Trends and Challenges in Aerospace Offsets (1999) / Chapter Skim
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III. Papers: Offsets in Commercial and Military Aerospace: An Overview
III. Papers: Offsets in Commercial and Military Aerospace: An Overview
Pages 83-114
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From page 85... ...
Thus, provisions in commercial transactions that closely resemble offsets are common in export markets for telecommunications equipment, power generation equipment, and commercial aircraft and engines. Nevertheless, care must be taken in describing all collaborative activities undertaken by U.S.
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From page 86... ...
Indirect offsets, by contrast, involve commitments by the exporter to either purchase unrelated products or to provide other forms of technical or commercial assistance to firms in the purchasing nation that are valued at some percentage of the export sale. Needless to say, the measurement and analysis of indirect offsets is considerably more challenging than is true of direct offsets.
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From page 87... ...
Indeed, the available evidence suggests that indirect offsets now play a more prominent role in military exports, which makes it even more difficult to establish a connection between these provisions and employment losses in U.S. aerospace.
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From page 88... ...
Because they rarely included joint development or design activities, the coproduction agreements of the 1947-1980 period transferred little by way of the design and systems integration skills needed for independent entry into the development and manufacture of military or civilian aircraft. But the aerospace industries of such nations as Great Britain, France, Japan, and West Germany retained formidable scientific and technological capabilities World War II had destroyed production capacity, but had done little to permanently damage the skills of the scientific and technical work force in these nations.
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From page 89... ...
Just as was the case in Western Europe, however, domestic Japanese aerospace firms began pressuring the Japanese government for a larger role in the development and design of future military aircraft, and in the late 1980s advocated the independent development of an "all-Japanese" fighter aircraft. Japan' s defense and foreign ministries resisted this pressure for both economic and political reasons, U.S.
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From page 90... ...
Critics of the agreement argued that it would result in the transfer of critical dual-use technologies to Japanese firms whose capabilities in the commercial aircraft industry would be strengthened. Some also criticized the agreement for its failure to provide for reciprocal access by U.S.
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From page 91... ...
As the 1996 Commerce Department study notes, the exclusion of two large military export sales from its 1993 data on offsets would shift the reported percentage of U.S. military exports accounted for by offsets from 34.4 percent to more than 69 percent.
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From page 92... ...
firms rejected, rather than the offset content of export sales actually made the report fails to make a clear distinction on this point. The GAO report also indicates that indirect offsets are more common in military exports to newly industrializing and developing economies by a comparison with the industrial economies of Western Europe or Canada.
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From page 93... ...
And the currently high levels of international collaboration in civil aerospace are likely to produce additional pressures for direct and indirect offsets in future U.S. military exports.
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From page 94... ...
Moreover, for much of the past decade, sales trends in military and civil airframe markets have offset one another during 1985-1991, defense aerospace shipments declined at an average rate of 2 percent per year, but commercial aerospace shipments grew at an average rate of 11 percent per year. Table 3 presents the market outlook for airframe manufacturers, based on recent forecasts by the Boeing Commercial Aircraft Company.
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From page 95... ...
1,000 (13.7) SOURCE: Boeing Commercial Aircraft Company (1997)
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From page 96... ...
producers of such aircraft with whom Daewoo might team. Nonetheless, most South Korean and other Asian airframe manufacturers appear to see jet aircraft with 100-120 seats as the most promising segment of the market, and this segment is one in which McDonnell Douglas, Boeing, and Airbus Industrie all are able to develop and manufacture products (see Cole, 1994~.
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From page 97... ...
In the case of Boeing, international collaboration emerged out of international subcontracting relationships that began with the fabrication of components for the 747. More recently, Boeing has teamed with a consortium of Japanese aerospace firms (Japan Aircraft Development Corporation, made up of Mitsubishi Heavy Industries, Kawasaki Heavy Industries, and Fuji Heavy Industries)
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From page 98... ...
The MD-12 joint venture fell apart within six months of the signature of the original MoU. The failure of McDonnell Douglas to develop a more effective international collaboration strategy contributed to this firm's failure to expand its product line sufficiently to remain a viable competitor and, therefore, was an important factor in the firm's demise as an independent producer of large commercial aircraft.
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From page 99... ...
, a fivenation, seven-firm venture that involves Mitsubishi Heavy Industries, Kawasaki Heavy Industries, Ishikawajima-Harima Heavy Industries, Fiat, and MTU of Germany, in addition to the two principal firms. In contrast to the Boeing joint ventures with foreign firms, IAE is an entity with considerable autonomy from its "senior parents," Pratt & Whitney and Rolls Royce.
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From page 100... ...
Partly in response to the increased international collaboration involving their customer firms, some suppliers also have begun to pursue international joint ventures; a joint venture was formed in 1987 between the Bendix aircraft brake division of Allied Signal Aerospace of the United States and Dunlop Aerospace of Great Britain to supply wheels and carbon brakes to the Airbus A330 and A340 (Donne, 1987~. Motives for International Collaboration in Large Commercial Transports The central motives for international collaboration in most industries are threefold: (1)
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From page 101... ...
have greatly increased the risks associated with new product development. Joint ventures with foreign firms that are able and willing to contribute development funds are one mechanism for spreading these forbidding risks.2 Moreover, the interest of many foreign governments, including those of Great Britain, Japan, and Italy, in supporting their domestic aerospace industry often means that various public subsidies (e.g., low-interest or no-interest loans)
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From page 102... ...
As I have noted elsewhere (Mowery, 1994) , the increasing importance of nontariff barriers in international trade, including such barriers as performance requirements or offsets, has been responsible for much of the recent growth in international joint ventures in a broad array of industries, from steel to semiconductors and automobiles.
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From page 103... ...
Needless to say, this form of collaboration involves more-intense interaction and higher levels of technology transfer among the participating firms. The importance of market access as a motive for these international joint ventures is so great that relaxation of any remaining domestic antitrust restrictions on joint product development (in 1993 the National Cooperative Research Act of 1984 was amended to allow joint production ventures)
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From page 104... ...
Two other factors further complicate the analysis of the employment consequences of offsets. First, as noted above, a large and apparently growing fraction of the offsets associated with military export sales are indirect offsets, which involve transactions affecting industries other than aerospace.
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From page 105... ...
The U.S. firm that has been least successful in international joint ventures, McDonnell Douglas, was squeezed out of the large commercial transport industry in large part because of its inability to bring new products to market in a timely fashion.
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From page 106... ...
firms for "giving away the future" through these joint ventures (see Prestowitz, 1992; Reich, 1986; Reich and Mankin, 1986; and a very different view in Reich, 1990) , which critics claimed would build up robust foreign competitors that would enter the large commercial transport industry, there is little evidence of imminent entry by Fiat, Aeritalia, Mitsubishi Heavy Industries, Shorts Brothers, or Saab Aircraft into the large commercial aircraft industry.
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From page 107... ...
At present, entry into the Chinese market is closely controlled by the central government, and foreign manufacturers of commercial aircraft face significant demands for direct and indirect offsets. Because overt government pressure for various types of performance requirements in civilian products is subject to discipline under the World Trade Organization's (WTO)
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From page 108... ...
Many of the NATO allies also have significant domestic military aerospace industries, which will seek foreign markets more aggressively in the future. Competition among U.S., European, and former Warsaw Pact aerospace firms in export markets thus seems likely to intensify considerably.
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From page 109... ...
But designing a policy to address offsets alone is ill-advised, in view of their modest economic effects. Instead, dealing with the causes and consequences of aerospace offsets should be addressed as one element of overall policies to deal with international trade and investment, as well as the adjustment needs of U.S.
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From page 110... ...
completion of negotiations over the proposed NATO Code of Conduct for intra-alliance trade in weapons systems. The existing array of policy tools with which to address foreign governmentmandated offsets is in fact quite extensive, albeit much more comprehensive in its coverage of civil aerospace trade than of military exports.
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From page 111... ...
Domestic Adjustment Policies Even the most effective set of international agreements, however, will not reverse the powerful trends that are increasing international collaboration in the military and civil aerospace industries. These trends may well increase the instability of aerospace employment and are likely to displace additional workers.
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From page 112... ...
The other major federal program for meeting the needs of displaced workers is the JTPA, created in 1982 to replace the Comprehensive Employment Training Act. JTPA's primary assistance to displaced workers, however, remains focused on job search assistance, and the structure of its service delivery system is such that workers with relatively low skills, who are often harder to place in new jobs, tend to be underserved.
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From page 113... ...
Boeing Commercial Aircraft Company.
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From page 114... ...
1987. Alliance Politics and Economics: Multinational Joint Ventures in Commercial Aircraft.
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