Offsets: Turkey’s Military Procurement Policy

At the ceremony celebrating the building of Turkey’s first domestically produced research vessel, Science, Industry and Technology Minister Nihat Ergün told the crowd “We accept that the maritime research in the country is inadequate, however, we are determined to make changes. We have already started manufacturing equipment to build submarines.” Ergun’s goals, while noble, are a bit puzzling. For one, the Ottoman Empire built its first submarine in 1886, though, in general, Turkey’s submarine industry atrophied after the establishment of the Turkish Republic.

Turkey, however, did produce the hulls for the submarines it purchased from a German manufacturer in 1973 at the Golcuk shipyard. Moreover, the Golcuk shipyard was described in 1987 as having the capability to “construct ships of up to 30,000 tons including frigates and U-209 submarines. Both are of West German design but include U.S. electronics and weapons.” [1] For reference, Turkey has dubbed the U-209 the Atilay. It will be replaced with the Type-214 submarine – a German electric/diesel submarine. The Turkish version will use a significant amount of Turkish systems, though the propulsion will remain classified and produced in Germany. Ergun was, therefore, likely setting the stage for the soon-to-be unveiled Turkish-German collaboration.

The submarine anecdote, as well as the recent announcement about the research vessel, are reflective of Turkey’s offset military procurement policy. According to the U.S. government, offsets can come in many forms. For example:

• Offsets: Industrial compensation practices required as a condition of purchase in either government-to-government or commercial sales of defense articles and/or defense services as defined by the Arms Export Control Act and the International Traffic in Arms Regulations.
• Military Export Sales: Exports that are either Foreign Military Sales (FMS) or commercial (direct) sales of defense articles and/or defense services as defined by the Arms Export Control Act and International Traffic in Arms Regulations.
• Direct Offsets: Contractual arrangements that involve defense articles and services referenced in the sales agreement for military exports.
• Indirect Offsets: Contractual arrangements that involve goods and services unrelated to the exports referenced in the sales agreement.
• Co-production: Overseas production based upon government-to-government agreement that permits a foreign government(s) or producer(s) to acquire the technical information to manufacture all or part of a U.S. origin defense article. It includes government-to-government licensed production. It excludes licensed production based upon direct commercial arrangements by U.S. manufacturers.
• Licensed Production: Overseas production of a U.S. origin defense article based upon transfer of technical information under direct commercial arrangements between a U.S. manufacturer and a foreign government or producer.
• Subcontractor Production: Overseas production of a part or component of a U.S. origin defense article. The subcontract does not necessarily involve license of technical information and is usually a direct commercial arrangement between the U.S. manufacturer and a foreign producer.
• Overseas Investment: Investment arising from the offset agreement, taking the form of capital invested to establish or expand a subsidiary or joint venture in the foreign country.
• Technology Transfer: Transfer of technology that occurs as a result of an offset agreement and that may take the form of: research and development conducted abroad; technical assistance provided to the subsidiary or joint venture of overseas investment; or other activities under direct commercial arrangement between the U.S. manufacturer and a foreign entity.

In 1985, Turkey passed Law No. 3238, which sought to build up Turkey’s domestic arms industry through a policy of offsets for military procurements. For frequent blog readers, the law also established the Undersecretariat for the Defense Industry (SSM), which is the agency that makes the decision about the missile defense tender. Thus, while the 1973 submarine deal pre-dated the official offset policy, it nevertheless was the first of what has since become official state policy.

Turkey’s first successful offset contract was with General Dynamics for the production of F-16 parts in Turkey. Thus, the deal fell under the definition of a subcontractor direct offset. “Direct offsets involve an agreement for a transaction directly related to the specific weapon system purchased, such as the seller’s acquisition from the purchasing nation of components for the system being purchased. Indirect offsets require the seller to purchase goods or services that are unrelated to the product acquired.” [2]

The deal led to the establishment of a series of criteria for Turkish offsets. They have been updated numerous times, though the current policy prefers the local development of defense items. If the task is too great for Turkish defense firms, Ankara prefers co-development agreements, or, if that proves to be impossible, SSM prefers co-production/co-licensing agreements. Moreover, Ankara, as evidenced by its recent drone deal with Israel, prefers that the supplier provide direct off-sets through the guaranteed purchase of Turkish made components. The Heron deal with Israel mandated the use of Turkish made parts, though the weight of Aselsan’s pod led to the delay of the delivery of Heron.

The AKP has made it a priority to emphasize the development of Turkey’s domestic arms industry. The Party’s leadership has used the program as a symbol of Turkey’s development, even though most of the projects are produced using foreign offsets. For example, Turkey’s domestic tank relies on a co-production deal with South Korea’s Hyundai and its attack helicopter is a co-production agreement with Agusta-Westland. Turkey’s policy is not unique ( 130 countries have similar policies), though the attention given to the issue by the Prime Minister indicates that the idea of a strong domestic defense industry polls well with AKP voters.

Despite the political value that the AKP derives from Turkey’s emerging defense industry, the Party is not responsible for the current policy. It has it roots in the market reforms implemented by Turgut Ozal after he was elected in 1983. The policy, while having undergone some minor alterations, has not changed all that much since it was first implemented in 1985. Thus, Turkey’s recent missile defense tender is a perfect example of the SSM’s preference for a co-production deal, rather than a simple tender to purchase an “off the shelf” long-range air defense system.

However, the government’s intentional downplaying of foreign participation in Turkey’s most visible defense programs has prevented the media and researchers from thoroughly examining the policy. For example, in Turkey, little attention has been paid to the role that the government’s offset policy has contributed to the slow down of the missile defense tender. With Turkey’s recent decision to ask NATO to supply Patriot missiles for the defense of Turkish border cities, it seems logical to ask if the government’s offset policy is the primary reason for the numerous delays. Moreover, scant attention has been paid to the impact that the SSM’s demands have had on Turkey’s defense industry. They very well may have been positive, though more attention and analysis is needed to evaluate the government’s current policy. Moreover, as Turkey seeks to become an arms exporter, it would be prudent for the government to publish and explain its own offsets policy, considering that it has announced plans to sell a dual use item – the Anka – to Egypt – a non-signatory to the Chemical Weapons Convention.

Finally, I thought it prudent to ask some open-ended questions, given Turkey’s offset policy:

1) To what extent did offsets, whether they were from the U.S. or Israel, aid in the development of the Anka. While it seems clear that the F-16 deal established Turkey’s modern aerospace industry, little information has been published about the Anka’s development.

2) When Turkey imported the Exocet cruise missile from France, did that agreement include offsets for the sharing of technology and the eventual licensing of a production facility for Turkey’s SOM cruise missile engine?

3) Did U.S. suppliers agree to transfer information about the J-DAM to Turkey?

If anyone knows the answers, tweet @aaronstein1. Would love to get some more information about these issues.

Notes:

[1] Omer Karaspan, “Turkey’s Armament Industries,” MERIP Middle East Report, No. 144, The Middle East: Living by the Sword (Jan. – Feb., 1987), pp. 27-31.

[2] Lieutenant Colonel Frank S. Petty, “Defense Offsets: A Strategic Military Perspective,” available at: http://www.disam.dsca.mil/pubs/v.21_4/petty.pdf.