Magazine article Washington Report on Middle East Affairs

Israeli Defense Sector Breathes Easier after New U.S. Aid Pact

Magazine article Washington Report on Middle East Affairs

Israeli Defense Sector Breathes Easier after New U.S. Aid Pact

Article excerpt

Israel's defense industry breathed a sigh of relief Thursday after the new and enlarged U.S. military aid package showed that allowances for Israeli spending at home won't decline until year 6 of the 10-year agreement.

On Sept. 14, Israeli and U.S. officials signed the deal that boosts annual aid starting in 2018 to $3.8 billion, from $3.1 billion under the current agreement.

While Israel's Defense Ministry is looking forward to the extra largesse, Israeli defense companies feared they would be the big losers because Washington insisted that as a condition for the heftier aid, Israel would have to give up its right to spend up to 26.3 percent of the aid locally.

The final agreement indeed phases out the local-procurement feature, but under far easier terms than defense industry leaders had expected. The draftagreement had called for the phaseout to begin in year one and be completed by year six, but under the final agreement the process won't begin until year six.

"During the first six years of the agreement, Israeli industry will be even better offthan in the previous one, relatively speaking," said an Israeli government source who requested anonymity. "Now they'll be getting 26 percent of a bigger aid pie-$3.8 billion instead of the $3.1 billion of the last few years."

In dollar terms, that spells annual local procurement of nearly $1 billion starting in 2018, compared with about $815 million now.

Still, the increase in U.S. aid, which came after months of negotiations between Washington and Jerusalem, isn't as dramatic as the headline figures suggest. …

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