Obama Wants to Stop Subsidizing Israel's Defense Industry
If you want to understand just how special the U.S.-Israel relationship really is, look no further than the annual aid package. Israel is not only the greatest beneficiary of U.S. defense assistance, but also the only one allowed to spend a portion of that assistance on weapons and equipment from its own industry. Everyone else has to buy American.
President Barack Obama is now looking to end this U.S. subsidy of Israel's defense sector, according to U.S. and Israeli officials. They say the "offshore procurement" provision, unique to Israel's aid package, is one of the last obstacles to completing an agreement to extend aid until 2029. Obama would like to phase out the agreement that allows Israel to spend 26 percent of U.S. annual aid at home. Prime Minister Benjamin Netanyahu, so far, disagrees.
In one respect this is surprising. Obama and his supporters like to tout U.S. military aid to Israel as an act of the president's unprecedented generosity. The U.S. has given Israel nearly $24 billion under Obama, more than any other U.S. president. As National Security Adviser Susan Rice said this month, "Even in these days of belt tightening, we are prepared to sign the single largest military assistance package -- with any country -- in American history," adding that it today comprises more than 50 percent of the total U.S. military aid budget.
At the same time, Obama's insistence on ending the U.S. subsidy for Israeli defense items reflects a growing unease among many U.S. defense companies that America's cold war client state is now a competitor in the international arms market. Mary Beth Long, who served as assistant secretary of defense for international security affairs from 2007 to 2009 and is now an independent consultant to U.S. and foreign defense companies, told me it was time to rethink Israel's offshore procurement exception.
Long, it should be said, is no Israel basher. She told me she believes the U.S. has a strategic and moral obligation to maintain Israel's "qualitative military edge," a defense concept that obliges the U.S. to sell Israel more advanced defense technology than its regional rivals receive. "The information sharing, the tactics, techniques and procedures, the things we have learned from the Israelis particularly as to asymmetric confrontation, and their visibility into the region is absolutely critical to our national security," she told me.
But at the same time, Long said the aid relationship in recent years has gone off the rails. "It doesn't make sense for Israel to come back and ask for supplemental projects if they can't make the case of why they didn't spend their own budget and the normal $3 billion in aid on a critical item," she said. "If it's critical, and therefore we have to subsidize it, then why didn't you find your own money for this?"
Long was talking about the special appropriation for Israel's Iron Dome rocket and missile defense system. When she was in government, she opposed a plan to create an independent aid program for Iron Dome. She lost that battle though. Since 2010, Congress and Obama have provided Israel nearly $1 billion -- in addition to the annual $3.1 billion aid package -- to buy more of these systems, which have been effective in intercepting Hamas rockets from Gaza.
But Obama was not initially supportive of this funding. One former White House official told me the president in 2010 initially told his staff that Israel should be able to find the money for Iron Dome, particularly at a moment when the U.S. economy was still reeling from the 2008 financial crisis.
At the time, the president had a point. Israel's gross domestic product has nearly doubled in the last 10 years, to around $230 billion. In this same period, Israel has emerged as one of the world's top arms exporters. In 2015 Israel sold $5.7 billion worth of military goods to other countries. As Long posed the issue: "How inexplicable is it that we are competing against the Israelis in the Indian defense procurement market at the same time we are subsidizing the Israeli defense industry?"
Israeli officials tell a different story. While it's true that the Jewish State is the only country allowed to spend U.S. defense assistance on its own defense industry, much of that funding goes to projects that end up benefitting the U.S. military. In the case of Iron Dome, Congress eventually passed legislation that required Israel to share its related intellectual property with U.S. defense firms.
"The 26 percent is used primarily on joint ventures between the U.S. and Israel," Yair Lapid, a former finance minister and leader of the centrist Yesh Atid block in the Knesset, told me last week. "Look at the new F35b; there are systems on it from Elbit," he said, referring to an Israeli defense concern. "It's this money that becomes the technological edge the U.S. has."
Like almost everything else in Israel, there is no consensus on whether Netanyahu should just accept the aid package as Obama proposes. Moshe Kahlon, Israel's finance minister and a former member of Netanyahu's Likud Party, called on the prime minister this week to take the deal as it is, even though he acknowledged it could be better. Meanwhile, a member of Kahlon's party, the former Israeli ambassador to Washington Michael Oren, has urged Netanyahu to go slow, according to the Jerusalem Post.
Elliott Abrams, who was a senior National Security Council official under President George W. Bush, told me he agrees with Oren. "If you do it this year, you will give Obama a talking point for why he is the best person for Israeli security, ever," he said. "And Obama will misuse that in his last months in office to produce his parameters for the peace talks."
Abrams has a point. Obama has been doing this since he came into office. He has boosted Israel's defense subsidy, as he has distanced America from Israel in both the Iran negotiations and on settlement growth in the West Bank. The lavish military aid was political cover for a foreign policy Israel's leaders opposed.
If Israel's leaders really want to deprive Obama and future U.S. presidents of this kind of political cover, there is an easy solution. They could negotiate a deal to wean the country, over time, off the military aid altogether. Indeed, an Israeli leader did just that when it came to U.S. economic assistance in the 1990s. His name was Benjamin Netanyahu.
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