Nation’s defense firms to lose over $1b. annually with U.S. aid deal

The Israeli arms industry is expected to lose $1.3 billion in revenue each year and as many as 22,000 workers could lose their jobs when the latest agreement for military aid from the US kicks in at the end of this year, the Defense Ministry warned at a Knesset Finance Committee meeting on Monday.

Committee chairman Moshe Gafni (United Torah Judaism) called to renegotiate the 10-year aid agreement with the US, because it “will increase aid, but our society will crumble from the inside.”

The Memorandum of Understanding negotiated between Prime Minister Benjamin Netanyahu and then-US president Barack Obama’s administration changed the previous terms of military aid. Until now, up to 26% of the aid, adding up to billions of shekels each year, could be spent inside Israel. In the new deal that will gradually be phased out beginning at the end of the 2018 fiscal year (i.e., on October 1, 2018), until all US military aid will have to be spent in the US, resulting in losses for local industry.

The estimated loss is NIS 4b. per year in defense purchases, which could lead to the closure of 130 factories, many of which are in the periphery.

Gafni expressed concern about the MoU’s “severe ramifications for the delicate fabric of the State of Israel, harming its security.
“We won’t let something like this pass,” he added.

Yesh Atid MK Mickey Levy said the US is Israel’s greatest ally, but the MoU could significantly harm Israeli industry, and President Donald Trump’s administration may be willing to discuss the matter.

“We could lose the advantage our military industry has. The base of the Iron Dome is manufactured in a factory in Shtula,” a moshav on the border with Lebanon, Levy said. “This would be a fatal blow to Israel’s defense industry and bring about the firing of thousands to tens of thousands of people.”

Ze’ev Zilber, an economist in the Defense Ministry, spoke of the MoU’s advantages, in that it is for the next 10 years, and increases aid by $200 million each year, allowing for a level of stability in the defense budget.

Still, Zilber said, “The current [US] government is tough in its preference of American industry. This is a dramatic change.”

Having a strong local defense industry allows Israel to respond more readily in case of an emergency and be independent in working on new technologies, Zilber said.

Zionist Union MK Eyal Ben-Reuven explained further: “We could lose our independence in times of emergency. If we need an Iron Dome during a war, the prime minister can call and tell those responsible that he needs it now, work on it all night. In the new situation, we’re dependent on American industry, and that possibility disappears. The second thing is the technological engine… we can’t let those industries close.”

Economy Ministry representative Michal Pinkas told the lawmakers that her office is working on addressing this challenge.

“There are aspects of this matter that will affect an entire branch of industry… We are working together with the Defense Ministry. It will impact a list of 600 to 700 small suppliers. We want to study and act on business and economic development, opening up to new markets and reducing dependence on the Defense Ministry,” Pinkas said.

Gafni closed the meeting by calling for the government to renegotiate the MoU.

“Explain to the Americans that this harm to us is unacceptable. It’s a good deal with bad results and problems for Israeli society, which should have been dealt with in advance,” he said.