EU code of conduct may shine light on practice of arms dealing

THE world of military spending tends to be a silent and shady area despite the fact that it consumes 2% of the world’s wealth, rising to 4% in poorer countries like Greece and Chad.

But during the week there was a little heralded story that shone a ray of light on an important but almost unknown aspect of this $1.4 trillion industry.

The European Defence Agency (EDA) announced it has secured agreement with member states, including Ireland, on a code of conduct for offset deals.

This is where a country selling arms gives a sweetner to the purchasing country.

It is seldom in the form of finance but can range from building schools to transferring arms manufacturing technology to the buyer.

The sweetner is regularly worth as much, if not more, than the arms contract itself and the new code aims to limit it to 100%.

But this offset is so important to the EU’s big arms manufacturing countries like France and Britain they insisted the code is just voluntary.

Ireland does not practice offset in any form.

Some in the US, the world’s biggest military spender at over $2,000 per person, have tried to investigate and control the offset system but with very little success.

One of the reports was aptly named “Welfare for arms dealers”. It pointed out that in many cases the US taxpayer is paying at least three times for arms sales to other countries.

First they pay for the research and development, then they pay to produce the equipment and finally they pay for a sweetner that sometimes means jobs moving from the US to the purchasing country.

With increasing competition among arms manufacturers, the market has become more of a buyer’s one, and the purchasers are taking full advantage of this. For instance some demand a pre-offset contribution from each country tendering for a contract, worth 10% of the final cost. This contribution is non-refundable even if you don’t get the contract.

The European Defence Agency points out that offset distorts the single market and makes it difficult for the arms industry to compete fairly.

This is true but the few reports on the practice that become public show it is wide open to contributing to corruption, especially given that many of the world’s big spenders are the poorest with military used to keep dictators in power and wars ongoing.

In Bulgaria, one of the EU’s most corrupt countries, the government set up a special offset office in the Ministry of Economy that says it has won offset investments worth over €158m. They insist that offset be worth at least 110% of any military equipment purchased.

It has a priority list of that it channels offset investment to such as industry, transport and telecommunications.

One example was the €750 million contract signed with the French for four corvettes for the Bulgarian navy that as a quid pro quo will result in 1,000 subcontracting jobs at a Bulgarian shipyard on the Black Sea.

The policy has its critics inside Bulgaria who say the military end up paying more than they should for their purchases and that the investment goes to prop up unprofitable sectors shielding them from the need to become competitive.

Hopefully the EDA’s code of conduct will shine some light on this practice and bring it into the open, encouraging citizens to question how their money is being spent.