Identifier
Created
Classification
Origin
06TELAVIV1272
2006-03-31 14:05:00
SECRET
Embassy Tel Aviv
Cable title:
EXPORT CONTROLS: COMMERCE U/S MCCORMICK'S MARCH 9
how-to read a cableThis record is a partial extract of the original cable. The full text of the original cable is not available.
S E C R E T SECTION 01 OF 05 TEL AVIV 001272
SIPDIS
COMMERCE FOR UNDER SECRETARY DAVID MCCORMICK
STATE FOR UNDER SECRETARY ROBERT JOSEPH
STATE FOR ISN/ECC DIRECTOR (VAN-SON) AND NEA/IPA (MAHER)
PENTAGON FOR OSD ISRAEL DESK OFFICER (ANDERSON)
E.O. 12958: DECL: 03/27/2016
TAGS: ETTC PREL PINS IS ISRAEL RELATIONS GOI EXTERNAL MILITARY RELATIONS ECONOMY AND FINANCE
SUBJECT: EXPORT CONTROLS: COMMERCE U/S MCCORMICK'S MARCH 9
MEETINGS AT THE ISRAEL MOD
Classified By: Political Counselor Norm Olsen. Reasons: 1.4 (b, d).
-------
SUMMARY
-------
S E C R E T SECTION 01 OF 05 TEL AVIV 001272
SIPDIS
COMMERCE FOR UNDER SECRETARY DAVID MCCORMICK
STATE FOR UNDER SECRETARY ROBERT JOSEPH
STATE FOR ISN/ECC DIRECTOR (VAN-SON) AND NEA/IPA (MAHER)
PENTAGON FOR OSD ISRAEL DESK OFFICER (ANDERSON)
E.O. 12958: DECL: 03/27/2016
TAGS: ETTC PREL PINS IS ISRAEL RELATIONS GOI EXTERNAL MILITARY RELATIONS ECONOMY AND FINANCE
SUBJECT: EXPORT CONTROLS: COMMERCE U/S MCCORMICK'S MARCH 9
MEETINGS AT THE ISRAEL MOD
Classified By: Political Counselor Norm Olsen. Reasons: 1.4 (b, d).
--------------
SUMMARY
--------------
1. (S) Israeli Defense Ministry officials told Commerce Under
Secretary for Industry and Security David McCormick March 9
SIPDIS
that (A) the MOD has assumed the lead role in re-organizing
Israel's export control system in the wake of hi-tech
transfer scandals that plagued the U.S.-Israel relationship
through 2005; (B) Israel is committed to making meaningful
changes to its export control system in order to restore the
USG's trust in Israel's export controls; and (C) Israel is
adhering to its obligations under the August 2005 Statement
of Understanding (SOU). The Israelis noted lingering
perceptions that the U.S. is using the export control issue
to edge out Israeli competition in Venezuela's defense
market. They also suggested a joint U.S.-Israel effort to
penetrate India's defense market, and requested expedited USG
approval of some proposed Israeli contracts for bids in China
that would benefit U.S. and Israeli companies. Under
Secretary McCormick reinforced the importance of the SOU and
SIPDIS
said that while early signs are encouraging, Israel is at the
beginning of a long road of putting comprehensive export
controls in place.
2. (C) SUMMARY, CONT.: In an expanded meeting in which the
Israeli MOD team was led by the MOD's chief legal counsel,
the Under Secretary was told that the MOD has already amended
export control regulations. Wassenaar Arrangement Category
Six controls have been incorporated into the MOD's control
lists, and new dual-use regulations/legislation will lead to
Israel's adoption of the remaining nine Wassenaar Arrangement
categories, and will turn over export license issuance to the
MOITAL in cases where the end-user is a civilian entity. Two
new pieces of legislation will clearly define the process
whereby export license applications are reviewed, define a
clear procedure for dispute resolution, and include
provisions for appeals in case of denial. In addition to the
lengthy discussion of changes that have already been made or
are planned, the MOD engaged the Under Secretary on the
Committee for Foreign Investment in the U.S. (CFIUS). After
his meetings at the MOD, the Under Secretary had similar
meetings at the MOITAL and MFA (reported septel). END
SUMMARY.
-------------- --------------
MOD UNDERSCORES ITS COMMITMENT TO EXPORT CONTROLS
-------------- --------------
3. (S) Under Secretary McCormick's session at the MOD began
with a private meeting with Israeli MOD Export Department
(SIBAT) Director retired Major General Yosi Ben Hanan. Ben
Hanan said Israel is very keen to fulfill all of its
commitments under the August 2005 Statement of Understanding
(SOU) on defense export controls. He stressed that Israel
never intended to hurt the U.S. as a result of its exports to
China, and characterized as "very sobering" the atmosphere
surrounding the U.S.-Israel relationship after the U.S.
"called Israel to account." Ben Hanan recounted that the GOI
conducted investigations and found "minimal violations" of
export control policy. His sense was that the discussions
afterwards rightly focused on policy, as the disagreement, he
claimed, was over policy, not about criminal behavior. Under
Secretary McCormick reinforced the importance of the SOU and
SIPDIS
said that while early signs have been encouraging, Israel is
at the beginning of a long road of putting comprehensive
export controls in place.
4. (S) Ben Hanan said that Israel is strictly adhering to the
SOU, despite media allegations otherwise. (He cited as an
example a controversial quote about the SOU attributed to MOD
DG Jacob Toren, recently published by what Ben Hanan referred
to as a "second-rate newspaper that professionalizes in
scandal-mongering.") Ben Hanan said that the MOD plans to
reassign SIBAT's export licensing authority to an Export
Controls Division in the MOD. (NOTE: SIBAT currently issues
4,000-5,000 export licenses per year. END NOTE.) Ben Hanan
said he will still have influence on the licensing process,
but will not have statutory authority to sign licenses. He
added that SIBAT will still sign licenses for export
negotiations.
-------------- --------------
BEN HANAN ON ISRAELI DEFENSE EXPORTS TO THIRD COUNTRIES
-------------- --------------
5. (S) Ben Hanan said that the GOI has made it clear to the
Israeli defense industry that all defense exports to China
must adhere to the process laid out in the SOU. This process
requires potential exporters to apply for approval, wait, and
then obtain USG and GOI approval before they proceed.
"Nothing will go outside of the mechanism the U.S. and Israel
have established. There will be no surprises."
6. (C) Ben Hanan called for full clarity in the U.S.-Israeli
dialogue on export controls, urging a "policy of full
disclosure, not one of vague statements that hide intent,"
and of maintaining personal contact in order to prevent
misunderstandings: "If you want to clarify something
sensitive, please invite us to Washington, and we will come.
Show us the facts, and then propose a solution. Let us
commit to 'killing the tea kettle before it becomes a
locomotive.'"
7. (C) Ben Hanan said that Israel understands that the USG
wants Israel to stop defense exports to Venezuela. He said
that Israel must fall in line with the U.S. on moral grounds.
He claimed, however, that perceptions linger in Israel that
the U.S. is using export controls to help U.S. industry
compete against Israeli industry in the Venezuelan market.
8. (C) Ben Hanan said that Israel is cooperating with India
on defense issues, and is pleased that the U.S. is entering
India's defense market. He characterized Lockheed Martin's
exhibit at a recent Indian defense exposition as impressive,
and recounted how he had told Lockheed Martin Senior Vice
President Bob Trice that Israel is willing to be a "mouse on
the back of the American elephant" in terms of defense sales
to India. Ben Hanan added that Pakistan has made several
overtures to Israel, but Israel cannot consider them
seriously as Pakistan is viewed by Israel as an ally of Iran.
9. (C) Ben Hanan said that the GOI would find it beneficial
if the USG would approve some of its exports (e.g., flak
jackets) to countries the U.S. is concerned about. Ben Hanan
referred specifically to an Israeli bid for a tender issued
by General Electric China for security services at the
Beijing Olympics. He noted that allowing the bid to go
through could potentially benefit an unnamed U.S. company as
well as an Israeli one.
10. (C) Ben Hanan characterized Israel's defense industry as
not only a business sector, but a critical part of Israel's
defense capability. He said that Israel exports 80 percent
of its defense production, and stressed that Israel's defense
industry cannot survive on GOI/IDF procurement. Ben Hanan
recounted that in 2005, Israel exported USD 750 million worth
of defense articles to the U.S. He said that if the export
value could be increased to USD 1 billion, this achievement
would be more important to Israel than the USD 500 million
worth of FMF Israel receives from the U.S.
-------------- --------------
UNDER SECRETARY MCCORMICK'S POINTS TO THE SIBAT DIRECTOR
-------------- --------------
11. (C) Under Secretary McCormick stressed that America's
relationship with Israel is important and strong, and that
there is no truth behind the allegation that the U.S. is
using export controls to promote its industries over other
countries's industries. He noted that export controls are
increasingly a part of the important U.S. nonproliferation
agenda for the region, and that the Commerce Department works
closely with the State Department and the Defense Department
to ensure that their positions are coordinated. He offered
the Commerce Department's assistance in implementing the
comprehensive export controls outlined in the SOU.
12. (U) Also attending this restricted session on the Israeli
side were SIBAT Principal Deputy Director Meir Shalit and
SIBAT North America Division Deputy Director Amira Alany.
-------------- ---
EXPANDED MEETING WITH MOD EXPORT CONTROL EXPERTS
-------------- ---
13. (U) Under Secretary McCormick then led a U.S. delegation
in an expanded meeting on export controls with MOD experts.
The Israel side was led by MOD General Counsel Tzvia Gross
and included: SIBAT Director Yosi Ben Hanan (until his
departure for another meeting); SIBAT Principal Deputy
Director Meir Shalit; SIBAT North America Division Deputy
Director Amira Alany; Political-Military Bureau Adviser
Shmuel Limone; MOD Deputy Director of Export Controls Ehud
Ben-Aharon; MALMAB/DSDE Information Security Unit Head Shlomy
Maayan; MOD Legal Counsel Gideon Meretz; MOD Legal Counsel
Ram Raviv; MOD Encryption Expert Eitan Levy; and the MOD's
director for Encryption Control.
14. (S) SIBAT Director Ben Hanan reiterated Israel's
commitment to the SOU, and said that the MOD's reorganization
of Israel's export control system will result in a smooth and
transparent system in which policy-makers are understood, and
the working level is accountable to policy-makers. He added
that a smooth, transparent mechanism for dual-use items will
be established. Ben Hanan said that Israel would coordinate
its defense exports with the U.S. and always maintain open
lines of communication in this area.
15. (C) Ben Hanan said that Hamas's victory in the January 25
Palestinian elections affects Israel's security and defense
R&D. He stressed that Israel cannot stop investment in
defense R&D, and cannot stop exporting defense articles,
noting that defense exports remain critical to Israel's
defensive capability.
-------------- --------------
REVIEW OF CHANGES ALREADY MADE TO THE EXPORT CONTROL SYSTEM
-------------- --------------
16. (C) After Ben Hanan departed, MOD Legal Counsel Tzvia
Gross led the Israeli side and explained that Israel's export
control system had been running on a combination of emergency
legislation and Israel's equivalent of U.S. executive orders.
Gross said that Israel has already incorporated Wassenaar
Arrangement Category Six controls for lasers and sensors into
the MOD's control list, and that these entered into force in
October 2005. The MOD controls this category now and may
continue to control it for military end-users even after
authority over dual-use items is transferred to the Ministry
of Industry, Trade and Labor (MOITAL). The MOD has already
conducted some outreach seminars to educate Israeli defense
industry on new obligations stemming from the Category Six
requirements. So-called "deemed exports" have been addressed
in amendments to MOD regulations, and the new requirements
have been briefed to Israeli defense industry
representatives. Deemed exports will eventually be
controlled under the new Defense Export Control Act, once the
Knesset passes it. The MOD is also enacting enforcement
measures -- including more extensive actions against
violators -- through MOD directives.
--------------
REVIEW OF PROPOSED EXPORT CONTROL LEGISLATION
--------------
17. (C) Gross said that MOD lawyers, in consultation with
lawyers from the MFA, MOITAL and Justice Ministry, are
drafting a Defense Export Control Act (DECA),and a Dual-Use
Export Control Order (aka regulations or secondary
legislation),and that the draft legislation has been
circulated within the GOI. Gross admitted that the MFA is
not yet satisfied with the current draft DECA. Gross said
the MOD has an "ambitious target" of presenting the draft
DECA to the Knesset's Defense Security Committee before
Israeli general elections scheduled for March 28. (NOTE:
The draft DECA was presented to the governmental legislation
committee -- headed by the Ministry of Justice -- on March
29. It must pass out of that committee before it can be sent
to the Knesset's Defense Security Committee. MFA contacts
told poloff March 30 that they are disappointed with the
draft DECA's provisions for MFA involvement in the export
license review process and intend to fight for a more
prominent role for the MFA. END NOTE.)
18. (C) Gross said that the new DECA will place authority for
export controls in the hands of the MOD director general, who
will delegate that authority to the director of a new Export
Controls Division. The new division may be headed by the
current Defense Export Controls director, Ehud Ben Aharon.
SIBAT will still have an advisory role on export license
issuance along with the POL-MIL Bureau, the Technical
Committee, the Special Countries Committee, the
Counterterrorism Committee (headed by MALMAB/DSDE),the MTCR
Committee, and Customs and international export control
authorities. The new division will coordinate with MOITAL.
The MOD wants to launch the new Export Control Division by
July 2007, but will need to obtain the Ministry of Finance's
support for this before it can happen. The new division will
be responsible for enforcement, but will be assisted by the
Ministry of Justice, MALMAB/DSDE, and the MOD's Legal
Adviser. MALMAB/DSDE will remain responsible for the
protection of confidential information.
19. (C) Gross said that the new DECA will require exporters
to submit a "Statement of Ultimate End-User" in their
application for an export license. This means that there
will be three layers of requirements: (a) a statement by the
exporter; (b) an end-user certificate; and (3) GOI
assurances. These changes have already been adopted in the
regulations and are in force and being used now. The DECA
will also require brokers to obtain a license, and require
defense exporters to submit regular reports on their
activities.
20. (C) Regarding exports to PRC end-users, Gross said that
the new law will require negotiating or marketing export
licenses even if the end-user is civilian, and that Israeli
industry representatives have already been briefed on this.
21. (C) Gross said that the MOD wants the DECA to boost
criminal penalties, to include imprisonment and increased
fines. She said she hopes to increase the fines through
administrative penalties that would be applied outside the
courts. At present, Israel can terminate or suspend a
violating company's export license. The MOD wants to
introduce a penalty that would remove an exporter from a
registry of approved exporters. Gross claimed that the
Ministry of Justice has agreed that a USD 1 million penalty
may be applied outside the court system. The Knesset will
have to approve this before it can enter into force. Under
Secretary McCormick noted that Commerce is now pushing for
SIPDIS
increased penalties for violators of dual-use exports.
--------------
DISCUSSION OF DUAL-USE REGS/LEGISLATION
--------------
22. (C) Gross said that MOITAL and the MOD agreed that the
MOD will control dual-use items for military end-users for at
least the first year after the dual-use legislation enters
into force. She claimed that MOITAL believes that the MOD is
more experienced with this, and noted that the MOD has been
enforcing Missile Technology Control Regime (MTCR) Category 1
and 2, Nuclear Suppliers Group (NSG) and Australia Group (AG)
requirements on Israeli exporters for some time. Gross said
that the MOD decided a few days earlier that it should
consider composing a list of "reliable countries" to expedite
the dual-use export license issuance process. The MOD is
checking to see how other countries do this now.
23. (S) Gross said that she believes that proposed exports to
dual-use end-users in the PRC will be processed by the MOD
because the PRC is special and handled according to the SOU.
Proposed dual-use exports to end-users in other countries
will be processed on a case-by-case basis by the MOD, MOITAL
and MFA, except in the case of very basic categories.
"Deemed exports" would also be covered in the new regulations.
24. (C) Gross said that she believes the new dual-use
legislation can be approved expeditiously, without three full
readings in the Knesset. She explained that, in its format
as an order, the new dual-use regulations will not have to be
sent to the governmental committee on legislation or undergo
three full readings in the Knesset. Instead, MOITAL will
present the Dual-Use Export Control Order to the Knesset's
Economics Committee for approval. Gross acknowledged that
the committee could decide that it should be presented as
full legislation, in which case it would have to be
resubmitted. She noted, however, that MOITAL has made a
commitment to Acting PM Olmert to get the legislation through
the Knesset as quickly as possible. If this is accomplished,
it will allow the MOD and MOITAL to adopt the modified
controlled items lists based on existing, non-emergency law.
Gross admitted that this posed its own potential obstacles,
as adopting the remaining Wassenaar Arrangement controls
would affect 400-550 civilian companies that will not be
familiar with the new requirements. She said that the MOD
will try to manage the process through outreach, but
cautioned that it will take time for these companies to adapt
to the new requirements. Gross noted that the MOD has
already started discussing this change with the companies in
its first outreach session. She said that once managers are
on board, the process should move more smoothly.
25. (C) Gross admitted that the MOD is having some difficulty
drawing up the Wassenaar Arrangement control lists. She said
the new legislation will incorporate the same terminology and
definitions used by the Wassenaar Arrangement.
-------------- --------------
HOW THE NEW LAW WILL DEAL WITH DISPUTES AND DENIALS
-------------- --------------
26. (C) Gross said the new legislation will establish a
mechanism whereby the MOD, MFA and MOITAL will consult on
export control cases. The MOD, MOITAL and MFA directors
general -- and the Prime Minister if necessary -- will
resolve disputes in the inter-ministerial process. Gross
said that the MOD is still discussing this issue with the
MFA, and suggested that the MFA is not ready to review all
export cases. She claimed that MOITAL is ready to cede the
lead role to the MOD, and to be consulted only when the MOD
is prepared to deny an export license.
27. (C) Gross said the following criteria would be reviewed
in determining whether to award an export license: (a) the
sensitivity of the export; (b) the end user; (c) the
destination country; and (d) other issues, including UN
embargoes, the destination country's respects for human
rights, and the origin of the system or component and its
country's requirements.
28. (S) Under Secretary McCormick thanked Gross and her team
for their presentation on what he characterized as a very
complex undertaking. He thanked the MOD for its initial
work, offered USG assistance wherever it may be needed
throughout the process, and stressed the importance the USG
places on export control issues and the complete
implementation of the SOU.
--------------
ISRAELIS SHOW INTEREST IN U.S. CFIUS CASE
--------------
29. (C) Gross asked Under Secretary McCormick to share what
he could about the Dubai Ports World case and the Committee
for Foreign Investment in the U.S. (CFIUS). She said that
Israel recently introduced legislation to require an
inter-ministerial review of proposed foreign investments and
acquisitions, and claimed it was her creation.
30. (C) In response, Under Secretary McCormick stressed that
the division between defense exports and non-defense exports
is increasingly blurry. U.S. defense industry is trying to
diversify into the non-defense sector to hedge against future
defense budget reductions, and a growing number of civilian
technologies have military uses. The Commerce Department
expects to continue to confront these issues as more capital
crosses borders and more international acquisitions take
place.
31. (C) The Under Secretary described the mission of CFIUS,
and how it handles cases brought to its attention. He noted
that normally, Treasury has the lead role on the body. He
explained that CIFIUS's role is being debated as some in the
U.S. Congress are concerned that America's national security
interests are not being fully represented. Under Secretary
McCormick stressed that the USG wants to be open to foreign
investment while ensuring first and foremost that its
national security interests are protected, and that CFIUS
members want to ensure that its reviews are non-political and
comprehensive.
32. (U) Under Secretary McCormick cleared on this cable.
********************************************* ********************
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JONES
SIPDIS
COMMERCE FOR UNDER SECRETARY DAVID MCCORMICK
STATE FOR UNDER SECRETARY ROBERT JOSEPH
STATE FOR ISN/ECC DIRECTOR (VAN-SON) AND NEA/IPA (MAHER)
PENTAGON FOR OSD ISRAEL DESK OFFICER (ANDERSON)
E.O. 12958: DECL: 03/27/2016
TAGS: ETTC PREL PINS IS ISRAEL RELATIONS GOI EXTERNAL MILITARY RELATIONS ECONOMY AND FINANCE
SUBJECT: EXPORT CONTROLS: COMMERCE U/S MCCORMICK'S MARCH 9
MEETINGS AT THE ISRAEL MOD
Classified By: Political Counselor Norm Olsen. Reasons: 1.4 (b, d).
--------------
SUMMARY
--------------
1. (S) Israeli Defense Ministry officials told Commerce Under
Secretary for Industry and Security David McCormick March 9
SIPDIS
that (A) the MOD has assumed the lead role in re-organizing
Israel's export control system in the wake of hi-tech
transfer scandals that plagued the U.S.-Israel relationship
through 2005; (B) Israel is committed to making meaningful
changes to its export control system in order to restore the
USG's trust in Israel's export controls; and (C) Israel is
adhering to its obligations under the August 2005 Statement
of Understanding (SOU). The Israelis noted lingering
perceptions that the U.S. is using the export control issue
to edge out Israeli competition in Venezuela's defense
market. They also suggested a joint U.S.-Israel effort to
penetrate India's defense market, and requested expedited USG
approval of some proposed Israeli contracts for bids in China
that would benefit U.S. and Israeli companies. Under
Secretary McCormick reinforced the importance of the SOU and
SIPDIS
said that while early signs are encouraging, Israel is at the
beginning of a long road of putting comprehensive export
controls in place.
2. (C) SUMMARY, CONT.: In an expanded meeting in which the
Israeli MOD team was led by the MOD's chief legal counsel,
the Under Secretary was told that the MOD has already amended
export control regulations. Wassenaar Arrangement Category
Six controls have been incorporated into the MOD's control
lists, and new dual-use regulations/legislation will lead to
Israel's adoption of the remaining nine Wassenaar Arrangement
categories, and will turn over export license issuance to the
MOITAL in cases where the end-user is a civilian entity. Two
new pieces of legislation will clearly define the process
whereby export license applications are reviewed, define a
clear procedure for dispute resolution, and include
provisions for appeals in case of denial. In addition to the
lengthy discussion of changes that have already been made or
are planned, the MOD engaged the Under Secretary on the
Committee for Foreign Investment in the U.S. (CFIUS). After
his meetings at the MOD, the Under Secretary had similar
meetings at the MOITAL and MFA (reported septel). END
SUMMARY.
-------------- --------------
MOD UNDERSCORES ITS COMMITMENT TO EXPORT CONTROLS
-------------- --------------
3. (S) Under Secretary McCormick's session at the MOD began
with a private meeting with Israeli MOD Export Department
(SIBAT) Director retired Major General Yosi Ben Hanan. Ben
Hanan said Israel is very keen to fulfill all of its
commitments under the August 2005 Statement of Understanding
(SOU) on defense export controls. He stressed that Israel
never intended to hurt the U.S. as a result of its exports to
China, and characterized as "very sobering" the atmosphere
surrounding the U.S.-Israel relationship after the U.S.
"called Israel to account." Ben Hanan recounted that the GOI
conducted investigations and found "minimal violations" of
export control policy. His sense was that the discussions
afterwards rightly focused on policy, as the disagreement, he
claimed, was over policy, not about criminal behavior. Under
Secretary McCormick reinforced the importance of the SOU and
SIPDIS
said that while early signs have been encouraging, Israel is
at the beginning of a long road of putting comprehensive
export controls in place.
4. (S) Ben Hanan said that Israel is strictly adhering to the
SOU, despite media allegations otherwise. (He cited as an
example a controversial quote about the SOU attributed to MOD
DG Jacob Toren, recently published by what Ben Hanan referred
to as a "second-rate newspaper that professionalizes in
scandal-mongering.") Ben Hanan said that the MOD plans to
reassign SIBAT's export licensing authority to an Export
Controls Division in the MOD. (NOTE: SIBAT currently issues
4,000-5,000 export licenses per year. END NOTE.) Ben Hanan
said he will still have influence on the licensing process,
but will not have statutory authority to sign licenses. He
added that SIBAT will still sign licenses for export
negotiations.
-------------- --------------
BEN HANAN ON ISRAELI DEFENSE EXPORTS TO THIRD COUNTRIES
-------------- --------------
5. (S) Ben Hanan said that the GOI has made it clear to the
Israeli defense industry that all defense exports to China
must adhere to the process laid out in the SOU. This process
requires potential exporters to apply for approval, wait, and
then obtain USG and GOI approval before they proceed.
"Nothing will go outside of the mechanism the U.S. and Israel
have established. There will be no surprises."
6. (C) Ben Hanan called for full clarity in the U.S.-Israeli
dialogue on export controls, urging a "policy of full
disclosure, not one of vague statements that hide intent,"
and of maintaining personal contact in order to prevent
misunderstandings: "If you want to clarify something
sensitive, please invite us to Washington, and we will come.
Show us the facts, and then propose a solution. Let us
commit to 'killing the tea kettle before it becomes a
locomotive.'"
7. (C) Ben Hanan said that Israel understands that the USG
wants Israel to stop defense exports to Venezuela. He said
that Israel must fall in line with the U.S. on moral grounds.
He claimed, however, that perceptions linger in Israel that
the U.S. is using export controls to help U.S. industry
compete against Israeli industry in the Venezuelan market.
8. (C) Ben Hanan said that Israel is cooperating with India
on defense issues, and is pleased that the U.S. is entering
India's defense market. He characterized Lockheed Martin's
exhibit at a recent Indian defense exposition as impressive,
and recounted how he had told Lockheed Martin Senior Vice
President Bob Trice that Israel is willing to be a "mouse on
the back of the American elephant" in terms of defense sales
to India. Ben Hanan added that Pakistan has made several
overtures to Israel, but Israel cannot consider them
seriously as Pakistan is viewed by Israel as an ally of Iran.
9. (C) Ben Hanan said that the GOI would find it beneficial
if the USG would approve some of its exports (e.g., flak
jackets) to countries the U.S. is concerned about. Ben Hanan
referred specifically to an Israeli bid for a tender issued
by General Electric China for security services at the
Beijing Olympics. He noted that allowing the bid to go
through could potentially benefit an unnamed U.S. company as
well as an Israeli one.
10. (C) Ben Hanan characterized Israel's defense industry as
not only a business sector, but a critical part of Israel's
defense capability. He said that Israel exports 80 percent
of its defense production, and stressed that Israel's defense
industry cannot survive on GOI/IDF procurement. Ben Hanan
recounted that in 2005, Israel exported USD 750 million worth
of defense articles to the U.S. He said that if the export
value could be increased to USD 1 billion, this achievement
would be more important to Israel than the USD 500 million
worth of FMF Israel receives from the U.S.
-------------- --------------
UNDER SECRETARY MCCORMICK'S POINTS TO THE SIBAT DIRECTOR
-------------- --------------
11. (C) Under Secretary McCormick stressed that America's
relationship with Israel is important and strong, and that
there is no truth behind the allegation that the U.S. is
using export controls to promote its industries over other
countries's industries. He noted that export controls are
increasingly a part of the important U.S. nonproliferation
agenda for the region, and that the Commerce Department works
closely with the State Department and the Defense Department
to ensure that their positions are coordinated. He offered
the Commerce Department's assistance in implementing the
comprehensive export controls outlined in the SOU.
12. (U) Also attending this restricted session on the Israeli
side were SIBAT Principal Deputy Director Meir Shalit and
SIBAT North America Division Deputy Director Amira Alany.
-------------- ---
EXPANDED MEETING WITH MOD EXPORT CONTROL EXPERTS
-------------- ---
13. (U) Under Secretary McCormick then led a U.S. delegation
in an expanded meeting on export controls with MOD experts.
The Israel side was led by MOD General Counsel Tzvia Gross
and included: SIBAT Director Yosi Ben Hanan (until his
departure for another meeting); SIBAT Principal Deputy
Director Meir Shalit; SIBAT North America Division Deputy
Director Amira Alany; Political-Military Bureau Adviser
Shmuel Limone; MOD Deputy Director of Export Controls Ehud
Ben-Aharon; MALMAB/DSDE Information Security Unit Head Shlomy
Maayan; MOD Legal Counsel Gideon Meretz; MOD Legal Counsel
Ram Raviv; MOD Encryption Expert Eitan Levy; and the MOD's
director for Encryption Control.
14. (S) SIBAT Director Ben Hanan reiterated Israel's
commitment to the SOU, and said that the MOD's reorganization
of Israel's export control system will result in a smooth and
transparent system in which policy-makers are understood, and
the working level is accountable to policy-makers. He added
that a smooth, transparent mechanism for dual-use items will
be established. Ben Hanan said that Israel would coordinate
its defense exports with the U.S. and always maintain open
lines of communication in this area.
15. (C) Ben Hanan said that Hamas's victory in the January 25
Palestinian elections affects Israel's security and defense
R&D. He stressed that Israel cannot stop investment in
defense R&D, and cannot stop exporting defense articles,
noting that defense exports remain critical to Israel's
defensive capability.
-------------- --------------
REVIEW OF CHANGES ALREADY MADE TO THE EXPORT CONTROL SYSTEM
-------------- --------------
16. (C) After Ben Hanan departed, MOD Legal Counsel Tzvia
Gross led the Israeli side and explained that Israel's export
control system had been running on a combination of emergency
legislation and Israel's equivalent of U.S. executive orders.
Gross said that Israel has already incorporated Wassenaar
Arrangement Category Six controls for lasers and sensors into
the MOD's control list, and that these entered into force in
October 2005. The MOD controls this category now and may
continue to control it for military end-users even after
authority over dual-use items is transferred to the Ministry
of Industry, Trade and Labor (MOITAL). The MOD has already
conducted some outreach seminars to educate Israeli defense
industry on new obligations stemming from the Category Six
requirements. So-called "deemed exports" have been addressed
in amendments to MOD regulations, and the new requirements
have been briefed to Israeli defense industry
representatives. Deemed exports will eventually be
controlled under the new Defense Export Control Act, once the
Knesset passes it. The MOD is also enacting enforcement
measures -- including more extensive actions against
violators -- through MOD directives.
--------------
REVIEW OF PROPOSED EXPORT CONTROL LEGISLATION
--------------
17. (C) Gross said that MOD lawyers, in consultation with
lawyers from the MFA, MOITAL and Justice Ministry, are
drafting a Defense Export Control Act (DECA),and a Dual-Use
Export Control Order (aka regulations or secondary
legislation),and that the draft legislation has been
circulated within the GOI. Gross admitted that the MFA is
not yet satisfied with the current draft DECA. Gross said
the MOD has an "ambitious target" of presenting the draft
DECA to the Knesset's Defense Security Committee before
Israeli general elections scheduled for March 28. (NOTE:
The draft DECA was presented to the governmental legislation
committee -- headed by the Ministry of Justice -- on March
29. It must pass out of that committee before it can be sent
to the Knesset's Defense Security Committee. MFA contacts
told poloff March 30 that they are disappointed with the
draft DECA's provisions for MFA involvement in the export
license review process and intend to fight for a more
prominent role for the MFA. END NOTE.)
18. (C) Gross said that the new DECA will place authority for
export controls in the hands of the MOD director general, who
will delegate that authority to the director of a new Export
Controls Division. The new division may be headed by the
current Defense Export Controls director, Ehud Ben Aharon.
SIBAT will still have an advisory role on export license
issuance along with the POL-MIL Bureau, the Technical
Committee, the Special Countries Committee, the
Counterterrorism Committee (headed by MALMAB/DSDE),the MTCR
Committee, and Customs and international export control
authorities. The new division will coordinate with MOITAL.
The MOD wants to launch the new Export Control Division by
July 2007, but will need to obtain the Ministry of Finance's
support for this before it can happen. The new division will
be responsible for enforcement, but will be assisted by the
Ministry of Justice, MALMAB/DSDE, and the MOD's Legal
Adviser. MALMAB/DSDE will remain responsible for the
protection of confidential information.
19. (C) Gross said that the new DECA will require exporters
to submit a "Statement of Ultimate End-User" in their
application for an export license. This means that there
will be three layers of requirements: (a) a statement by the
exporter; (b) an end-user certificate; and (3) GOI
assurances. These changes have already been adopted in the
regulations and are in force and being used now. The DECA
will also require brokers to obtain a license, and require
defense exporters to submit regular reports on their
activities.
20. (C) Regarding exports to PRC end-users, Gross said that
the new law will require negotiating or marketing export
licenses even if the end-user is civilian, and that Israeli
industry representatives have already been briefed on this.
21. (C) Gross said that the MOD wants the DECA to boost
criminal penalties, to include imprisonment and increased
fines. She said she hopes to increase the fines through
administrative penalties that would be applied outside the
courts. At present, Israel can terminate or suspend a
violating company's export license. The MOD wants to
introduce a penalty that would remove an exporter from a
registry of approved exporters. Gross claimed that the
Ministry of Justice has agreed that a USD 1 million penalty
may be applied outside the court system. The Knesset will
have to approve this before it can enter into force. Under
Secretary McCormick noted that Commerce is now pushing for
SIPDIS
increased penalties for violators of dual-use exports.
--------------
DISCUSSION OF DUAL-USE REGS/LEGISLATION
--------------
22. (C) Gross said that MOITAL and the MOD agreed that the
MOD will control dual-use items for military end-users for at
least the first year after the dual-use legislation enters
into force. She claimed that MOITAL believes that the MOD is
more experienced with this, and noted that the MOD has been
enforcing Missile Technology Control Regime (MTCR) Category 1
and 2, Nuclear Suppliers Group (NSG) and Australia Group (AG)
requirements on Israeli exporters for some time. Gross said
that the MOD decided a few days earlier that it should
consider composing a list of "reliable countries" to expedite
the dual-use export license issuance process. The MOD is
checking to see how other countries do this now.
23. (S) Gross said that she believes that proposed exports to
dual-use end-users in the PRC will be processed by the MOD
because the PRC is special and handled according to the SOU.
Proposed dual-use exports to end-users in other countries
will be processed on a case-by-case basis by the MOD, MOITAL
and MFA, except in the case of very basic categories.
"Deemed exports" would also be covered in the new regulations.
24. (C) Gross said that she believes the new dual-use
legislation can be approved expeditiously, without three full
readings in the Knesset. She explained that, in its format
as an order, the new dual-use regulations will not have to be
sent to the governmental committee on legislation or undergo
three full readings in the Knesset. Instead, MOITAL will
present the Dual-Use Export Control Order to the Knesset's
Economics Committee for approval. Gross acknowledged that
the committee could decide that it should be presented as
full legislation, in which case it would have to be
resubmitted. She noted, however, that MOITAL has made a
commitment to Acting PM Olmert to get the legislation through
the Knesset as quickly as possible. If this is accomplished,
it will allow the MOD and MOITAL to adopt the modified
controlled items lists based on existing, non-emergency law.
Gross admitted that this posed its own potential obstacles,
as adopting the remaining Wassenaar Arrangement controls
would affect 400-550 civilian companies that will not be
familiar with the new requirements. She said that the MOD
will try to manage the process through outreach, but
cautioned that it will take time for these companies to adapt
to the new requirements. Gross noted that the MOD has
already started discussing this change with the companies in
its first outreach session. She said that once managers are
on board, the process should move more smoothly.
25. (C) Gross admitted that the MOD is having some difficulty
drawing up the Wassenaar Arrangement control lists. She said
the new legislation will incorporate the same terminology and
definitions used by the Wassenaar Arrangement.
-------------- --------------
HOW THE NEW LAW WILL DEAL WITH DISPUTES AND DENIALS
-------------- --------------
26. (C) Gross said the new legislation will establish a
mechanism whereby the MOD, MFA and MOITAL will consult on
export control cases. The MOD, MOITAL and MFA directors
general -- and the Prime Minister if necessary -- will
resolve disputes in the inter-ministerial process. Gross
said that the MOD is still discussing this issue with the
MFA, and suggested that the MFA is not ready to review all
export cases. She claimed that MOITAL is ready to cede the
lead role to the MOD, and to be consulted only when the MOD
is prepared to deny an export license.
27. (C) Gross said the following criteria would be reviewed
in determining whether to award an export license: (a) the
sensitivity of the export; (b) the end user; (c) the
destination country; and (d) other issues, including UN
embargoes, the destination country's respects for human
rights, and the origin of the system or component and its
country's requirements.
28. (S) Under Secretary McCormick thanked Gross and her team
for their presentation on what he characterized as a very
complex undertaking. He thanked the MOD for its initial
work, offered USG assistance wherever it may be needed
throughout the process, and stressed the importance the USG
places on export control issues and the complete
implementation of the SOU.
--------------
ISRAELIS SHOW INTEREST IN U.S. CFIUS CASE
--------------
29. (C) Gross asked Under Secretary McCormick to share what
he could about the Dubai Ports World case and the Committee
for Foreign Investment in the U.S. (CFIUS). She said that
Israel recently introduced legislation to require an
inter-ministerial review of proposed foreign investments and
acquisitions, and claimed it was her creation.
30. (C) In response, Under Secretary McCormick stressed that
the division between defense exports and non-defense exports
is increasingly blurry. U.S. defense industry is trying to
diversify into the non-defense sector to hedge against future
defense budget reductions, and a growing number of civilian
technologies have military uses. The Commerce Department
expects to continue to confront these issues as more capital
crosses borders and more international acquisitions take
place.
31. (C) The Under Secretary described the mission of CFIUS,
and how it handles cases brought to its attention. He noted
that normally, Treasury has the lead role on the body. He
explained that CIFIUS's role is being debated as some in the
U.S. Congress are concerned that America's national security
interests are not being fully represented. Under Secretary
McCormick stressed that the USG wants to be open to foreign
investment while ensuring first and foremost that its
national security interests are protected, and that CFIUS
members want to ensure that its reviews are non-political and
comprehensive.
32. (U) Under Secretary McCormick cleared on this cable.
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