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Guest post by Julia Muravska – Transparency International’s Defence and Security Programme

With the transposition of the Defence Procurement Directive into national law comes an ideal opportunity for EU member states to ensure that offsets are finally made transparent and accountable to the EU public.

Those following developments of EU defence procurement will be familiar with the Defence Procurement Directive adopted in July 2009. Intended to “write the rules” on how EU member states “do” defence procurement, the Directive has been the subject of much debate.

A particularly contentious point has been the future of offsets throughout the European Union. In defence purchasing, offsets are agreed between the buying governments and foreign supplying companies, requiring them to put in place a number of additional investments, often unconnected to the main contract, as a condition of undertaking it. The value of offsets programmes as a percentage of the main contract is high, often exceeding 100%. Offsets transactions carry high risks of corruption, not only due to the high level of secrecy within defence procurement generally, but especially since they usually lack the scrutiny and monitoring of the main defence contract and are therefore opaque instruments. (1)

The deadline by which the Defence Procurement Directive will have to be transposed into domestic law of member states is imminent –21 August 2011. As a result, most EU countries will be expected to adjusttheir legislative frameworks around defence procurement to comply with the new rules, and this is especially true where offsets processes are concerned.

It is critical for national legislators to take advantage of the momentum generated by the final stages of the EU Directive transposition to ensure that offsets which do persist in the EU countries are carried out with transparency and accountability. The new rules will require member states to have a sound justification of offsets’ importance to national security and value to the European Defence Technological and Industrial Base (EDTIB). They will also demand that offsets not distort civil markets.

Both of these arguments will be difficult to make if transparency and integrity are not placed in the centre of how offsets are carried out.

In discussions around offsets as part of the larger European Defence Equipment Market (EDEM), the word “transparency” appears often. However, what it refers to is competitive transparency, which, no doubt, is important for a competitive EDTIB. In contrast, the more crucial aspect of public transparency of offsets seems to have been ignored thus far. This is public transparency from an integrity point of view and is critical to reducing the risk of corruption with which offsets have become associated.

Offsets can be used as conduits for bribes in defence contracting, and thus cause inefficiency and waste of public and already scarce resources available to defence in the EU. Corruption allegations, such as those surrounding the BAE Systems sales to South Africa or the sale of submarines to Greece and Portugal by the German Submarine Consortium, moreover, diminish the little enthusiasm for spending on defence capability that exists among the EU public, further exacerbating the problem.

However, such problems are not unsolvable and solutions definitely lie in the realm of the possible. While Greece has abolished its legislation requiring offsets altogether, and Portugal is reported to be planning the same, other EU member states can implement a number of measures to improve the integrity of offsets:

  • Firstly, acknowledge that offsets cost a premium over the acquisition price that is far from negligible and also that more transparent offsets will be cheaper offsets.
  • Then, require prices with and without offsets. Transparency and integrity cannot be addressed in offsets without knowing how much they cost to the taxpayer.
  • Requirecorruption-related due diligence to be performed on individuals and organisations involved in every stage of an offsets deal. It is a government’s responsibility to ensure that offsets are not used to provide undue benefits.
  • Make processes robust, replicable, traceable and transparent.Robustness ensures that offsets are adequate, effective and efficient, limiting the scope of discretionary decisions. They should be applicable to different processes and projects, and allow to identify who made which decision and based on what. Being transparent on the processes does not jeopardise confidentiality regarding national security and commercial secrets.
  • Engage civil society organisations and the media in the process since they can be valuable assets in ensuring transparency and supporting due diligence and monitoring efforts.

This final stage of the Defence Procurement Directive transposition process thus presents an unmissable opportunity for governments to raise integrity in national defence procurement. We encourage all national legislators and Defence procurement Chiefs to strengthen their enabling legislation now.


(1) Additional information can be found in Transparency International’s Report ‘Defence offsets – Addressing the risks of corruption and raising transparency’, available at: http://www.ti-defence.org/publications/153-defence-offsets-report/

 

 

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