Senior officials in Israel's defense industry today expressed apprehension that the cancellation of the Phalcon early warning aircraft sale to China might lead to a breakdown of security ties with that country. Prime Minister and Minister of Defense Ehud Barak's announcement that the deal was off was greeted with astonishment by Israel Aircraft Industries (IAI), Elta, and other defense industry companies, all of which export more than 50% of their products.
A senior defense industry official harshly criticized Barak over his failure to handle US opposition to the deal from the very start. "Barak showed disregard towards US Defense Secretary William Cohen during his visit to Israel," the official said.
"It's clear to us that Cohen was hurt by the unresponsiveness to US sensibilities, and that he is going to take an even tougher line on the issue. Paranoids in the defense industries estimate that scrapping the deal with China will lead to a total cutoff of military ties with it. The less paranoid maintain that Israel-China relations will go into a deep freeze, and that, at the same time, China's ties with countries that are unfriendly towards Israel will start warming up.
"From the very start, we predicted the ultimate result of the conflict with the US. It's a cynical, purely business-motivated move. Why did the US oppose the China deal? Just to protect Westinghouse and Boeing, whose products are the chief competitors of Israeli-made early warning aircraft. Scrapping the deal is a step towards the mortal blow that will pry Israel out of the early warning aircraft market.
"The gloomy scenario that is now taking shape involves a dramatic impact on Israel's defense exports.
"Why should anyone signs deals with Israel if they might be scrapped so easily? No country in its right senses will make Israel any advance payments or participate in R&D costs, for the same reason. Whoever fails to read the handwriting on the wall must be blind."
Under the agreement between China and the IAI, the company must pay China $10 million in compensation for canceling the deal. IAI thinks that the payment should be made by the Israeli government or the US Administration. IAI general manager Moshe Keret discussed the issue with Ministry of Defense officials, but would not comment on it.
Ministry of Defense director general Amos Yaron notified Chinese President Jiang Zemin of the cancellation of the deal. The Chinese Ministry of Foreign Affairs spokesman today reacted sharply, saying, "No country in the world has the right to intervene in bilateral relations and in China's cooperation with other countries. Any agreement and understanding between states should be honored. This is the basic understanding of state-to-state relations.''
Former Minister of Defense Moshe Arens criticized Barak's decision: "This is a very big mistake on the Prime Minister's part. Such caving in to pressure might be a foretaste of further capitulation in diplomatic negotiations. The cancellation of the deal is a very hard blow to our defense industry, and, by the same token, a blow to state security.
"In fact, they didn't make any attempt to set out Israel's case in Congress and the Administration, but just caved in. It's a pity. Who'd like to sign a contract with us if we're liable to scrap it just like that at some point?"
Deputy Minister of Defense Ephraim Sneh said in response, "I'm sure that if Arens were in our place today, he would have made a similar decision. But I do agree with him on one point - that the reputation of our defense industry has been damaged. This will compel us to make a greater effort to enhance its competitiveness."
Published by Israel's Business Arena on 13 July, 2000