US Government Points Out Defense Offset Deals... Actual Impact [Yang Nakgyu's Defence Club]

"Demands for Technology Transfer Are Unfair," Says Trade Barriers Report
Offset Trade Value Has Declined Over the Past Five Years

The U.S. government has for the first time pointed out South Korea's trade barriers in the defense sector related to 'offset trade.' Offset trade refers to a trade practice where, when purchasing weapons, military supplies, or services worth over $10 million from abroad, the buyer obtains technology transfer, parts manufacturing/export, or military support from the contracting party as a counter-benefit.

The U.S. Trade Representative (USTR) stated in its 2025 National Trade Estimate (NTE) report released on the 31st (local time) that "the South Korean government has pursued policies prioritizing domestic technology and products over foreign defense technologies through its defense offset trade program," adding, "offset trade obligations may arise for foreign contractors when contract values exceed $10 million (approximately 14.7 billion KRW)." Although the USTR did not provide specific cases, this appears to be a criticism that U.S. defense companies find the offset trade guidelines unfair when they require technology transfers while selling weapons to South Korea.

However, the value of offset trade conducted when importing foreign weapons has sharply declined over the past five years. According to the report "Recent Trends and Development Tasks of K-Defense Offset Trade" published by the Korea Institute for Industrial Economics and Trade, South Korea's weapon imports from overseas totaled 13.6 trillion KRW during the recent five years (2016?2020), but the value of offset trade obtained was only about 1 trillion KRW, roughly 7% of the total weapon import value. Considering that the offset trade value in the previous five years (2011?2015) was 10.4509 trillion KRW, it has decreased to about 10% of that level.

The Defense Acquisition Program Administration (DAPA) has expressed its intention to further reduce offset trade. Article 20 of the Defense Acquisition Program Act was amended to state that "offset trade may not be pursued if it harms national security or efficiency." In fact, DAPA did not pursue offset trade in the 4 trillion KRW F-35 fighter jet project in 2023. Since 2018, DAPA has renamed offset trade as 'industrial cooperation' and has promoted the expansion of joint development and production of parts for imported weapons through the introduction of an industrial cooperation quota system since 2021. DAPA's stance against offset trade stems from difficulties in selecting technology items to request from selling countries and differences in technology evaluation values, which only delay the overall project schedule.

The actual implementation rate of offset trade is low. The Air Force introduced four A330 MRTT aerial refueling tankers through the KC-X project starting in November 2018. Airbus, which supplied the tankers, agreed to provide offset trade worth $662.6 million (technology transfer $84.3 million, SME exports $536.3 million, military support $6.3 million) to South Korea. However, as of 2022, the implementation rate was only 92.6% for technology transfer, 10% for SME exports, and 1% for military support. Airbus was obligated to fulfill offset trade until last year, but implementation did not occur.

The same applies to U.S. defense company Lockheed Martin. The South Korean Air Force invested about 7.77 trillion KRW to acquire a total of 40 F-35A aircraft starting with the first unit in March 2018. Through this contract, Lockheed Martin agreed to provide offset trade including military communication satellites ($2.1 billion), KF-X technology transfer ($1.4 billion), and SME exports ($300 million). However, Lockheed Martin reportedly refused to transfer four core technologies, including radar. The SME export implementation rate was only 23.4% in 2022. Although the Ministry of SMEs and Startups recommended 246 items from 73 domestic SMEs to Lockheed Martin, only 30 items from 12 companies were actually purchased.

However, industry insiders argue that without mandatory offset trade provisions, the industrial cooperation quota system becomes meaningless. They emphasize that improving the current shrinking offset trade situation would be beneficial for advancing K-Defense. They suggest the need to establish integrated offset trade negotiation plans across government ministries and to activate a pre-value accumulation system that utilizes pre-agreed business cooperation achievements between countries as future offset trade transaction conditions to revitalize the sector.

An industry official said, "To enter the top four global defense exporters, the status of K-Defense offset trade must be reestablished."