capabilities Variety of tools • Maintenance and logistic support • facilities for the life cycle of the • system acquired • Developing/upgrading capacities for • the system acquired

  7. 1.3. National Defence Industry Development A tool to support defence& security industry A small national defence industry in transition versus import dependence on defence platforms Offset to Support Development of Defence&Security/ Dual Use High-Tech Industry • Direct Subcontracting • Acquisition of new technologies • Know-how transfer • New products/services • Marketing support • Participation in International Defence • Development/NATO Programmes Variety of tools • Any defence/security/dual use high-tech • industry development/investment accounts • for direct offset fulfilment

  8. LEGAL BACKGROUND Government Decree No 228/2004.(VII.30.) on the specific rulesof acquisition of goods and services for military, public order and surveillance use, related to basic defenceand security interests • MAIN OFFSET PRINCIPLES: • 100% obligation, • 1 Bn HUF (4 M Euros) threshold • 30 % obligatory investment ratio • rest of the rules determined by MOET

  9. Offset Regulation • MOET Order No. 21/2006.(IX.24.)on the tasks, • competence, procedure and operation of the Offset Committee: • The Ministry of Economy and Transport as responsible governmental • body for offsetleads the Offset Committee • General Rules for Offset • Detailed offset regulation guidelines approved by the Minister of Economy: • offset policy priorities, • possible ways and fields of fulfilment. • The General Rules for Offset are considered: • as a base for any future RFQ, and consequently • as a base for the Offset Agreement itself

  10. General Rules for Offset Modified • Last modifications in November 2006: • Aerospace Sector selected among priorities; • Direct Offset fulfilment is to include 30 % investment obligation; • Only Hungarian added value to be counted as export fulfilment; • Indicative Lists modified.

  11. 2.OFFSETPOLICY DEVELOPMENT Early 90’s: Introduction of Offset Practice 1999-2001: Setting Policy Priorities & Legal Framework: From 2004: NEW OFFSET POLICY 2000 1995 2005 Obligatory Direct Offset & Indirect Commercial Offset, but Defence&Security in a wider approach Indirect Commercial Offset & Direct Offset, whenever possible Indirect Commercial Offset

  12. 3. MAIN OFFSET AGREEMENTS

  13. NATO Project with Offset Hungary joined NATO Airborne Early Warning and Control Organization (NAPMO) as from 22nd December 2005. • Hungary contributes to the Mid Term Modernization Programme of the AWACS fleetand also the Depot Level Maintenance. • National MTM contributions compensated 100% by the Programme’s Main Contractor – the Boeing Companythrough offset. • Hungarian DLM contributions compensated through offset.

  14. 4. SUCCESS STORIES AND PROBLEMS Results: Long-term embedded investments mainly with export capacities

  15. Success Stories and Problems • GRIPEN OFFSET AGREEMENT • Signed 20th December, 2001, • Modified 3rd February, 2003

  16. 5. FUTURE OF OFFSETS • Rome Treaty § 296 • EC Green Book – Intention to revise and modify the • existing rules for defence procurement, effects on offset. • EDA/EDEM Code of Conduct • Abolishment of Offset Harmonisation Study • Hungary opted out from CoC: • Low level of competitiveness of the national defence industry • Offset is an economic necessity

  17. LESSONS LEARNED: • Offset depends on a calculable Procurement policy, long and middle term planning of acquisitions, budget stability. • Offset is an additional source for economic development, any Government priority could be included in offset. • Each offset programme is different, offset to be handled with a great level of flexibility. • Offset must rely on real business opportunities. • Direct offset possibilities should be assessed pursuant to the procurement and the real involvement possibilities of the local defense industry.

  18. Thank you for your kind attention! Q&A: Ministry of Economy and Transport State Secretariat for International Economic Relations Offset& Investment Unit Phone: +361 374 2841, Fax: +361 269 3478E-mail: szabo.sandor@gkm.gov.hu

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