The Offset Program

Introduction

The Government of the State of Kuwait purchases large amounts of goods and services from foreign contractors. This results in economic benefits accruing in foreign countries where the goods and services are manufactured, mainly through job creation and capital accumulation. The Kuwait Counter - Trade Offset Program seeks to achieve equitable distribution of these benefits between Kuwait and the foreign countries. Foreign contractors could also benefit from this program since it would bolster their business activities in Kuwait. Therefore on July 26, 1992, the Council of Ministers of the State of Kuwait established the Counter - Trade Offset Program (Offset Program) through the Decision No. 694 which requires all foreign contractors who meet certain criteria to participate in the Offset Program.

The guidelines issued by the Ministry of Finance for the Counter - Trade Offset Program have been amended from time to time. On March 28, 2006, the National Offset Company was incorporated, which is a State-owned company registered with the Ministry of Commerce & Industry whose primary function is to manage and administer the implementation of the offset program on behalf of the government of Kuwait - Ministry of Finance and in the process facilitate suitable alliances and partnerships between local entities and foreign contractors. The latest guidelines are for Offset Program No. 9 for the year 2007.

According to these guidelines, the offset program seeks to achieve the following objectives:

• Realize sound and sustainable economic benefits for the State of Kuwait through the promotion of long term links and ventures with foreign corporations with special emphasis on projects implemented in collaboration with the private sector and which contribute to the achievement of the three primary objectives of the offset program, namely
• Promote projects that lead to the transfer of appropriate advance technologies to Kuwait and facilitate their integration and adaptation into the local economy.
• Promote projects that contribute to the advancement of professional education and job training.
• Encourage and support projects that contribute to the creation and development of high skilled professional jobs for Kuwaiti nationals.

The guidelines also define terms such as “foreign contractor”, “offset obligor” and “offset obligation”. As per the recent guidelines the offset obligation value is equal to 35% of the total monetary value of the supply contract, subject to deductions described therein.