US Middle East Policy

U.S. Aid to Israel Subsidizes a Potent Weapons Exporter

By Jim Krane
Associated Press
June 20, 2002

At an arms trade fair in Paris this week, Israel showed the world’s military shoppers fruits of its high-tech arms industry, including its Merkava tank, unmanned spy planes and the planet’s most sophisticated missile defense system.

With its tourist industry all but shuttered by a 21-month Palestinian uprising and high-tech in a slump, the Jewish state depends deeply on the foreign currency earnings of its weapons industry, now the world’s 10th largest.

Deftly marketed missiles, radar and other products from Israeli companies now compete with those of top-tier arms producers including the United States, reaping about $2 billion of a $27 billion yearly worldwide market, said Kuti Mor, deputy director general of Israel’s Ministry of Defense.

In France, Turkey, The Netherlands and Finland, Israeli companies have edged such U.S. firms as Raytheon, Northrop Grumman and General Atomics out of arms deals worth hundreds of millions of dollars in recent years.

The irony, experts say, is that tens of billions of U.S. tax dollars and transfers of American military technology helped create and nurture Israel’s industry, in effect subsidizing a foreign competitor.

No other country receives as much U.S. aid or freedom to plow it into its own export industries as Israel, say experts in academia, industry and the U.S. government.

“It’s allowed them to advance faster than Lockheed or Boeing or Hughes would have liked,” said David Lewis, a doctoral candidate at Rutgers University who has researched Israel’s defense industry for a forthcoming book.

While the United States gets certain benefits from its 50-year partnership with Israel — political leverage, a proving ground for new weapons and intelligence cooperation among them — critics point to a serious downside.

“It’s a new concept for most people.” said Joel Johnson, a vice president at the Aerospace Industries Association of America, which represents many of the largest U.S. arms producers. “We give them money to build stuff for themselves and the U.S. taxpayer gets nothing in return.”

The rationale, said Richard Fisher, a defense analyst with the Jamestown Foundation, is that Washington is willing to sacrifice some defense industry competitiveness in order to give Israel incentive to make peace.

Supporters of Israel tend to view the transfers of U.S. technology and funds as good for both countries’ economies, akin to post-World War II assistance for Europe and Japan.

“It’s true that Israel sometimes competes with the U.S., but so do all those countries,” said Mark Regev, a spokesman at the Israeli Embassy in Washington D.C. “Is it that different than American aid to Japan, or the Marshall Plan in western Europe?”

Beyond competing with U.S. armaments, Israeli weapons also flow to countries off-limits to American companies. Its weapons buttress the arsenals of nations such as China that the United States considers strategic competitors, alarming U.S. military planners.

Last year, U.S. surveillance planes flying along China’s coast were threatened by Chinese fighter jets armed with Israeli missiles.

During the series of airborne confrontations, a Chinese jet crashed after colliding with a U.S. spy plane, killing the Chinese pilot and disabling the U.S. plane. The incident sparked a bitter diplomatic row as China detained the American crew for 11 days.

Had Chinese fighter pilots been given the order to fire, they could have brought down the U.S. planes with Israeli Python III missiles.

U.S. technology given to the Israelis in the form of the Sidewinder missile was used in the development of the Python, said Larry Wortzel, former U.S. Army attache in Beijing and now a military analyst at the Heritage Foundation.

U.S. defense chiefs say Israel sold China the missiles without informing the United States.

“Generally speaking, we’re not in favor of such capable weapons systems being proliferated to a variety of nations around the world,” Rear Adm. Craig Quigley said in a Pentagon briefing last year. “That’s a good missile, and its capabilities are considerable.”

In 2000, Israel bowed to U.S. pressure and canceled the sale to China of its AWACS-style airborne early warning radar planes. The director general of Israel’s finance ministry, Ohad Marani, said Israel typically discusses arms sales with the Americans.

“We don’t sell systems that upset the Pentagon,” Marani said.

Israel’s arms industry nevertheless continues to put great emphasis on the Chinese market, hawking its spy planes and radar systems at recent trade shows in Beijing and Singapore.

China may unveil as early as this year its new J-10 jet fighter, which experts say is modeled on Israel’s Lavi. The Lavi, now discontinued, was based on the U.S. F-16 and built with $1.3 billion in aid from Washington.

“There’s no doubt in my mind that the F-16 is the Lavi and the Lavi is, in substance, the J-10,” said Wortzel.

In fact, Israel’s arms industry now leads America’s in areas such as the instruments used for fighter aircraft targeting, Fisher said. “We’re now reaching a point that the U.S. military looks to Israel as a source of advanced technology.”

Even critics of U.S. largesse are quick to note that Israel’s weapons industry also owes its success to the country’s world-class science education and its urgent security needs. Luring emigres from the former Soviet weapons industry has also helped.

The U.S. role, however, is formidable.

Since 1976, Israel has received more U.S. assistance than any other country, with the largest aid flows beginning after Israel and Egypt made peace in 1979.

Washington currently gives Israel about $3 billion per year, two-thirds of it in military grants, the Congressional Research Service says. As U.S. civilian aid is phased out at Israel’s request, military grants are expected to reach $2.4 billion by 2007.

Alone among U.S. aid recipients, Israel is allowed to use about a quarter of its military aid to develop its own arms production rather than for flat-out purchases of U.S. arms, according to the Congressional Research Service.

Other aid recipients wishing the same must seek State Department approval, a difficult process, said a department spokeswoman who spoke on condition of anonymity.

Though Israel is the wealthiest country to receive U.S. aid — with a per capita income higher than Greece or Spain — the largesse triggers little opposition in Congress or among the U.S. electorate. Elsewhere, it can provoke deep resentment. To many of the world’s Muslims, it places the U.S. taxpayer on the Israeli side of its conflicts with Arabs.

U.S. foreign policy experts such as Richard Perle, a senior Pentagon official in the Reagan administration, say there’s reason behind Washington’s generosity.

The aid is an “inducement to get Israeli concessions in the Middle East,” said Perle, though he called it “unfortunate that the Israelis have been so willing to sell to the Chinese.”

Asked about the situation, U.S officials who monitor foreign arms transfers called it too politically charged to discuss publicly.

“There’s not a whole lot we can comment on,” said Jay Greer, spokesman for the State Department’s Bureau of Political-Military Affairs. “It’s a sensitive matter.”

In private conversations, however, U.S. officials said there is no doubt Israel is afforded special latitude to develop and export equipment made with U.S. help.

And indeed, American and Israeli companies aren’t just competitors. Israeli firms often team with U.S. counterparts, trading technology for lobbying access to the U.S. military, said Barbara Opall-Rome, Tel Aviv-based reporter for Defense News.

The Pentagon has also granted Israel permission to demand so-called “offsets,” or contract givebacks, on American hardware bought with U.S. aid.

Offset agreements require U.S. arms companies to spend or invest a portion of the contract’s value inside the purchasing country. Other countries, including Egypt, South Korea, Turkey and Greece also get them.

The agreements often transfer part of a production line — and U.S. jobs — to a foreign country.

For instance, in 1999, Lockheed Martin awarded Israel $900 million in offsets on a single $2.5 billion sale of F-16s, even though Israel used U.S. military grants to pay for the planes.

It was just one example, analysts say, of how the combination of U.S. aid, technology and political favors have given Israel an unprecedented leg up on the competition.

“The Israelis wouldn’t be where they are today if they didn’t have the Americans behind them,” said Bjorn Hagelin, an arms sales researcher at the Stockholm International Peace Research Institute.