Ha'aretz - 5 September 2000

WHEN IS UP REALLY DOWN

By Moshe Arens

Ehud Barak is downgrading the strategic relationship
between the United States and Israel

Ehud Barak's latest project is to upgrade the strategic relationship between the United States and Israel. However, at the rate he is going, we are likely to find that he is actually downgrading a relationship of great importance to Israel. The first blow to this relationship came when Barak caved in to the peremptory demand voiced by U.S. Secretary of Defense William Cohen a few months ago that Israel cancel a contract, signed with China five years ago, for the supply of the Phalcon, an early warning and control aircraft produced by Israel Aircraft Industries.

Now Barak is negotiating an agreement that would give the U.S. veto rights over the export sales of Israel's defense industries, a move that would be disastrous to the industry and severely damage Israel's defense capability. The additional financial aid for purchasing equipment in the U.S., which Israel is supposed to get in return, is likely to further throttle Israel's defense industry. It is only in the upside-down world of Ehud Barak that this can be called an upgrade of the strategic relationship between the two countries. By any Israeli measure, it is a substantial downgrading of this relationship.

To understand this, one must recall that Israel's ability to defend itself is based on the attainment and maintenance of a quality edge in weaponry against what could well be an enemy far superior in numbers. In the days when Israel's defense industry was in its infancy and the Soviet Union was the major supplier of weaponry to Israel's potential adversaries, this qualitative edge was secured primarily by means of weapon systems purchased in the U.S. However, in recent years, as Israel's defense industry matured and the U.S. increased its sales of advanced equipment to Arab countries, the task of providing the IDF with a qualitative edge in weaponry fell more and more on the shoulders of Israel's defense industry.

Purchases in the U.S. ceased to be the mainstay of Israel's qualitative edge in weaponry. At the same time, Israel's defense industry, with its advanced products, became dependent on sales in the export market, coming into head-on competition with the defense industries of the U.S., the United Kingdom, France, and Russia, which also depend on export sales in order to be commercially viable.

Thus, while benefitting the U.S. defense industry, severe restrictions on the export sales of Israel's defense industry would threaten the continued existence, at its present level of technological excellence, of Israel's industry, thereby endangering the maintenance of Israel's qualitative edge over the military forces of its neighbors.

In the strategic upgrade-downgrade agreement presently being negotiated with the U.S., the compensation for a U.S. veto on export sales of Israeli defense products is supposed to be additional U.S. financial aid for Israeli purchases in the United States. Barak has to ask himself just what is the value of those U.S. dollars and can they possibly serve as compensation for the damage inflicted on Israel's defense industry.

Whereas in cabinet debates on Israel's defense budget, each of these dollars is considered the equivalent of four Israeli shekels, even a cursory examination reveals that in reality, their value is far less - the reason being that most of these funds are not convertible and can only be spent on purchases in the United States, purchases that in many cases are not the best buy for Israel's Ministry of Defense and frequently end up as inferior substitutes for purchases from Israel's industries.

An in-depth study to evaluate the real value of the U.S. aid-dollar should be carried out by a team of economic experts before any agreement is signed. It may well turn out that the real value of the present level of yearly U.S. defense assistance of $2 billion is not the equivalent of some NIS 8 billion, as one might conclude from the commercial shekel-dollar exchange rate, but closer to NIS 2-3 billion, i.e. a real exchange rate of one or one-and-a-half to one.

If this turns out to be the case, Barak must answer the question whether this aid can compensate for the damage done to Israel by the decrease in the Ministry of Defense's acquisitions from Israel's industry and the constraints that the United States wants to impose on the export sales of Israel's defense industry.

The cancellation of the Phalcon deal is an excellent example of the destructive effect of an incorrect decision by our Prime Minister in this area. The aircraft, possibly the best of its kind in the world, has a sales potential of billions of dollars. These sales would permit IAI and the Israeli industries associated with this project to continue developments that would reinforce Israel's qualitative edge, keep Israel at the forefront of radar technology and establish a foundation for commercial high-tech industries based on this and similar technologies. How can Israel be compensated for the damage to its defense posture and its economy in light of the cancellation of the sale?

Not to be disregarded is the damage inflicted on Israel's relations with China. On his recent visit to Beijing, Secretary Cohen managed to rub it in when in response to a question on the cancellation of the Phalcon sale, he replied: "Israel's decision on the Phalcon sale is, of course, a decision that Israel made."

This decision can still be reversed.

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Moshe Arens has been defense minister of Israel three times and is active in the Likud Party.



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