Offset and Polonization vs. modernization of Polish army

5 maja 2014, 12:19

The annual event of Global Industrial Cooperation Conference was held in Barcelona in March. The main topic of discussion was offset and industrial cooperation in the area of armaments industry. During the conference many of the participating countries, e.g. the United Arab Emirates, boasted about successful offset projects, which from the start-ups had grown into serious ventures which actively use the implemented technologies. Presentations of countries from South-East Asia and Africa were very interesting. It turns out  that everywhere –except for Europe – the offset market is growing. Currently it is hard to imagine any serious transaction concerning arms trade that does not include offset. Of course, apart from Europe.

The representative of the European Commission took the floor and stated that the Commission finds offset contrary to the European law and that’s it. Of course he didn’t explain why he thinks so. In his opinion the offset is permissible when the EU member state will apply  the Article 346 of the Treaty – obviously using narrowing interpretation. He remarked, that in his/Commission’s view the EU member states may exclude the companies from outside of the EU from the defensive proceedings, but if they admit them they cannot demand offset from them.

The representatives of EU Member States were visibly avoiding open polemic, stating that they support their defences industries with the allowed means. The representative of proud Albion said that they have an idea how to develop their industry and establish its importance for the security of the United Kingdom – the idea, which is not necessarily  consistent with the views of the current Commission. Generally Europe looked feebly in comparison to Asia – it seemed as if it consumed with bureaucracy and restrained by her own solutions.

There was even a moment dedicated to Poland. The lecture was pretty decent and includes following motto: the offset is dead, the Polonization lives. In the lecturer’s opinion the Polish authorities will – in many different ways – support the production of the armament in Poland, transfer of the source codes of  technology, etc. He indicates the pushing of research and development works as a method chosen by Polish authorizes to avoid objections of Commission.
He recommended the size of the purchases, optimistically determining it for UDS 50 billion.

As regards the offset – the amendment to the offset act is currently analysed in the parliamentary commissions and it is heard that the deputies have some doubts about transferring the offset into the Ministry of National Defence. The argumentation of the government, that the necessity of this change follows from the European law has a weak justification in some opinion of the European Commission, which – as it’s known – is not source of law. I wrote many times that the Ministry isn’t neither ready nor interested in taking over and making use of offset.

Unlike the Polonization, offset is defined by law. Polonization, on the other hand, is a sum of pious wishes, influences of particular industrial lobbies connected with politicians and cliques inside the Ministry of National Defence. Recently we’ve learned, that in the years 2022-2030 we are supposed to purchase 64 multirole aircrafts – most likely the F-35. What kind of Polonization there can be in case of F-35? Using the offset it’s possible to persuade the foreign supplier to make some investments in Polish arms industry, which carries the increase of the Polish defence capabilities. Obviously, both methods can be used. I’m very curious how Ministry of National Defense plans to induce the foreign suppliers to locate the production in Poland and to transfer the newest technologies to our companies. The transfer itself won’t solve anything. To use the technology effectively  the purchase of particular and expensive production lines is necessary.

Let me go back to some of the points of the project of the amendment to the offset act.

A legal loophole that might arise after implementation of proposed changes attracts attention – article 3 point 3. Even if the Ministry of National Defense decides on using the offset it is sufficient  that the supplier will be a Polish company with 100% of foreign shares. It will make using the offset impossible (proposed changes in Article 8c). Moreover, implementation of change proposed in Article 19 would cause significant worsening of the legal situation of foreign suppliers. So far the general practice was that the foreign supplier who does not performing  offset obligation –  because e.g.  he doesn’t want to do so – was obligated to pay a pecuniary penalty in the amount of 100% of the value of the offset obligation, when he was performing the offset obligation inappropriately, he paid the contractual penalty on the amount specified in the agreement.

Usually it was a small percent of the value of the obligation. According to the amendment, in such case the penalty would be equal to the value of the obligation inappropriately performed. Therefore, it raises some doubts whether such solution would provide problems during its realization. The problems that – if the offset would be performed – will be resolved by foreign by arbitral tribunals. The removal of Article 19a of a bill, which enable the parties to consent to substitute one offset obligation for another is also unsuitable.

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