Israel Defense industry lobbying to ease exports to China

Israeli defense and technology firms have been lobbying the government to ease restrictions on their exports to China, TheMarker has learned from industry sources.

According to the source, the manufacturers have the support of the Prime Minister’s Office as well as the economy and foreign ministries, which want to expand exports to and joint ventures with China. 

Their officials are open to discussing changes to the restrictions, including ones on so called dual-use technologies that have both civilian and military applications. But they face opposition from the Defense Ministry, the sources said .

One source in the defense industry, who asked not be identified, said manufacturers are pushing for a more liberal policy in light of “the increasing difficulty of selling to Israel’s Defense Ministry and the exchange rate, which is eroding the profitability of exports.”

One of the changes proposed by the industry and its supporters would be to allow the sale of older technologies to China, for example, last-generation UAVs, since Beijing could just as easily acquire them from other countries.

Israeli military exports were $7.5 billion in 2012; the Asia-Pacific region was the biggest market. But at the behest of the U.S. government there are tight restrictions on the sale of defense and dual-use technology to China and other countries. Companies must first receive approval from the Defense Ministry’s Defense Export Controls Agency, whose staff includes representatives from the foreign and economy ministries.

In response to U.S. demands, Israel has in recent years widened the list of sensitive countries to include India, Russia and many Eastern European countries. In 2009, Washington cleared Israel to jointly produce unmanned aerial vehicles with Russia, but a year later blocked state-owned Israel Aerospace Industries from bidding on a contract to upgrade Indian jet fighter aircraft even though American companies were bidding.

The U.S. restrictions have a chilling effect on all Israeli high-tech companies, even those not dealing in defense or dual-use technology, that want to sell to China, say industry sources. 

Companies fear harming their reputation in the key American market, or finding that their products were, in fact, used by the Chinese military even when they were sold to civilian customers.

Defense industry sources believe the Defense Ministry has been trying to win Washington’s quiet consent to specific export deals to countries considered sensitive. But the ministry isn’t giving eased exports the highest priority, as it is now holding talks on strategic cooperation with Washington on developing and financing new weapons systems.

The Economy Ministry confirmed in a response that it was examining the guidelines for dual-use exports and was in communication with other government agencies on ways to ease export restrictions while still complying with Israel’s international treaty obligations.

The Foreign Ministry said it does not speak to the media about defense exports.

In its response, the Defense Ministry said its exports policy complies with Israeli law and with international agreements and understandings to which the state is a signatory.