The Economics of Offsets

Offsets, or work-sharing arrangements, are frequently requested by governments when buying foreign defence equipment. Under an offset the vendor agrees to place work to a set value with firms in the buying country. Although popular, some claim that offsets create jobs and enhance the defence industrial base. Others argue that offset work would have been won without the offset or that it is low technology work which ceases once the vendor has fulfilled its offset obligation. Somewhat contradictorily, defence exporters with large offset obligation are often criticized for transfering work and technology to potential foreign competitors.