Annex: Informal Voluntary Offsets Policy
Offsets Defined
An offset consists of a benefit or contract for manufacturing and/or services which is awarded to a New Zealand firm. An important feature of an offset may be the inflow of new or improved technology to New Zealand. Offset production may be for the domestic or export markets.
The Policy
It is not mandatory for agencies to require offset proposals in tenders by overseas suppliers for government contracts. However, the informal voluntary policy recognises that commercially viable proposals may offer worthwhile and economically sound benefits for New Zealand.
Operation of the Offset Policy
The policy may be implemented by individual departments and other purchasing agencies exercising the option of seeking or considering offset proposals when calling for or evaluating bids for public sector contracts by overseas suppliers.
The only requirement of Government is that the Ministry of Economic Development (Regulatory and Competition Policy Branch) should monitor proposed offset arrangements to ensure consistency with general policy.
Possible Advantages of Offsets
Offsets may have particular benefits for government purchasers with interests in developing a goods or services supply base relevant to their agency needs. They may, for instance:
- raise the levels and range of technology in New Zealand;
- encourage internationally competitive manufacture and services;
- improve industrial design and quality assurance;
- open up new markets;
- provide servicing or backup advantages; and
- have logistical benefits.
Typical Offset Arrangements
Typical offset arrangements include:
- Joint manufacture of assemblies or sub-assemblies of the specific equipment under tender for internal use or for export;
- Collaboration in design, development and production;
- Training of specialist staff, provision of manuals/computer software etc;
- Technology transfer; and
- Joint research and development.
Participants in Offset Arrangements
Parties to an offset arrangement can be:
- the successful tenderer;
- associates of the successful tenderer;
- the purchasing agency; and
- other New Zealand-resident or registered parties.
The products or services arising from the offset arrangement may be used by the successful tenderer within the main contract from which the offset is derived, or in any other contract undertaken by the tenderer within New Zealand or overseas. Alternatively, offsets may be taken up by associates or third parties.
Procedures for Purchasing Agencies
Purchasing agencies should be aware that some overseas suppliers offering offsets are accustomed to building a premium into the total tender price in order to cover costs that may be incurred, especially in meeting mandatory offset requirements imposed by some countries. New Zealand's informal voluntary policy is designed to avoid this by encouraging arrangements which are commercially acceptable to all parties, and do not undermine competitive tender pricing. Where bidders are invited or volunteer to include offset proposals in tenders, they should be requested to make any premium transparent by quoting alternative tender prices with and without the proposed offsets.
To be effective, the offset policy requires dialogue between public sector purchasing agencies and domestic industry to ensure that opportunities for mutual benefit are fully explored.
- Where acceptable offset proposals are forthcoming from overseas bidders, the purchasing agency should engage in consultation with domestic industry on appropriate responses.
- To the maximum extent possible, purchasing agencies should also keep domestic industry informed in advance of their forward planning for procurement which may give rise to offset opportunities.
The services of the New Zealand Industrial Supplies Office (NZISO) are available to all interested parties to provide advice and liaison to promote offset opportunities. Purchasing agencies should strongly encourage overseas bidders interested in developing offsets proposals to consult the NZISO.
Purchasing agencies should advise the Ministry of Economic Development of any offset proposals being considered. While it is not intended to interfere in purchasing decisions, the Ministry has a brief from the Government to monitor any proposed offset arrangements to ensure that they are not inconsistent with the general approach in industry policy.
It should be noted that under Article 11 of the CER Trade Agreement, New Zealand and Australia have agreed not to require offsets in relation to Australian and New Zealand content in government purchases. Under the CEP Agreement, New Zealand and Singapore have agreed not to impose, seek or consider offsets in relation to government procurement from New Zealand or Singapore suppliers. The CEP Agreement defines offsets as "measures used to encourage local development or improve the balance of payments accounts by requiring domestic content, licensing of technology, investment, counter-trade or similar requirements".
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