Israel's Defense Industry Wants In on SDI

By Jane Hunter

IN 1986, ISRAELI opposition cost U.S. weapons makers more than $20 billion in arms sales to friendly Arab governments in the Middle East.

That, at least, is what former Sen. Charles Percy, R-Ill., calculates was the price tag for proposed sales that year of fighter aircraft and other weapons to Jordan and Saudi Arabia. The deals--all bitterly opposed by the Israeli lobby--were vetoed by Congress.

Despite the potential profits and jobs involved, the defense industry accepted the losses with few public complaints. More recently, American defense contractors have also remained mysteriously silent while Congress and the Reagan administration have rewarded their Israeli competitors with a number of special concessions.

A recent ten-year pact, for example, gives Israel equal status with America's NATO allies in bidding on U.S. military contracts, a privilege extended to only two other non-NATO countries. And Israel has long been allowed to spend its U.S. aid dollars on its own military industries--a marked departure from the core principle of all other American assistance programs: that the money will be returned quickly to the U.S. economy through the purchase of domestic goods and services.

Thanks in part to these and other favors, Israeli sales to the Pentagon have climbed steadily in recent years. In 1983 the Defense Department bought only $9.4 million worth of Israeli goods--over the last two years it has spent nearly $250 million. During that same period, Israel also sold almost $200 million in military goods to private U.S. firms.

Israel's friends in Congress have pushed for further concessions. Rep. Les Aspin, D-Wis., the chairman of the House Armed Services Committee and a staunch Israel ally, recently recommended that the Pentagon open a procurement office in Israel and relax foreign-bidding rules that drive up the cost of Israeli products.

Even though the Pentagon budget is shrinking and a long lean period clearly is ahead for the defense industry, the major U.S. contractors do not appear overly concerned about Israel's growing share of the military market. Surprising? Not really. Israel's sales still amount to only a sliver of the Pentagon's $80 billion procurement budget. Defense firms in both countries have too much in common to quarrel over such small potatoes.

Israel, after all, is a major customer for U.S. weapons manufacturers. Over the past 10 years, U.S. firms have sold Israel more than $5.6 billion in defense goods. That figure will increase considerably this year in the wake of Israel's billion dollar purchase of General Dynamics's F16 fighters. (See table, page 14 - omitted here.)

Israeli firms also have become important subcontractors to U.S. companies on several major weapons systems--a relationship made even more attractive to American military manufacturers by the free trade agreement signed between the two countries in 1985.

But an even stronger community of interest between the U.S. and Israeli defense establishments may be forming: Both are highly anxious to protect Star Wars--the Reagan administration's much- prized Strategic Defense Initiative (SDI).

At a time when the Defense Department is scaling back or cancelling its procurement of conventional weapons, Star Wars is increasingly seen as the only new source of contracts likely to appear in the next decade, defense industry analysts say.

But opponents in Congress, bolstered by growing scientific doubts about SDI's feasibility, are threatening to snatch the prize from the table. Privately, top Pentagon officials question whether the program will survive the Reagan administration's last year in office.

Israel, which has been offered a major piece of Star Wars research, has a vested interest in beating back that challenge, as do American defense firms. In this respect, it is significant that in early 1986 20 major defense contractors, including Boeing, Grumman, Northrop and General Electric, sent representatives on a first-of-a-kind mission to Israel to discuss cooperation on various aspects of SDI.

Given Israel's interest in developing its domestic arms industry, it is not likely to be bashful in seeking a piece of Star Wars. With its powerful lobby in Washington, Israel is in an excellent position to obtain the desired funding from Congress, which has already appropriated $26 billion on the initial phases of the SDI program.

Joining the Club
Israel, one of the few U.S. allies eager to participate in Star Wars, has just received its first major commission under the program, to develop a defense against tactical (short-range) ballistic missiles.

Israel's admission to the Star Wars program was avidly sought by SDI's U.S. backers. Before Israeli Defense Minister Rabin came to Washington last December to negotiate a funding agreement for the Anti-Tactical Ballistic Missile (ATBM) program, several groups of congressional Star Wars advocates wrote to Defense Secretary Frank Carlucci, asking him to be generous with the Israelis.

In one such letter, Senators Howell Heflin, D-Ala., and Malcolm Wallop, R-Wyo., argued that "a successful Israeli test of the anti-missile system would refute the myth that SDI technology can't work." Other letter-writers included Senators Alfonse D'Amato, R-N.Y., and Pete Wilson, R-Calif., and Aspin.

Star Wars enthusiasts see Israel's track record of speedy research and development as an asset in their campaign for quick deployment of any weapons developed in the early phases of the SDI program. In last September's issue of the Conservative Digest, the pseudonymous writer Yedidya Atlas praised Israel's ability to find "shortcuts that produce results," and compared its streamlined procurement process with the more stately tempo of U.S. contracting.

Atlas also touted the ATBM project as having practical value for a future U.S. defense, arguing it would enable the United States to shoot down incoming tactical ballistic missiles "whether launched against the United States from Cuba and Nicaragua, or Soviet submarines, or against America's European allies from the Soviet satellites."

The Israelis claim an ATBM missile, which they call the Hetz-- Hebrew for "Arrow"--is only three years away from deployment. Yet the Pentagon was initially reluctant to fund the program at the levels sought by Israel. Early last year, the Israelis were actually getting ready to abandon the project.

All that has changed, however. In December, Rabin and Carlucci reached an agreement on funding that will allow Israel to go forward with the $1.2 billion research and development phase of the project.

Some Israeli military experts thought the project should have been cancelled anyway, according to Israeli defense writer Hirsh Goodman. In an article in the Jerusalem Post, Goodman cited sources in the Israeli military who argued that the Arrow is at best only a partial defense against the most serious threat Israel faces: incoming Syrian missiles.

According to Western intelligence reports, the Syrians have armed their Soviet SS-21 missiles with chemical warheads, to be used against Israeli air bases in the early hours of any future war. If this is true, then Israel would have to intercept any incoming missiles at very high altitudes in order to prevent contamination, something that could be difficult given the short flight distance between the missile launch sites in Syria and their targets in Israel.

Israeli tacticians have also argued that Israel should not abandon its doctrine of preemptive attack--or instant retaliation--in favor of a passive, mechanical defense system. What actually makes the Arrow an attractive proposition for Israel, Goodman wrote in his Jerusalem Post article, is that it "provided a corridor to American SDI research budgets."

While the ATBM system may be no more practical than the other elements of Reagan's "space shield," the Israelis could have a hidden agenda in developing the Arrow. Several of America's European allies worry that Israel actually plans to use technology from the Arrow system to develop anti-tank weapons, an Israeli paper, Yediot Aharonot, reported in February.

The Consolation Prize
The dedication of serious money to the Arrow--reversing the Pentagon's initial reluctance to fund the project--was spurred by the cancellation last year of Israel's Lavi fighter.

Since 1983,the Lavi has been a major focus of the Israeli defense industry, figuring prominently on the military shopping list that Israel presents each year to the United States. The United States paid for most of the Lavi's $1.5 billion price tag before the project succumbed last year to opposition from Pentagon officials.

The fact that Israel was able to spend so much of its U.S. aid money on a home-grown project is a sign of its unique status. The privilege was first granted by Congress in the 1970s, when it allowed Israel to use American money to develop its Merkava tank.

While that concession encountered scant opposition in the U.S. defense community, the expanding Lavi subsidy finally roused a mild protest from the Northrop Corp. which had plowed more than $1.2 billion of its own money into the development of an equivalent plane, the F-20.

In 1983, Northrop chairman Thomas Jones wrote a letter to top Reagan administration officials, complaining that "the development of a Lavi fighter program, supported by U.S. technology and U.S. funds, clearly changes the market risks we were asked to take."

Northrop, which had launched the F-20 without the usual research and development support from the Pentagon, ended up with a plane it could not sell. After a fruitless search for overseas buyers, Northrop finally aborted the project last year after the Air Force decided not to purchase any of the planes.

In the end, however, it was the Lavi's ever-rising price tag that finally led the United States to push for its cancellation. As a consolation prize, American officials promised to help keep Israeli factories humming with U.S. defense contracts--including the Arrow project. These reassurances were crucial in producing the narrow one-vote margin in the Israeli cabinet that killed the Lavi last August.

In the debate leading up to that vote, Israel had expressed particular concern about the impact on its high-tech work force, the key to any future projects. Predictions of a massive migration of skilled defense workers to the United States were frequently cited by the Lavi's defenders. In reality, many of those workers have since moved to South Africa, which is building a fighter plane based on the Lavi design.

As early as June 1986, the administration had held out the possibility of SDI work for the Israeli engineers who would be laid off as a result of the Lavi cancellation. In May of that year, the Israelis signed an agreement with Casper Weinberger laying out the conditions of Israel's participation in Star Wars. The pact was part of a larger U.S. effort to obtain support for the program from Britain and West Germany, its two major NATO allies.

There have been a few disagreements, however. Israel felt betrayed when Washington offered direct financing for only 50 percent of the ATBM project, with the further stipulation that at least 10 percent of the remainder had to be Israeli money, rather than recycled U.S. aid. Israel had expected all costs to be picked up by Washington, either directly or indirectly.

"This post-Lavi age of gold is turning out to be an age of bronze," one pro-Israel activist complained last fall. Last December, however, the Defense Department abruptly changed its position and agreed to most of Israel's demands. Congress, in turn, earmarked an unprecedented $400 million in military aid that can be spent in Israel.

At the same time the Arrow deal was signed, the Pentagon also approved the 10-year bidding agreement, which gives Israel the same access to Pentagon contracts enjoyed by America's NATO allies. While previous understandings defined specific areas in which Israeli firms could bid, the new agreement opens up virtually every area of U.S. defense procurement.

The Israelis are moving quickly to exploit that opening. For example, Israel is making a major effort to sell the Pentagon on its Popeye air-launched missile. The Israelis have set a worldwide goal of exporting at least $1 billion worth of Popeyes--the sales figure reached over the past decade for their Gabriel ship-to-ship missile, a copy of the French Exocet.

Jane Hunter is the editor of Israeli Foreign Affairs, a California-based newsletter. She is also the author of several books, including The Iran-Contra Connection, which she co- authored with Jonathan Marshall and Peter Dale Scott.