Off-set agreement: What is it and how does it work?
An off-set agreement is a legal contract between two parties that essentially allows for the balancing of payments owed between them. This type of agreement is commonly used in international trade and procurement of military equipment.
For example, let`s say that a country wants to buy fighter jets from another country. The purchasing country may not be able to afford the full cost of the purchase upfront. In this scenario, an off-set agreement would be negotiated between the two countries.
Under the terms of the agreement, the supplier country would agree to purchase goods or services from the purchasing country in an amount equal to a percentage of the original purchase cost. These goods or services could include products such as agricultural goods or technology services.
In essence, the off-set agreement allows for the purchasing country to pay off their debt over time through the exchange of goods and services. The supplier country benefits from this type of agreement because they are able to sell their products or services to the purchasing country and receive payment over time.
While off-set agreements can be beneficial to both parties involved, there are also potential downsides. For example, off-set agreements can sometimes lead to lower quality products being purchased as the purchasing country may focus more on meeting the off-set requirement rather than obtaining the best product available.
Additionally, off-set agreements can be complex to negotiate and administer, requiring additional resources and time to ensure compliance.
Overall, off-set agreements can be a useful tool in international trade and procurement, but it is important to carefully weigh the potential benefits and drawbacks before entering into such an agreement. As with any legal contract, it is always advisable to seek the advice of legal experts when negotiating and drafting an off-set agreement.