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Offset Arrangements

Offset arrangements are compensatory trade agreements (offset contracts), mostly concluded between the government of one country and a corporation of another country. They are particularly frequent in the sphere of procurement decisions on military goods. In Austria, the competence for offset arrangements lies with the Federal Ministry for Digital and Economic Affairs while the Federal Ministry of Defence is in charge of procurement decisions. Currently, no new offset arrangements are being contracted by the Federal Ministry for Digital and Economic Affairs.

Eurofighter offset arrangement

In 2003, Austria purchased 15 Eurofighter interceptors from the Eurofighter Jagdflugzeug GmbH. The Austrian party to the contract is the Federal Ministry of Defence. In line with established international practice, Austria required offset arrangements (i.e. compensation) from the Eurofighter Jagdflugzeug GmbH. This "compensation" related to specific projects that were considered beneficial for the Austrian economy. Consequently, the Federal Ministry for Digital and Economic Affairs concluded an offset contract with the Eurofighter Jagdflugzeug GmbH. The Federal Ministry for Digital and Economic Affairs, decides on the recognition of the individual projects in line with the offset arrangements and only after thorough examination.

Initially, the offset volume amounted to 4 billion euros over a period of 15 years. This equaled an offset ratio of 204.2 per cent for the purchase agreement excluding VAT, with the initial price for the 15 Eurofighter interceptors amounting to 1.959 billion euros. In 2007, Austria cancelled the purchase of 3 interceptors, thereby reducing the total purchase number to 12. As a result, the Eurofighter Jagdflugzeug GmbH requested a revision of the offset volume to roughly 3.5 billion euros, which so far has not been put into practice.

As to the years from 2003 to 2010, the total level of recognized offset transactions amounted to 3.3 billion euros or 1,376 transactions by 280 companies. From 2011 onwards, no more recognitions have been made due to the investigation procedure carried out by the Central Public Prosecutor's Office for Combating Economic Crimes and Corruption. If these investigations bring to light new and grave facts concerning the years 2003 to 2010, which then lead to serious doubts regarding the recognizability of certain offset agreements, the Federal Ministry for Digital and Economic Affairs will, in line with the provisions stipulated in the offset contract, cancel recognitions for these years with retrospect effect. Examples of such a retroactive annulation of the recognition of certain offset arrangements were, for example, the respective decision of the Federal Ministry for Digital and Economic Affairs in September 2018.

In 2015, the Federal Ministry for Digital and Economic Affairs concluded a framework arrangement with the Public Prosecutor's Office for Vienna concerning the mutual allowance of administrative assistance and inspection of files. The Federal Ministry for Digital and Economic Affairs is awaiting the results of the pending investigation procedures carried out by the Central Public Prosecutor's Office for Combating Economic Crimes and Corruption before making a final assessment of the factual and legal situation.

The last possible date for application for the recognition of offset arrangements for Eurofighter Jagdflugzeug GmbH was the 31st of May 2019.

Contact

Trade and Competition Policy Analyses and Strategies: international@bmdw.gv.at