eduardo quesado

7/31/2019 Eduardo Quesado

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Secretaria de Economia e Finanas da Aeronutica

44thth ECCO SymposiumECCO Symposium

The BrazilianThe BrazilianDefense Roadmap:Defense Roadmap:Offsets as a tool to transformOffsets as a tool to transform

the local defense industry environmentthe local defense industry environment

Lt. Col. EduardoLt. Col. EduardoQuesadoQuesadoFilgueirasFilgueiras,, M.ScM.Sc..Secretariat of Economy and Finance of the Air ForceSecretariat of Economy and Finance of the Air ForceMinistry of DefenseMinistry of Defense

Paris, June 2012


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SCOPESCOPETo understand how the National DefenseTo understand how the National DefenseStrategy of Brazil alters the focus on the offsetsStrategy of Brazil alters the focus on the offsets

requested by the Brazilian Military.requested by the Brazilian Military.


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RoadmapRoadmap


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What isWhat is offsetoffset for the Brazilians?for the Brazilians?

In the past, Brazilian armed forces purchasedIn the past, Brazilian armed forces purchasedmilitary hardware as a sort ofmilitary hardware as a sort of barterbarterItalianItalian

subs traded for coffee before WW II, British jetssubs traded for coffee before WW II, British jetsfor cotton afterwards. (for cotton afterwards. ())

But armed forces now think onBut armed forces now think on offsetsoffsets as a wayas a way

to generate employment and to obtain transferto generate employment and to obtain transferof technology, and not as a simple exchange ofof technology, and not as a simple exchange ofprimary products.primary products.

FolhaFolha dede SoSo Paulo 19Paulo 19--1111--20072007


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A Traditional Way of ThinkingA Traditional Way of Thinking

To obtainTo obtain reciprocityreciprocity from foreign suppliersfrom foreign suppliersof goods and services, focusing primarily onof goods and services, focusing primarily on

civilian and military aerospace activities,civilian and military aerospace activities,

aiming equally development andaiming equally development andtechnological modernization of the Braziliantechnological modernization of the BrazilianDefense Industry and,Defense Industry and, exceptionallyexceptionally, other, other

areas of interest as deemed convenient byareas of interest as deemed convenient bythe Governmentthe Government..

Air Force DCA 360Air Force DCA 360--11


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Offset asOffset as CompensationCompensation

All and any direct or indirectAll and any direct or indirect compensationcompensation practicespractices

agreed among the parties, as an opportunity whenagreed among the parties, as an opportunity when

goods and services are being imported, focused ongoods and services are being imported, focused on

generating industrial, commercial or technologicalgenerating industrial, commercial or technologicalbenefits, in the form of:benefits, in the form of:

Order 764/ MoD, 2002


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A Standard Strategy for Commercial, IndustrialA Standard Strategy for Commercial, Industrial

and Technologicaland Technological CompensationCompensation

To promote the growth of technology and quality levelsTo promote the growth of technology and quality levels

of the Brazilian Aerospace Industry, modernizingof the Brazilian Aerospace Industry, modernizingmethods and processes of production and implementingmethods and processes of production and implementing

new technologies.new technologies.

Air Force DCA 360Air Force DCA 360--11


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A Change:A Change:

We have decided to employ the NationalWe have decided to employ the NationalDefense Strategy as a tool for economicalDefense Strategy as a tool for economical

development and technologicaldevelopment and technologicalautonomy.autonomy.

Luiz IgnLuiz Igncio Lula da Silvacio Lula da Silva

President of the Federative Republic of BrazilPresident of the Federative Republic of Brazil


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Drive to change; this is what the nationrequires from its sailors, soldiers andaviators. It is not only a matter of funding

and equipping the Armed Forces. It has todo with having the Armed Forcestransformedto better defend Brazil.END/2008

CARACTERISTICS Greater involvement of the Brazilian

society in defense; Recognition of the need to provide a

defense structure in sync with Brazilspolitical and economical stature; e

Addition of defense issues into thenational agenda.


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(...)The Planfocuses on middle and long term strategic actions, andaims

at modernizing the national defense structure, acting upon threestructuring axes: reorganization of the Armed Forces, therestructuring

of the Brazilian industry of defense materials, and the troopcomposition policy for the Armed Forces..(...)

The restructuring of the Brazilian industry of defense materials isintended toensure that the equipment needsof the Armed Forces aremet and be based on technologies thatare domestically mastered.

(...)

inserting defense issues into the national agendaand designing along term planning for the defense of the country is an unprecedentedfact in the Brazilian State. This establishes a new step in the treatmentof this relevant theme, intimatelylinked to national development.(...)


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(...)

Partnerships will be attempted with other countries, aiming at

developing technological training and the making of national defensematerials to gradually rule out the need to purchase imported servicesand products. Whenever possible, these partnerships will be built asanexpression of a more comprehensive strategic association betweenBrazil and the partner country. This association will stand out indefense collaboration and development efforts, and it will be ruled bytwo orders of basic motivation: international and national.(...)

Brazil will always make clear to the foreign parties that it intends to be

a partner, and not a client or buyer. The country is far more interested

in partnerships to strengthen its independent capacity building, than inpurchasing finished products and services. In principle, thesepartnerships should anticipate thatsubstantial part of research andmanufacturing should be done in Brazil, and will gain furtherimportance when they are an expression of comprehensive strategiccollaborations..(...)


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(...)make surethat purchasing follows the guidelines of the

National Strategy of Defenseand its design over the time.(...)

link the purchasing of foreign defense materials to the substantialtransfer of technology, including through partnership arrangements forresearch and manufacturing in Brazil of part of these products or theirsubstitutes;.(...)

(...)Joint initiativesof Armed Forces research organizations, national

education institutions and Brazilian private companies will beencouraged.(...)


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Legal BasisLegal Basis

Constitution of BrazilConstitution of BrazilArticle 218.Article 218. The State shall promote and fosterThe State shall promote and foster

scientific development, research and technologicalscientific development, research and technologicalexpertise.expertise.

Article 219.Article 219. The local market is part of the nationalThe local market is part of the nationalpatrimony and shall be supported so as to improvepatrimony and shall be supported so as to improvecultural and sociocultural and socio--economic development, promoteeconomic development, promotewelfare of the people and achieve technologicalwelfare of the people and achieve technologicalautonomy of the country.autonomy of the country.


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NavyNavy Order nOrder n 59, 18 Feb 2010, Brazilian Navy Offset Guidelines59, 18 Feb 2010, Brazilian Navy Offset Guidelines..

Order nOrder n 180/EMA, 10 Aug 10, Navy Offset Committee;180/EMA, 10 Aug 10, Navy Offset Committee;

EMAEMA--420420Navy Logistics Manual (Chapter 06);Navy Logistics Manual (Chapter 06);

SGMSGM--102102Navy Acquisition Rules (Chapter 14).Navy Acquisition Rules (Chapter 14). Players: Offset Committee, Navy General Staff, Navy Departments,Players: Offset Committee, Navy General Staff, Navy Departments,

General Secretariat of the Navy, EMGEPROM, Navy Secretariat of CGeneral Secretariat of the Navy, EMGEPROM, Navy Secretariat of C&T&T((SecCTMSecCTM).).

SecCTMSecCTM is responsible for the technical opinion in acquisitions,is responsible for the technical opinion in acquisitions,

concerning offsets related toconcerning offsets related to ToTToT.. Focus is on the development of the Defense Industry.Focus is on the development of the Defense Industry.

NDE Navy Restructuring Large Defense Programs - Offsets


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ArmyArmyOrder nOrder n 201/EME, Brazilian Army Rules for the201/EME, Brazilian Army Rules for the

Management of Commercial, Industrial andManagement of Commercial, Industrial andTechnological Agreements, 26 Dec 2011Technological Agreements, 26 Dec 2011.. Creates theCreates the System for the Management of Commercial, IndustrialSystem for the Management of Commercial, Industrial

and Technological Agreementsand Technological Agreements (SISGAC)(SISGAC)

Establishes theEstablishes the OffsetOffset Permanent CommitteePermanent Committee, composed by, composed byrepresentatives from the Army Departments and IMBEL.representatives from the Army Departments and IMBEL.

Moves fromMoves from best effortsbest efforts to mandatory obligations.to mandatory obligations.


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Comptroller Ministry of Defense

Offset area Defense

Threshold FOB 5 million US$, 12 months

Minimum obligation 100% commercial contract

Timeframe Contract duration

Source of obligation Direct commercial sales or subcontracting (indirect supply)Multipliers Empirical, case-by-case basis

Penalties Brazilian administrative legislation

Focus Defense and aerospace industry sectors

Direct offsets Preferential

Indirect offsets Acceptable

Eligible activities Transfer of technology, investments, co-production,licensed production, marketing support, training, other

forms of countertrade.


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Manager Air Force

Liquidated damages Yes

Bank guaranties Usually 5% of the obligation

Multipliers 1 to 4

Waiver Sole-source suppliers, government-to-governmentinternational agreements (except under competitive

environments)

Banking 50% of new commercial contracts, 5 years, transferableunder the same holding

Pre-offsets No, but may be considered in a case-by-case basis

Swaps No, but may be considered in a case-by-case basis

IndustrialParticipation

Acceptable, but only if joint projects are defined upfrontand milestones are established

Penalties Credit-increase based settlements may be accepted

MOU Mandatory, even if the beneficiary is an AF organization


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Economical:

At least

US$ 18,75 billion

in exports for the

next 20 years

I M P A C T S

Social:

Create and sustain

direct and indirect

jobs

Tecnological:

Create leading

edge technology.

New competences

in the engineering

field.

Political:

Better regional

integration

Strategical:

Global projection.

Potential for

exports to over 70

countries.

+ + + +

KCKC--390390


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A Change in Thinking...A Change in Thinking...

09/03/201009/03/2010 -- PresidentPresident LuizLuiz InInciocio LulaLula dada Silva said lastSilva said lastTuesday (...), that the decision for the fighter acquisitionTuesday (...), that the decision for the fighter acquisitionprogram was still not taken due to its importance toprogram was still not taken due to its importance todefense capabilities. "FAB (the Air Force) has alreadydefense capabilities. "FAB (the Air Force) has alreadymade its analysis and have premade its analysis and have pre--selected three modelsselected three modelsthat are able to fulfill its needs.that are able to fulfill its needs. Now it is time for theNow it is time for thegovernment to make thegovernment to make the strategicalstrategical, political and, political andeconomical analysis so as to decide which proposaleconomical analysis so as to decide which proposalwill bring greater benefits for the Brazilian Societywill bring greater benefits for the Brazilian Society..


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And Rules!And Rules!

09/03/201009/03/2010 -- PresidentPresident LuizLuiz InInciocio LulaLula dada Silva said lastSilva said lastTuesday (...), that the decision for the fighter acquisitionTuesday (...), that the decision for the fighter acquisitionprogram was still not taken due to its importance toprogram was still not taken due to its importance todefense capabilities. "FAB (the Air Force) has alreadydefense capabilities. "FAB (the Air Force) has alreadymade its analysis and have premade its analysis and have pre--selected three modelsselected three modelsthat are able to fulfill its needs.that are able to fulfill its needs. Now it is time for theNow it is time for thegovernment to make thegovernment to make the strategicalstrategical, political and, political andeconomical analysis so as to decide which proposaleconomical analysis so as to decide which proposalwill bring greater benefits for the Brazilian Societywill bring greater benefits for the Brazilian Society..

We have decided to make the National Defense PolicyWe have decided to make the National Defense Policyan axis for economic development and technologicalan axis for economic development and technologicalautonomy. (autonomy. () Whatever the) Whatever the selecteeselectee, there must be a, there must be acompromise on transferring all leading edge technology.compromise on transferring all leading edge technology.


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Brazilian Defense White BookBrazilian Defense White Book SSupplementary Law 136, 2009: The Defense White Bookupplementary Law 136, 2009: The Defense White Book

is fundamental for the Countryis fundamental for the Country and is a key document forand is a key document for

Policies, offering Government views in respect toPolicies, offering Government views in respect todefense. It is public domain and describes a broaddefense. It is public domain and describes a broad

spectrum ofspectrum of strategicalstrategical policies forpolicies for long term defenselong term defenseplanningplanning. It also. It also allows budget and multiallows budget and multi--annual planningannual planning

for defense programsfor defense programs..


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Large Defense ProgramsLarge Defense ProgramsProgram Scope

F-X2 Figther jets

Sisfron Border surveillance

SisGAAz "Blue Amazon"

PROSUPER Surface shipsM-113 APC modernization

PROSUB Submarines

F-5M Figther modenization

KC-390 Tactical airlifterEC-725 Helicopters

Mi-35 Helicopters

VBTP-MR APC Guarani

Sources: MoD, ABIMDE

US$40Bill

ion


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GovernmentGovernment Procurement RegulationsProcurement Regulations

LAW 8.666/93LAW 8.666/93Art. 3Art. 3rdrd -- The procurement process mustThe procurement process must

(...)(...) promote sustainable national developmentpromote sustainable national development (...).(...).

11.11. RFPsRFPs (...) may ask for (...)(...) may ask for (...) offset provisionsoffset provisions..

DECREE NDECREE N 7.546, 2 AUG 2011:7.546, 2 AUG 2011:

Preference margin for Brazilian IndustryPreference margin for Brazilian Industry;;

Creates theCreates the ComissoComisso InterministerialInterministerial dede ComprasCompras PPblicasblicas(Inter(Inter--Ministry Commission for Government Acquisitions),Ministry Commission for Government Acquisitions),whichwhich regulates preference marginsregulates preference margins andand evaluates offsetevaluates offset

proposals;proposals;

CICI--CP is composed by the Ministries ofCP is composed by the Ministries of FinanceFinance,, Budget andBudget andPlanningPlanning,, Development, Industry and CommerceDevelopment, Industry and Commerce,, ScienceScienceand Technologyand Technology andand Foreign AffairsForeign Affairs,, eventuallyeventually otherother

ministries, such as Defense.ministries, such as Defense.


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RoadmapRoadmap


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SCOPESCOPETo understand how the National DefenseTo understand how the National Defense

Strategy of Brazil alters the focus on the offsetsStrategy of Brazil alters the focus on the offsets

requested by the Brazilian Military.requested by the Brazilian Military.


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