Counterjihad, Inc. Part I

From Offsets: The Industrial, Employment and Security Costs of Arms Exports, "Last updated: November 2001":

One of the most politically powerful claims supporting U.S. arms trading today is that weapons exports sustain American jobs. But the employment benefits of arms exports are diluted, and may be negated, by seldom-discussed side deals known as "offsets." These agreements require a supplier to direct some benefits. -usually work or technology. -back to the purchaser as a condition of the sale.

There is a word for that: kickbacks

Offsets come in two forms. Through "direct" offsets, the purchaser receives work or technology directly related to the weapons sale, typically by producing the weapon system or its components under license. "Indirect" offsets involve barter and countertrade deals, investment in the buying country, or the transfer of technology unrelated to the weapons being sold. Both types of offsets send work overseas, but direct offsets also raise serious security concerns, as they assist the development of foreign arms industries.

So, the kickback can be that the purchasing country's industry gets built up by production of components for the weapon system being purchased.

That's interesting, because one big marketing tool for sale of high-tech weaponry to countries that really shouldn't have it is the jobs (especially high-tech ones) that the sale will bring to the selling country. But, if that industrial capacity and those jobs go to the purchaser's country, then that defeats the purpose of the sale as far as the selling country is concerned: it is just transferring technology, economic benefits and industrial capacity to the purchaser, which often is just a step or two away from being an enemy.

Under those circumstances, the only ones in the selling country who are benefitting are the companies that are actually making the deal -- and they are making money essentially by selling out their country to the highest bidder.

Alternatively, the kickback can be in the form of marketing the buyer country's goods and services (shoes, rugs, furniture, rice, clothing, jihad, heroin...) in the seller country (or elsewhere).

The 2001 report produced by the Presidential Commission on Offsets in International Trade (created by the Defense Offsets Disclosure Act of 1999 ) concluded that the average offset requirement for 1998 was 57.9% of the value of the contract; this rate represented a slight increase over the figures from the previous five years. The quantifiable effect of direct offset transactions for 1993-1998 "supplanted $2.3 billion in U.S. work or 25,300 work-years." The report concluded that while quantitative levels of offsets have remained relatively steady, there has been a qualitative increase in the negotiated transactions. These qualitative increases refer to the transfer of often sensitive technologies to foreign defense industries, which improve the competitiveness of foreign firms and rarely (only in 4% of the cases) result in the transfer of technology back to the U.S. Furthermore, Ann Markusen, a member of the Presidential Commission on Offsets, concluded that although "the United States has one of the strongest licensing regimes in the world, ...enforcement is inadequate." Thus these qualitatively high demands for offsets and the resulting technology transfer increase potential threats to U.S. national security, and pose real threats to U.S. jobs.

So, first of all, the value of the kickback is a very significant fraction of the original sale: more than half, on average.

Second, increasingly it entails the transfer of sensitive technology and the best of the jobs to the buying country.

The report claims that theoretically if offsets were not offered, there would be a net loss of profits which would have a detrimental impact on U.S. jobs. However actual figures speak volumes. William Hartung in his report "Welfare for Arms Dealers" reported that "Today, thanks to these offsets, there are twice as many workers employed building the F-16 in Ankara, Turkey (2,000), as there are at Lockheed Martin's principle F-16 plant in Fort Worth, Texas (1,155)." Sending jobs abroad reduce labor costs for manufacturers, but it translates into the loss of American jobs.

In other words, if America goes to war with Turkey, Turkey is better able to produce F-16's (an American jet fighter) to fight that war than America?

Why aren't American workers protesting this practice? Some are. Workers for Boeing and Lockheed Martin have rallied against licensed production of weaponry and technology transfers that result from direct offsets. In October 1995, one-third of Boeing's workforce went on strike, largely to protest the use of foreign subcontractors. In other cases, though, workers and firms may not realize that they are being negatively affected by military offsets. If an American furniture company loses a bid for a contract to a Swedish or South Korean firm, for example, it doesn't know that an American arms corporation may have helped the foreign firm secure the furniture sale as part of a military offset obligation.

Oops. There's that furniture connection! I was just joking about that.

Hmm... If there really is a furniture connection, I wonder about the other items I was joking about: shoes, rugs, rice, clothing, jihad, and heroin?

There are other disturbing trends in offset agreements. There is an increasing percentage of countries requiring offsets valued at more than 100% of the negotiated contract. Furthermore, in several recent transactions, the purchasing country has demanded and successfully negotiated a "pre-offset" from each of the firms competing for the contract. Pre-offsets are often valued at 10% of the value of the contract and accompany each bidder's offer. The proceeds of these pre-offsets remain with the purchaser, regardless of whether or not the bid is successful.

So the net result is 1) we pay as much as 10% of the value of the contract just be able to bid it, and 2) if we win the contract, we actually lose money. All to build up a foreign power's military forces and the industry to support it. All while sending jobs overseas.

Well, that's fair!

Offsets even occur on arms sales financed by U.S. taxpayers. Such deals cost Americans thrice. first when they pay for researching and developing the weapons, secondly when they pay for the sale, and again when their jobs are shipped overseas. Rep. Cardiss Collins, former Chair of the Energy and Commerce subcommittee on Commerce, Consumer Protection, and Competitiveness, challenged the practice at a June 1994 hearing. The Government Accounting Office came out with the same recommendation in a report released at the hearing.

So, the U.S. taxpayer gives these foreign countries the money to use to make the purchase to begin with.

You can't beat that!

If the public realized that U.S. arms corporations were jeopardizing American jobs and security by assisting foreign competitors, opposition to arms sales would increase. The arms industry knows this, and it has worked hard to keep offsets safely out of view. Although the government has examined offsets three times in the past (1985, 1988, and 2001), and some new oversight measures have recently been enacted (see below), it is still very difficult to point to specific firms that have been hurt by military offsets or to ascertain how much offsets are costing U.S. industries and workers.

Opposition would increase???

Far less than that resulted in a revolution back about 230 years ago!

Counterjihad, Inc. Part II

Quotes are from Impact of Offsets in Defense Trade: An Annual Report to Congress:

Offsets are the practice by which the award of contracts by foreign governments or companies is exchanged for commitments to provide industrial compensation. In defense trade, offsets include mandatory co-production, licensed production, subcontractor production, technology transfer, counter trade, and foreign investment.

Okay, this much we established in general terms in the previous post.

But, why do we do this?

Historically, offsets have served important foreign policy and national security objectives of the United States, such as increasing the industrial capabilities of allied countries, standardizing military equipment, and modernizing allied forces. The use of offsets is now commonplace. Today, virtually all of the defense trading partners of the United States impose some type of offset requirement. Countries require offsets for a variety of reasons: to ease the burden of large defense purchases on their economy, to increase or preserve domestic employment, to obtain desired technology, and to promote targeted industrial sectors.

These are not bad reasons to use offsets to make possible a sale of military equipment to European countries that have been devastated by World War II and have become an ally holding off the tide of the Red Army in the beginning of the Cold War. But, that's behind us now, and I wonder if using offsets to sell to Third World dictatorships with abysmal human rights records is wise?

Offsets may be direct, indirect, or a combination of both. Direct offsets refer to compensation, such as co-production or subcontracting, directly related to the system being exported. Indirect offsets apply to compensation unrelated to the exported item, such as foreign investment or counter trade.

Okay, that was a review.

Developed countries with established defense industries use offsets to channel work or technology to their domestic defense companies. Countries with newly industrialized economies are utilizing both military and commercial related offsets that involve the transfer of technology and know-how. The developing countries with less industrialized economies generally pursue indirect offsets to help create profitable commercial businesses and build their infrastructure. Overall, offsets continue to be an important and necessary factor in a climate of increased competition for a declining number of international sales contracts.

"Overall, offsets continue to be an important and necessary factor in a climate of increased competition for a declining number of international sales contracts."

I wonder about that last remark.

However, offsets may be detrimental to the strength of the U.S. defense industrial base, particularly small and medium-sized defense subcontractors. Offsets can displace U.S. subcontractors, enhance foreign competitors and create excess defense capacity overseas. The U.S. Government policy on Offsets in Military Exports views certain offsets to be economically inefficient and market distorting. See the 1990 Presidential Policy on Offsets and the Defense Offsets Disclosure Act of 1999 for more detailed policy information.

"However, offsets may be detrimental to the strength of the U.S. defense industrial base...."

The US had been exporting scrap steel to Japan prior to World War II. That scrap steel came back to haunt us as, reworked into ships, planes, shells and bombs, it was used to pummel American forces at Pearl Harbor and all across the Pacific and Asia. Brits, Dutch, Australians, New Zealanders, Chinese and others also suffered the consequences of Japanese military equipment that was essentially reincarnated refugee vehicles from America's automobile industry.

This goes far beyond that; World War III is going to be much worse.

Counterjihad, Inc. Part III

Quotes are from Defense Offsets: Why Play Fair with "Allies" Who Don't, by William R. Hawkins, Friday, May 20, 2005:

In the Pentagon’s 2004 report Foreign Sources of Supply: Assessment of the United States Defense Industrial Base, the use of foreign sources for the production of military goods for the U.S. armed forces is advocated because importing “promotes consistency and fairness in dealing with U.S. allies....[and] encourages development of mutually beneficial industrial linkages that enhance U.S. industry's access to global markets.” One small problem with the Pentagon’s thinking: America’s “allies” often do not behave in ways that are either fair or beneficial to our interests.

America had a 2004 trade surplus in aerospace products of $31 billion, virtually the only bright spot in an overall trade deficit of $618 billion. The aerospace figure is somewhat misleading, however, because foreign governments usually require industrial compensation to offset the cost of buying U.S. weapons systems. In defense trade, offsets include mandatory co-production, licensed production, subcontractor production, technology transfer, counter trade, and foreign investment. Countries require offsets for a variety of reasons: to ease the burden of large defense purchases on their budgets, to increase or preserve domestic employment, to obtain desired technology, and to promote targeted industrial sectors.

So, we have a significant trade deficit which pays for a relatively small surplus from the aerospace industry. And, that surplus is misleading.

(In other words, America is getting screwed.)

Congress has required an annual report on the impact of offsets in defense trade, prepared by the Department of Commerce’s Bureau of Industry and Security under the 1992 amendments to the Defense Production Act. The most recent report, issued in March 2005, found that for 2003, new offset agreements had a total value of $8.9 billion, equaling 121.8% of the $7.3 billion in exported defense items. This means that the American economy is giving up more than it gains when it sells military products to many of our overseas friends.

The stuff we sell goes for $7.3 billion, but it costs us $8.9 billion in kickbacks to sell it!

(In other words, America is getting screwed.)

European nations received offsets equal to 148.8% of the total value of our exports to them. For non-European nations the average was 48.4%. Developed countries with established defense industries, like the Europeans, use offsets to channel work or technology to their domestic high-tech firms, which are rivals to American firms. Countries with newly industrialized economies utilize both military and commercial offsets to transfer technology and know-how to expand their capabilities. Offsets can displace U.S. subcontractors when they require work be outsourced or when American firms lose future contracts to rivals who have benefitted from offsets.

We transfer American jobs and American know-how to countries that either sell weapons to our enemies or are one step away from being enemies themselves.

(In other words, America is getting screwed.)

Even American companies that are not involved in defense projects can be harmed by offsets – because they often entail “indirect” compensation in commercial sectors, including direct purchases, investment in foreign enterprises, technology transfers, and training. These offsets can have a long term impact because they help create new trade rivals, even in the commercial sector. American firms may not even realize that they are being targeted by the offset process. A 1998 GAO study entitled “U.S. Contractors Employ Diverse Activities to Meet Offset Obligations” found that defense contractors even “assisted foreign firms in marketing their products in export markets using the expertise of the contractors’ own organizations or consultants.”

So even innocent American industries who have nothing to do with arms sales suffer.

(In other words, America is getting screwed.)

Even with increasing offsets, European Union countries have dramatically cut their purchases of American weapons. These countries bought $1.4 billion in arms from the United States in 2003, down from $3.5 billion in 2000. Eastern European countries that joined the EU in 2004 may appear to be a better potential market for U.S. defense companies, but could be difficult to hold. The EU is pressuring members to “harmonize” policies in favor of consolidating a stronger European industrial base meant to compete with the United States.

So despite the fact that we are kissing their &#%$@ to make the sale, we're not kissing it enough, so business is going down.

(In other words, America is getting screwed.)

The European Aeronautic Defence and Space Company (EADS), a consolidation of French and German companies with some Spanish participation, has been a major beneficiary of the EU trend to buy more from continental sources. EADS owns Airbus, which means its “buy European” argument has impacts on the commercial side of the international economic competition as well. Airbus beat Boeing and Lockheed Martin to a 20 billion euro contract to supply seven European countries with 180 new military transport aircraft, the A400M. In January 2004, EADS scored a major win when the UK Ministry of Defence (MoD) picked Airbus to supply refueling aircraft, a type that has long been a Boeing specialty. Airbus promised that half of the work on the new planes and 90% of the conversion work on older A330 aircraft, would be done in the UK.

And, after all that, the UK refuses to buy American.

(In other words, America is getting screwed.)

Yet, as long as European military budgets remain small, continental defense firms are going to have a difficult time staying competitive in the long run. This is why European firms are pushing so hard to gain access to Pentagon contracts. They need to tap into U.S. budgets to compensate for the collapse of EU military spending. As Richard Olver, chairman of BAE told Defense News (Feb. 28, 2005), “It's obviously clear that the extent of R&D in the United States is a very different order of magnitude to the R&D investment in the rest of the world, including the United Kingdom....so our first line of strategy is to have a bias to grow in the United States. High R&D, high budget, high reputation with the customer.”

So, despite all the business the Europeans monopolize for themselves, they still can't make it, so they seek to sell weapons to America, even though they won't buy weapons from America.

(In other words, America is getting screwed.)

The United States does not, however, demand offsets as do the Europeans. This makes for an unbalanced trading system in military products that undermines the long-term superiority of the American industrial base upon which the country’s world leadership depends. I recently had the opportunity to engage in discussions with the “interagency team” assigned by the Secretary of Defense to “consult” with foreign nations on limiting the use of offsets. The team consists of officials from the Defense, State, Commerce and Labor departments, and the office of the U.S. Trade Representative. Unfortunately, because Washington has unilaterally adopted a much more open trading posture than Europe, it doesn’t have much leverage to bring to the table. Indeed, the use of the term “consult” rather than “negotiate” indicates a weak effort.

So America is doing nothing about it.

(And, remember: America is getting screwed.)

This situation calls for more creative “buy American” provisions to transfer production capacity and innovation from Europe. In the Pentagon’s 2005 Industrial Capabilities report, it is stated that foreign direct investment in the U.S. defense industry has jumped 198% in the 2000-2003 period, or about $3.5 billion, even as Foreign Direct Investment (FDI) in the general economy was declining by 12%. Why is this so? Because foreign firms know that they must weather political criticism in Washington. They have a better shot at US contracts if they locate at least some of their operations here. This is the kind of development Pentagon policy should be encouraging, rather than overseas outsourcing.

Foreign direct investment is down, but FDI in the defense industry is way up.

They are buying our defense industry.

(In other words, America is getting selectively screwed.)

But it must be real FDI, the kind that truly enhances U.S. military and industrial capabilities, not just assembly work. EADS, for example, has been waving the prospect of a major aircraft assembly plant before a number of communities (and their politicians) as part of its drive to win the contract for the next generation of strategic aerial refueling tankers. The catch is that EADS only wants a location near a deep water port, so it can import all the high-tech and truly valuable components of the aircraft and not actually produce much of anything in the United States. FDI of this sort must be seen for the scam that it is and be closely monitored. No one should be fooled for a minute that the EADS Trojan Horse operation is a “mutually beneficial industrial linkage.”

Nice of them to throw us a bone.

(America is getting screwed.)

The proper goal of U.S. policy is not to be “fair” but to be successful. Today we are failing miserably at that goal.

Did I mention that America is getting screwed here?

Counterjihad, Inc. Part IV

From Aerospace, Defense Offsets Take Center Stage at Industry Meeting, Posted 05/05/06 11:27 By PERICLES N. ZORZOVILIS, ATHENS:

“Even though offsets initially focused on aerospace and defense, nowadays the financial significance of countertrade and offsets is not restricted to this sector, but expands within the economy in general,” [Christian Hadjiminas, chairman of Epicos] explained. “Also, the level of technology and know-how requested to be transferred through the offsets is constantly increasing."

“Also, the level of technology and know-how requested to be transferred through the offsets is constantly increasing."

So, the thieves are getting more demanding....

From Indian defense offset's policy to bring in $10 billion by 2011 Dated 27/7/2006:

India's newly introduced defence offsets policy is likely to bring in $10 billion during the 11th five-year plan period (2007-11), Defence Secretary Shekhar Dutt said Thursday.

India will look for direct offsets in all capital acquisitions of the defence ministry to strengthen the capabilities of its indigenous industry, he said while speaking at a workshop on Implementation of Offsets in Defence organised by the Confederation of Indian Industry (CII) here.

Well, the Indian government is looking out for India....

The government recently announced the new policy for capital acquisitions in which the minimum requirement is of 30 percent offsets in all acquisitions where the purchase cost exceeds Rs.3 billion. Nearly 80 percent of all offsets are in the area of aerospace.

The secretary said much depended on the ability of the Indian defence industry to absorb the offset and the export potential generated.

Their main concern is whether they can actually manage all the business being generated!

India has a large industrial base and offsets will further enhance its technical and manufacturing potential. They will also help to increase investments in domestic research and development, he maintained.

Offsets provisions will apply to capital acquisitions categorised as outright purchases from a foreign or Indian vendor or purchases followed by licensed production. However, the Defence Acquisition Council can prescribe offset percentages higher than 30 percent, if required.

Pointing out that it will be as much as 40 percent cheaper to manufacture in India under offsets, Dutt said: 'We would like to pursue offsets that will be beneficial to both Indian industry and foreign collaborators.'

Too bad the American policy doesn't parallel that, pursuing "offsets that will be beneficial to both [American] industry and foreign collaborators."

The concept and benefits of offsets can also be applied to leverage large purchases by leading Indian companies individually or through consortiums, he said.

'This would strengthen their collective bargaining abilities,' he added.

Offsets will also help foreign collaborators take advantage of India's software industry. There are large software technology hubs in practically all cities of India whereas earlier most software development was centred around Bangalore, Dutt pointed out.

In addition, India has a large reservoir of technically trained manpower developed over the past few decades.

"India has a large reservoir of technically trained manpower developed over the past few decades."

Developed through the benefits of offsets? That is certainly the case in other countries.

Too bad nobody is developing "a large reservoir of technically trained manpower" among the American workforce through offsets.

At least India isn't an enemy.

Of course, considering the way Bush is running the War on Terror, maybe I shouldn't speak too soon.

Turkey: Arms Buyer, Heroin Supplier

From A Fantastic Tale: Turkey, Drugs, Faustian Alliances & Sibel Edmonds by John Stanton, www.dissidentvoice.org, June 29, 2004:

The historical record shows that the US War on Drugs and the nascent War on Terror kept colliding with not only within the US intelligence, policy and business apparatus, but also with European strategic and business interests. Turkey continues its push for entry into the European Union and the USA wants that to happen as the June 2004 meeting of NATO, and President Bush’s attendance under dangerous circumstances, in Turkey demonstrates. Turkey is one of the USA’s and Europe’s top arms buyers and is located near what could be some of the biggest oil and natural gas fields in the world. At this point it’s worth noting that the one of the FBI’s tasks is to counter industrial espionage and to engage in it. Where big arms sales pit the US against its European competitors--as is the case in Turkey (particularly starting in 1998)--the FBI is busy making sure the US gets the edge over its competition. Allies are friends only so far.

"Turkey is one of the USA’s and Europe’s top arms buyers and is located near what could be some of the biggest oil and natural gas fields in the world."

“After the Gulf War in 1991, Turkey found itself deprived of the all-important Iraqi market and, since it lacked significant oil reserves of its own, it decided to make up for the loss by turning more massively to drugs. The trafficking increased in intensity with the arrival of the hawks in power, after the death in suspicious circumstances of President Turgut Özal in April 1993. According to the minister of interior, the war in Kurdistan had cost the Turkish exchequer upwards of $12.5 billion. According to the daily Hürriyet, Turkey’s heroin trafficking brought in $25 billion in 1995 and $37.5 billion in 1996...Only criminal networks working in close cooperation with the police and the army could possibly organize trafficking on such a scale. Drug barons have stated publicly, on Turkish television and in the West, that they have been working under the protection of the Turkish government and to its financial benefit. The traffickers themselves travel on diplomatic passports…the drugs are even transported by military helicopter from the Iranian border.”

So, the drug trade is a big source of income for Turkey, and the Turkish Government is in deep with the drug runners.

(Kind of like Pakistan.)

Nowhere is the pain of Turkey’s role in the heroin trade felt more horribly than in the United Kingdom. According to London’s Letter written by a Member of Parliament, “The war against drugs and drug trafficking in Britain is huge. Turkish heroin in particular is a top priority for the MI6 and the Foreign Ministry. During his visit to the British Embassy in Ankara, the head of the Foreign Office’s Turkey Department was clear about this. He reassured an English journalist that the heroin trade was more important than billions of pounds worth off trade capacity and weapons selling. When the journalist in question told me about this, I was reminded of my teacher’s words at university in Ankara ten years ago. He was also working for the Turkish Foreign Ministry. The topic of a lecture discussion was about Turkey’s Economy and I still remember his words today,

“50 billion dollars worth of foreign debt is nothing, it is two lorry loads of heroin...”

Foreign aid, trade deficits.... there's no money in that. The money is in supplying the European demand for heroin by serving as a middleman for Islamic narcoterrorists.

The Middle East Report concluded in 1998 that probably the greatest strategic move in the Clinton post-Cold War years is what could be called "The Ankara Pact" -- an alliance between the U.S., Turkey, and Israel that essentially circumvents and bottles up the Arab countries. Earlier in 1997, Turkish Prime Minister Yilmaz visited with Bill Clinton to ensure him that Turkey would attempt to improve its human rights record by slaughtering less Kurds, but also mentioned that if the US pushed too hard on that subject or if the US Congress adopted an Armenian Genocide Resolution, Turkey might award a billion dollar contract for attack helicopters to a Europe or maybe even Russia.

They're making many billions off the heroin trade, and the U.S. is being held hostage by one billion dollars worth of attack helicopters?

After all the offsets, what's that $1 billion deal really going to be worth, anyway?

For that matter, what's it worth to the Europeans to sell arms, presumably with offsets, to their main heroin pusher?

Are the European governments comprised of junkies? Or just whores?

By the way, Europeans, don't be offended: I'm not suggesting that most American politicians are a whole lot better.

During this timeframe, and with approval from the USA, Turkey began to let contracts to Israel to upgrade its F-4, F-5 and F-16 aircraft. Pemra Hazbay, writing in the May 2004 issue of Peace Watch, reported that total Israeli arms sales to Turkey had exceeded $1 billion since 2000. “In December 1996, Israel won a deal worth $630 million to upgrade Turkey's fleet of fifty-four F-4 Phantom fighter jets. In 1998, Turkey awarded a $75 million contract to upgrade its fleet of 48 F-5 fighter jets to Israel Aircraft Industries' Lahav division, beating out strong French competition. In 2002, Turkey ratified its largest military deal with Israel, a $700 million contract for the renovation of Turkish tanks.” But that pales in comparison to the $20 billion in US arms exports and military aid dealt to Turkey over the last 24 years.

Israel might want to consider that Turkey is an Islamic country. Sooner or later, Turkish troops might be the ones driving the Jews into the sea -- with American weapons that are built under license in Turkey and refurbished by Israeli technicians.