The U.S. Department of Commerce is working to convince former Eastern-bloc
nations that they will benefit from buying U.S. weapon systems.
Specifically, the Commerce Department is interested in establishing
industrial ventures between U.S. firms and the Czech Republic, Slovakia,
Hungary, Poland and Austria.
“The U.S. defense industry is second to none. We’ve
got terrific products at great prices. And if you study offsets,
the agreement means nothing until maybe 10 years later, when American
companies deliver the economic stimuli to purchasing countries,”
said Daniel Hill, director of strategic industries and economic
security at the Department of Commerce.
Hill spoke at the InWest Forum, a conference recently held in Washington,
D.C., to explain to U.S. executives the realities of the economic
investment climate in Central Europe.
Offsets, of which Hill is a proponent, are forms of industrial
compensation required as a condition of purchasing defense articles
or services. There are two types of offsets: direct and indirect.
Direct offsets are most often agreements to produce parts for defense
technology in the purchasing country, but can also include “technology
or assistance, advice, cooperation, anything that will help with
interoperability,” said Hill.
Indirect offsets are not related to the weapons platforms being
purchased. Sometimes companies are asked to simply write a check
as an offset. For example, an American company was once asked to
fund the inception of a national park system for a small country,
he said. Some countries, Hill said, feel that the offset package
is the “most important part of the deal, because it stimulates
the economy.”
Hill explained that one of his office’s main priorities is
to ensure a strong, technologically viable U.S. defense industrial
base. Hill serves on a NATO industrial policy committee in Brussels,
where a new policy is being honed, called a “security of supply
system,” which is based on current U.S. commerce policies,
he said.
Central and Eastern Europe are growing in importance to America,
not just for business but for transatlantic security, said Hill.
“The internationalization of the [U.S.] defense industry to
achieve interoperability in defense operations is a cornerstone
of what this is all about,” said George Handy, of the Center
for Strategic and International Studies, paraphrasing comments made
by former Undersecretary of Defense for Acquisition Jacques Gansler.
Interoperability with NATO is as important to the Central European
countries as it is to the alliance, said Hill. NATO Secretary-General
Lord George Robertson is pushing for even small NATO countries to
contribute militarily to the alliance. Sophomore NATO member Czech
Republic announced plans to acquire new fighter jets after it joined
the alliance.
Companies such as EADS, BAE Systems, Northrop Grumman and Lockheed
Martin have met with Czech acquisition officials in recent months,
said Stanislav Pavel, vice president of Odien Asset Management,
a management consulting company based in Prague. A commission, set
up for the purpose of awarding a contract for a fighter jet chose
the Gripen, manufactured by a joint venture of Sweden’s Saab
and Britain’s BAE Systems. The decision, however, was overturned
by the Czech Senate, said Petr Janousek, spokesman for the Embassy
of the Czech Republic. There is debate among that nation’s
political leaders about funding priorities and about whether the
Czech Republic really needs new fighter jets, he said.
Pavel had strong words of warning for American investors planning
to enter the Central European marketplace. In some countries, corruption
throughout the public and private sectors is widespread, he said,
so it is important for American companies to maintain “full
control of companies through equity and board positions, as well
as maintaining complete control over cash flow.”
“You will have ready and willing new management, but you
must have them under your complete control, and you must have a
realistic understanding of internal corruption areas,” he
said. “You must have an on-the-ground presence and day to
day interaction with management,” in order to succeed in the
region, Pavel said.