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Concern grows over counter-trade, off-sets

October 18, 2013

For those who are unfamiliar with large international projects or investments, the terms ‘counter-trade’ or ‘off-set’ may be unfamiliar. But in industries such as aerospace and defense, oil and gas or mining, they are a fact of life – and fundamental to winning contracts.

A recent headline in the Financial Times reads: “Defence company sweeteners hit $75bn”. It went on to list some of the major commitments that leading defense contractors have entered into – for example, providing help to Omani fishermen and financing a beachfront metropolis in the UAE. In other cases, especially within oil, gas and mining, the obligation is to procure major project elements from local suppliers.

In concept, these conditions of contract are designed to boost the local economy and raise capabilities. In practice, there are questions over how effective they are, whether this is an efficient way to achieve these laudable goals, and the extent to which such programs are open to abuse. A powerful group of bodies that include the US government, the EU, and the WTO oppose these arrangements, questioning the extent to which they distort the market. Transparency International believes they also create a greater likelihood of corruption.

Once again, this topic represents one of the issues of integrity that contract negotiators often face. It is quite clear that winning many projects or deals depends on such arrangements. But they are typically kept hidden, there is little reporting on which of them go ahead or what benefits they actually bring, and hence no meaningful evaluation of ‘good practice’.

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