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Whether countertrade in defense offset transactions requires a government export license

  • DONG-A LAW REVIEW
  • 2017, (77), pp.159-186
  • Publisher : The Institute for Legal Studies Dong-A University
  • Research Area : Social Science > Law
  • Received : September 22, 2017
  • Accepted : November 29, 2017
  • Published : November 30, 2017

Song, Kwan-Ho 1

1법무법인 정맥

Accredited

ABSTRACT

Offset refers to provisions to international defense contracts that oblige an exporter of weapons or services to compensate a purchasing country through activities such as technology and knowledge transfer or granting to the importing country rights to locally manufacture and export weapon components. The issue is whether defense articles that are subject to the export license requirement under the Defense Acquisition Program Act can be exempted from such requirement and thereby exported without other restrictions, if they can qualify as countertrade products in defense offsets. Prior to formalizing offset arrangements, the Administrator of the Defense Acquisition Program Administration will examine and address questions such as whether the applicable defense articles are eligible for export, whether they can be exported to the country with offset obligations and whether Korean contractor participants in offset agreements are qualified to export such defense articles or defense services. If the export of the defense articles is deemed to be appropriate and legal under the Korean local law and produce significant benefits that enhance Korea’s national interests, the Administrator of the Defense Acquisition Program Administration will agree to and execute the Offset Memorandum of Agreement with the counterparties in offset transactions. The review of offset contracts by the Administrator of the Defense Acquisition Program Administration and the subsequent execution of the Offset Memorandum of Agreement must be interpreted to support the conclusion that the Korean government indeed approves the export of the defense articles by the Korean contractor and permits such trade, even if no explicit license or approval has been provided. This conclusion is indeed very reasonable because it is the Administrator of the Defense Acquisition Program Administration who provides export licenses under conventional commercial trades and who actually negotiates and executes the Offset Memorandum of Agreement. Therefore, it is unreasonable to impose extra export license or permit requirements on defense articles exporters in offset contracts or punish the Korean contractors for exporting without prior government approvals because 1) doing so would be equal to nullifying the difference between export controls of defense equipment and materials and offset arrangements in defense trade, 2) doing so would constitute unnecessary, repetitive administrative hurdles and 3) doing so would deviate from export control systems, which are meant to impose minimum requirements as trade restriction. The Korean contractors in offset transactions currently suffer from the regulatory ambiguity and fear potential criminal liabilities from engaging in export activities. Therefore, it is imperative for a legislation to be enacted to clarify that no export license or approval is required as long as the Administrator of the Defense Acquisition Program Administration has approved and signed the Offset Memorandum of Agreement.

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