Web Question: Visit the following Web site: www.pitc.gov.ph/contracts/qinetiq.pdf. What type of international trade is described in this contract? What is the rationale for such a contract?

Question

What will be an ideal response?

Answer 1

This contract is an offset agreement between PHILIPPINE INTERNATIONAL TRADING CORPORATION, which is government owned, and QinetiQ Ltd, a U.K. majority-owned government corporation. QinetiQ is to receive ?10,426,798.00 in order to provide an upgrade of the weapon systems on three Jacinto Class Patrol Vessels of the Philippine Navy. In the offset agreement QinetiQ agrees to provide value equal to 60% of the contract. QinetiQ's Offset Obligations shall be discharged through any of the following Offset Activities as outlined hereunder:
- Investments in QinetiQ Philippines Company, Inc. net of costs included in JCPV Weapons System Upgrade Contract
- Technology/Skills Transfers to the Philippine Defense Industrial Base
- Technology/Skills Transfers to the AFP
- Establishment of the Logistics Support Facility at Cavite;
- Donation of Equipment Upgrades and other items
- Training Courses carried out by the U.K. Ministry of Defense relative to the equipment to be supplied under the JCPV Weapons system Upgrade.

While the stated price is ?10,426,798.00, the Philippine government will receive 60% of that value as either additional investments in the Philippines or in-kind transfers from the U.K. to the Philippines. Thus, the true cost of the weapons upgrade is reduced, while the U.K. government corporation gets the funds that it needs to cover its costs without receiving additional funds from the U.K. government. If the U.K. Ministry of Defense assigns staff to provide training in the Philippines, it does not result in a direct cost to the U.K. tax payer.