http://www.washington-report.org/back/1996/10/9610072.htm
Special Report
Israeli Defense Contract Illustrates How
U.S. Aid Harms American Industries
By Shawn L. Twing
October 1996 pg. 72
Israeli and Turkish defense
officials announced in August that they had concluded a
long-awaited defense agreement for modernizing and upgrading
Turkey’s aging fleet of F-4E Phantom attack aircraft. The
contract, with an estimated value of $650 million, has raised
eyebrows not only in Ankara and Tel Aviv, but also in Washington,
where more and more U.S. defense officials and private sector
defense analysts are beginning publicly and privately to question
continued aid to Israel.
At the center of the dispute is
the way in which Israel was able to secure the contract. In a
last-minute effort said to have involved the personal intervention
of Israeli Prime Minister Binyamin Netanyahu, Israeli banks, with
guaranteed financial backing from the Israeli government, offered
Turkey $600 million in loan guarantees to help it make payments on
the contract to Israel Aircraft Industries, the defense
conglomerate based in Lod, Israel. These loan guarantees, which
provide that the Israeli government will pay for the services if
the government of Turkey fails to do so, are similar to the $10
billion in loan guarantees given to Israel by the United States
beginning in 1992.
It is ironic that the government
of Israel, which is the recipient of an enormous loan guarantee
package ($2 billion per year for five years) and annual aid
subsidy from the United States ($3.5 billion in Fiscal Year 1996),
simultaneously is offering loan guarantees to enable its own
military industry to bid successfully against U.S. defense
companies. According to the U.S. Department of Commerce, at least
one U.S. corporation also had bid for the modernization and
upgrading contract. Nor is this an isolated incident. Israeli
defense companies routinely bid against U.S. defense contractors
for lucrative contracts, including several from America’s
armed forces, and many times the Israeli companies win. For
example, Israel’s Rafael and the American Lockheed Martin
Corporation together bid successfully on a project to supply
AGM-142 air-to-ground precision guided missiles to the U.S. Air
Force. Israel Aircraft Industries and the U.S. firm McDonnell
Douglas together obtained an estimated $425 million contract to
upgrade U.S. Air Force T-38 trainer aircraft. In addition, Israel
Aircraft Industries recently was awarded a contract to supply
passenger troop seats for the U.S. Navy’s CH-53D
helicopters.
Another recent example of Israeli
competition overseas with U.S. defense firms is a contract with
the government of Poland to outfit its S-1W Huzar attack
helicopters with air-to-ground missiles. Competing for the
contract was Rockwell International of Seal Beach, CA, maker of
the Hellfire missile that demonstrated an accuracy rating
approaching 90 percent during Operation Desert Storm, when some
4,000 were fired at Iraqi tanks and armored vehicles. The apparent
winner for Poland’s estimated $500 million contract is not
Rockwell, however. It is a consortium of Elbit and Rafael, both
Haifa-based Israeli defense companies. They offered an
experimental short-range rocket called the NDT that exists only on
paper, and despite substantial pressure on Poland from the United
States, these two Israeli companies apparently have won the
contract.
Polish officials claim that
Rockwell’s bid wasn’t given within the contract’s
time frame, but U.S. officials argue that, in the absence of
obvious reasons for the choice of an as-yet-non-existent missile
over a battle-proven one, other factors must have led to the
Polish decision to choose the Israeli NDT over the American
Hellfire. One unnamed official quoted in Defense News argued that “You can reject a missile on technical
grounds, but we think something is not right with the way
tendering and selection unfolded.”
In an August 1995 interview with
the French aerospace journal Air Et Cosmos (Air and Space),
IAI director-general Moshe Keret said that IAI hoped to boost its
U.S. market share from “$500 million to $800-$900 million in
revenues in the United States.”
Significant Advantages
It is not clear whether
Israel’s enormous clout in Congress is a factor in the
Pentagon’s decisions to buy from Israeli firms, but it
certainly is a factor in the U.S. government’s lack of
response to Israeli competition with U.S. defense firms. It also
is clear that the huge U.S. aid package given to Israel confers
significant advantage to Israel’s government-subsidized
defense companies. One component of that aid package is the
provision, applicable only to Israel, that $475 million of its
$1.8 billion annual U.S. Foreign Military Sales grant to buy
military hardware can be spent in Israel. All other beneficiaries
of U.S. military aid must spend the aid money they receive on U.S.
products.
This substantial U.S. government
subsidy, combined with other Pentagon funding for Israeli
companies (e.g., an estimated $50 to $60 million per year to IAI
to develop Israel’s Arrow-2 anti-tactical ballistic missile
system), uses U.S. taxpayer dollars to help enable Israeli firms
to underbid U.S. firms which, unlike Israeli firms, are obligated
also to pay U.S. taxes.
Just how outlandish Israel’s
requests for U.S. aid have become was illustrated by a recent hint
by Israeli officials that they might ask Congress (and not for the
first time) to waive the Pentagon’s annual $35 million
surcharge for Israel’s $1.8 billion military aid package, a
fee that is designed to help offset the Pentagon’s costs for
giving Israel nearly $2 billion worth of military equipment each
year. This request led to a scathing editorial in the
widely-respected U.S. weekly Defense News, which said that
it is time to reconsider all of Israel’s aid.
Such a bold statement in an
American defense publication reflects the deep discontent within
the American defense and intelligence communities. Privately, U.S.
officials and defense analysts admit they are continuously
infuriated by Israel’s behavior, and even more frustrated by
the willingness of the White House and Congress to satisfy
Israel’s requests for more aid, all the while ignoring
Israel’s flagrant abuses of its privileged relationship with
Washington. The editorial in Defense News echoes publicly
what U.S. defense and intelligence personnel have been saying for
years: “enough is enough.”
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