If you are involved in the movement of defense articles, the “December 23rd Rule” will undoubtedly affect your transactions that include an offset agreement.

 

For those who are unfamiliar with an offset agreement, the general idea of an offset agreement is that a foreign company or foreign government may request, as a condition of the transaction, that the U.S. firm provide compensation in the form of co-production, licensed production, subcontractor production, technology transfer, or foreign investment.

 

As a general business practice, any U.S. firm that enters into an export contract for defense articles or defense services that contains an offset agreement must report the offset agreement to the Bureau of Industry and Security (BIS).

 

Typically, the BIS reporting requirement applies to any contract that contains an offset agreement valued at $5 million or more, as well as any offset transactions valued at $250,000 that would be credited toward an offset agreement.

 

In accordance with the amendments made to the Offset Reporting Requirements under the December 23rd Rule, any U.S. firm that enters into a contract for providing defense articles or defense services containing an offset agreement is required to provide the appropriate North American Industry Classification System (NAICS) six digit code, along with the month and year the offset agreement was signed.

 

This amendment to the Offset Reporting Regulations went into effect on Friday, January 22, 2010.

 

Since the federal government views offsets to have a negative effect on the economy, these new reporting requirements will enhance the ability to assess the economic effects in defense trade by obtaining more precise information on the industry sectors affected by offset agreements.

 

Anyone who engages in defense trade is highly encouraged to remain in compliance with these new reporting requirements as the penalty for non-compliance could be a monetary fine of up to $10,000, imprisonment for one year, or both.

 

Offset reports need to be sent in both hardcopy and electronic format. The electronic format should be a spreadsheet or database emailed to OffsetReport@bis.doc.gov. The hardcopy offset report should contain the same information as the electronic copy and be sent to:

Questions may be directed to Ron DeMarines, Offset Program Manager, by telephone at either (202) 482-3755 or (202) 482-4506 or by email at rdemarin@bis.doc.gov.

 

You can read the complete regulation change in the Federal Register at the BIS website.