Offsets Threaten Jobs and National Security
Aircraft Industry Jobs Fly Off with Transfers of Technology,
With Little U.S. Regulation or Accountability
WA****NGTON–The U.S. government’s failure to develop a coherent policy on
specific
outsourcing arrangements called trade offsets has resulted in lost jobs
and the transfer of
technological innovation to other nations. These technology transfers and
lost jobs in turn
threaten long-term harm to national security and the economy.
An offset is the transfer of technology and/or production from a U.S.
company to another
country in return for a sale of U.S. goods to that country. Because no
comprehensive national
policy for such deals exists, offsets remain the unique purview of private
industry, which
seeks to maximize profits, at times without regard to workforce or
security concerns.
A new Economic Policy Institute briefing paper on trade offsets, part of
EPI’s Agenda for
Shared Prosperity, points out that demand for such deals is increasing
steadily over time in all
regions, based on the U.S. government’s limited data on offsets.
“Over the 14-year period 1993-2006, U.S. companies re****ted over 8,500
transactions,
valued at $42 billion, that involved the transfer of production and
technology to 42
countries,” author Owen E. Herrnstadt states. “A U.S. government re****t
concludes that over
16,000 jobs were lost each year over the 2002-2005 period due to offset
transactions in the
defense industry.”
The continued movement of U.S. industrial jobs and technology to foreign
enterprises has led
to an increasing dependence on overseas suppliers. Such dependence brings
ever-increasing
chances of mistakes being made with technology—as Herrnstadt notes
happened when a U.S.
aerospace company was involved in the transfer of technology to a plant in
China that was
involved in military production.
Other nations have recognized the value of offsets as a way to gain jobs
and technology
without investing in development. More than 20 European countries have
offset agreements,
such as a $3.8 billion agreement for F-16s between Lockheed and Poland
that includes
subcontracts for Poles to make a variety of things, including parts for
aircraft. Boeing’s $4.4
billion contract with South Korea for 40 F-15s includes the provision that
South Korean
workers would build parts and perform subassembly for future customers in
other countries.
No country typifies the use of offsets more than China, whose growing
aerospace industry is
a direct reflection of its determined efforts to become a player on the
world scene through the
targeted, strategic use of offsets. The paper lays out China’s development
of two aircraft
companies that in 2005 had combined employment of nearly a half-million
people, with
major expansion likely. Several leading international companies have
extensive involvement
with the Chinese aerospace industry, with Boeing and Airbus having the
most at stake.
Airbus has numerous projects in China and plans to establish a final
assembly line for the A-
320. According to Boeing’s cor****ate Web site:
• More than $1 billion in aviation hardware and services purchased from
China
since the 1980s.
• Some 4,500 Boeing airplanes in use currently utilizing parts and
assemblies
built in China.
• Active contracts between Boeing and its supplier partners and China’s
industry valued at more than $2.5 billion.
The lack of U.S. policy on offsets and the transfer of such valuable
manufacturing capacity
and technology pose grave threats, Herrnstadt argues. “Instead of
developing policies to
foster and strengthen key industries, policy makers relegate decisions to
major companies in
the private sector, where a short-term focus on individual firms’ profits
has devastating
results for the overall economy and national security,” he writes.
Offsets “can and do assist in the creation of enterprises in other
countries, ultimately
resulting in greater competition for U.S. companies and their workers,”
Herrnstadt writes.
Details rarely are made public and negotiations are carried out without
government oversight,
but the impact can be enormous. Economists conservatively estimate the
loss of thousands of
manufacturing/ex****t-sector jobs each year as a result of offsets.
In the long run, Herrnstadt says, such deals have a long-term effect as
“suppliers are ****fted
outside the United States and as prime contractors ****p work offshore. At
the same time,
other countries develop powerful companies that come back to compete
fiercely with U.S.-
based companies.”
Despite the twin threats of job loss and technology drain, the government
largely has left
offsets as a private-sector program. A short-lived Presidential Commission
on Offsets made
some recommendations, and such various federal agencies as the Commerce
Department and
Defense Department occasionally nibble at the edges, Herrnstadt notes, but
concludes “the
result is that the U.S. private sector could be serving the interests of
foreign governments
without adequate oversight…and Wa****ngton has no policy of its own that
‘turns the tables’
by demanding offsets.” He argues that policy makers should:
• Adopt policies that will enable the United States to aggressively use
offsets to
its own advantage.
• Strengthen and enforce prohibitions on offsets in all multilateral and
bilateral
trade agreements.
• ****ne a light on current offset transactions in both the defense and
commercial industries.
• Create a meaningful commission to devise an effective policy.
EPI’s Agenda for Shared Prosperity is a comprehensive set of economic
policies to
promote economic justice as well as economic growth, from universal health
care and
retirement security to incomes and jobs, globalization and the nation’s
infrastructure and
education system.
----------------------
Over the past several years, the outsourcing of hundreds of thousands of
white-collar and
service jobs from the United States to countries like India and China has
received increasing
attention.1 But there is a particular outsourcing arrangement that takes
place under the radar,
that involves high-paying, high-technology jobs in the ex****t sector, and
that impacts national
security. This arrangement, known as an offset, is the transfer of
technology and/or production
from a U.S. company to another country in return for a sale. While offsets
are virtually
unregulated in the United States, other countries have well-established
policies that are
feeding the development of their own industries by bringing U.S.
productive capacity and
technology to their shores. The failure of the U.S. to adopt and enforce
straightforward,
transparent, and common sense policies to govern offsets costs the United
States thousands of
jobs and poses a serious threat to national security.
Despite the loss of over 3 million manufacturing jobs in the United States
in just the past few
years and the emasculation of key industries like ****pbuilding, tools,
autos, electronics, and
semi-conductors, U.S. policy makers maintain their refusal to adopt
meaningful responses to the
decline in the industrial base. Instead of developing policies to foster
and strengthen key
industries, policy makers relegate decisions to major companies in the
private sector,2 where a
short-term focus on individual firms' profits has devastating results for
the overall economy
and national security. In the meantime, U.S. competitors develop and
aggressively pursue
policies that are intent on maintaining and increasing their industrial
base (see, for example,
U.S. Department of Commerce 2007b, Appendix F).
Strangely from a national security standpoint, offsetting is common in
production by the defense
industry, and the number of offset deals in that industry alone is
staggering. Over the 14-year
period 1993-2006, U.S. companies re****ted over 8,500 transactions, valued
at $42 billion, that
involved the transfer of production and technology to 42 countries. A U.S.
government re****t
concludes that over 16,000 jobs were lost each year over the 2002-05
period due to offset
transactions in the defense industry.
One country that truly understands the im****tance of offsets is China. By
pitting Boeing and
Airbus against one another for sales of aircraft, the country has secured
the transfer of
technology and production by U.S. and European aerospace companies and
taken a great leap
forward in developing an aerospace industry of its own. Boeing has signed
hundreds of millions
of dollars of supplier contracts with China's aviation industry, while
Airbus, in addition to
entering into supplier contracts, has announced the establishment of an
assembly facility for
the Airbus A-320 in China.
Policy makers need to recognize the threat that offsets pose for U.S.
industry, its workers, and
the economy. Proposals for eliminating this threat include:
• Adopting policies that will enable the United States to aggressively use
offsets to its own
advantage. United States industry and its workers should not be held
defenseless to offset
demands by other countries. If U.S. competitors insist on using offsets to
their advantage and
our detriment, the United States should establish policies of its own to
strengthen its
negotiating position.
• ****ning a light on current offset transactions in both the defense and
commercial industries.
U.S. companies should be required to re****t the exact nature of their
offset transactions. U.S.
taxpayers who sup****ted the development of a particular technology should
know whether their
subsidy is sup****ting good jobs at home or is creating jobs in other
countries. Moreover,
companies receiving a government contract should re****t whether it
involves any form of offset
transaction and whether the transaction has an impact on domestic jobs.
• Strengthening and enforcing prohibitions on offsets in all multilateral
and bilateral trade
agreements. Current language regarding offset agreements is narrow and
often ignored. Much
progress could be made on this issue if and when the U.S.-EU Agreement on
Trade in Large Civil
Aircraft is resurrected.
• Forming a national commission to review offset activities in both the
defense and commercial
industries. Half-hearted efforts in the recent past to create and empower
an interagency
governmental task force garnered useful information but produced virtually
nothing in the way of
policy. Experts from industry and labor must join representatives from
academia and government
to develop meaningful policy proposals to address the challenges that
offsets and other forms of
outsourcing pose for U.S. industry, workers, the economy, and national
security.
This paper reviews offsets and their implications for the U.S. economy and
national security.
The first section discusses the definition of offsets, how they can
operate to the detriment of
the U.S. economy and threaten national security, and how other countries
have well-developed
offset policies aimed at the United States The second section traces
offset policy in the United
States by summarizing current legislation and discussing its inherent
weaknesses. The third
section contrasts the influence of offsets on the decline of the U.S.
aerospace industry and the
rise of China's. The final section puts forth policy proposals that
address offsets and that, if
adopted, will go a long way toward mitigating the threat that they pose
for the U.S. economy.
For the full re****t, go to: http://www.sharedprosperity.org
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Finally, the campaigns of 1793 and 1794 set Clausewitz on the path of
recognizing war as a
political phenomenon. Wars, as everyone knew, were fought for a purpose
that was political,
or at least always had political consequences. Not as readily apparent
was the implication
that followed. If war was meant to achieve a political purpose, everything
that entered into
war — social and economic preparation, strategic planning, the conduct of
operations, the
use of violence on all levels — should be determined by this purpose, or
at least accord
with it. Even though soldiers had to acquire special expertise, and
function in what in some
respects was a separate world, it would be a denial of reality to allow
them to carry on
their bloody work undisturbed until an armistice brought their political
employer back into
the equation. Just as war and its institutions reflected their social
environment, so every
aspect of fighting should be suffused by its political impulse, whether
this impulse was
intense or moderate. The appropriate relation****p between politics and war
occupied
Clausewitz throughout his life, but even his earliest manuscripts and
letters show his
awareness of their interaction.
The ease with which this link — always acknowledged in the abstract —
can be forgotten in
specific cases, and Clausewitz’s insistence that it must never be
overlooked, are
illustrated by his polite rejection toward the end of his life of a
strategic problem set by
the chief of the Prussian General Staff, in which every military detail of
the opposing
sides was spelled out, but no mention made of their political purpose. To
a friend who had
sent him the problem for comment, Clausewitz replied that it was not
possible to draft a
sensible plan of operations without indicating the political condition of
the states
involved, and their relation****p to each other: ‘War is not an independent
phenomenon, but
the continuation of politics by different means. Consequently, the main
lines of every major
strategic plan are largely political in nature, and their political
character increases the
more the plan applies to the entire campaign and to the whole state. A war
plan results
directly from the political conditions of the two warring states, as well
as from their
relations to third powers. A plan of campaign results from the war plan,
and frequently - if
there is only one theater of operations - may even be identical with it.
But the political
element even enters the separate components of a campaign; rarely will it
be without
influence on such major episodes of warfare as a battle, etc. According to
this point of
view, there can be no question of a purely military evaluation of a great
strategic issue,
nor of a purely military scheme to solve it.’
Everyman’s Library, 1993 ISBN: 0679420436 On war /by Clausewitz, Carl
von, 1780-1831.
Knopf, 1993. From the introduction by Peter Paret, Pg7
_____________________________________________________________________
The U-2 is a jet-powered reconnaissance aircraft specially designed to fly
at high altitudes
(i.e., above 70,000 ft [21 km]). It was used during the late 1950s to
overfly the Soviet
Union, China, the Middle East, and Cuba; flights over the Soviet Union,
the primary mission
for which the plane was designed, ended in 1960 when a U-2 flown by CIA
pilot Gary Powers
was shot down over the Soviet Union. This event was a major political
embarrassment for the U.S.
http://www.espionageinfo.com/Te-Uk/U-2-Spy-Plane.html
Soviet Prime Minister Khrushchev's reaction to the overflights which
were discovered
just before a summit conference in Paris with President Eisenhower: "It
was as though the
Americans had deliberately tried to place a time bomb under the meeting" .
. ."How could
they count on us to give them a helping hand if we allowed ourselves to be
spat upon without
so much as a murmur of protest?" The only solution was to demand a formal
public apology
from Eisenhower and a guarantee that no more overflights would take place
. . .
But the apology Khrushchev was looking for would not come. Despite
having trespassed
on the Soviet Union for the past four years with scores of flights by both
U-2's and heavy
bombers, the old general still could not say the words, it was just not in
him. . . A time
bomb had exploded, prematurely ending the summit conference. . .
Back in Wa****ngton, the mood was glum. The Senate Foreign Relations
Committee was
leaning toward holding a closed door investigation into the U-2 incident .
. . In public,
Eisenhower maintained a brave face. He "heartily approved" of the
congressional probe and
would 'of course fully cooperate,' he quickly told anyone who asked. But
in private he was
very troubled. For weeks he had tried to head off the investigation. His
major concern was
that his own personal involvement in the overflights would surface,
especially the May Day
disaster. Equally, he was very worried that details of the dangerous
bomber overflights
would leak out. The massed overflight may in fact, have been one of the
most dangerous
actions ever approved by a president.
pg. 51-55 ~Body of Secrets; Anatomy of the Ultra Secret National Security
Agency
James Bamford
----------------------------------------------------------------------
"Let me give you a word of the philosophy of reform. The whole history of
the progress of
human liberty shows that all concessions yet made to her august claims,
have been born of
earnest struggle. The conflict has been exciting, agitating,
all-absorbing, and for the time
being, putting all other tumults to silence. It must do this or it does
nothing. If there is
no struggle there is no progress. Those who profess to favor freedom and
yet depreciate
agitation, are men who want crops without plowing up the ground, they want
rain without
thunder and lightening. They want the ocean without the awful roar of its
many waters."
"This struggle may be a moral one, or it may be a physical one, and it may
be both moral and
physical, but it must be a struggle. Power concedes nothing without a
demand. It never did and
it never will. Find out just what any people will quietly submit to and
you have found out the
exact measure of injustice and wrong which will be imposed upon them, and
these will continue
till they are resisted with either words or blows, or with both. The
limits of tyrants are
prescribed by the endurance of those whom they oppress. In the light of
these ideas, Negroes
will be hunted at the North, and held and flogged at the South so long as
they submit to those
devilish outrages, and make no resistance, either moral or physical. Men
may not get all they
pay for in this world; but they must certainly pay for all they get. If we
ever get free from
the oppressions and wrongs heaped upon us, we must pay for their removal.
We must do this by
labor, by suffering, by sacrifice, and if needs be, by our lives and the
lives of others."
http://www.buildingequality.us/Quotes/Frederick_Douglass.htm
Frederick Douglass, 1857
- - - - - -> More political discussion continues at
http://www.politicsusaweb.com/
----------------------
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