Caveats of 2016 US-Israel Aid Deal Come Into Focus
By: Barbara Opall-Rome, January 10, 2017
TEL AVIV – More specifics about congressional restrictions on US military
aid for Israel have emerged with the State Department release of the
memorandum of understanding (MOU) governing the bilateral pact signed nearly
four months ago.
Details of the $38 billion deal, which covers fiscal years 2019 to 2028,
provide context to a fact sheet released by the White House when the
agreement was inked on Sept. 14, 2016.
As previously announced, it commits to providing Israel with $3.3 billion
each year in grant Foreign Military Financing (FMF) aid, along with $500
million per year for missile defense.
What was not included in the White House fact sheet are the specific terms
and conditions under which the US aid will be made available to its top
No Congressional Plus-ups
Under the agreement, both countries “jointly commit to respect the FMF
levels specified in this MOU, and not to seek changes to the FMF levels for
the duration of this understanding.”
With regard to the 2017 and 2018 budget years that precede the new
agreement, the State Department posted a letter from Israeli Prime Minister
Benjamin Netanyahu to Secretary of State John Kerry in which the Israeli
leader pledged to refund any congressionally-appropriated FMF funds that
exceed the $3.1 billion earmarked for Israel under the existing MOU.
As for the $500 million in annual missile defense funding, the MOU
stipulates that both sides commit “not to seek additional missile defense
funding from the United States for the duration of this understanding,
except in exceptional circumstances as may be jointly agreed by the US
administration and Israel, such as in the event of a major armed conflict
'Buy American' Provisions
Under the new MOU, the administration underscored “the importance of making
FMF resources available to finance the purchase of US military goods and
services in the United States.” As such, Washington will gradually reduce
so-called Off Shore Procurement (OSP), the amount of FMF funding that Israel
has been allowed to convert into Israeli shekels for local defense research,
development and procurement.
For decades, Israel had the unique privilege of being able to convert 26.3
percent of its FMF funds for OSP; an amount in the last years of the current
agreement has totaled $815.3 million. But in consideration of Israel’s
claims that removal of the OSP privilege would harm its defense industrial
base, the agreement will phase it out gradually.
The new MOU allows Israel to retain its current level of $815.3 million OSP
in the first year (FY2019), which represents some 24.7 percent of the $3.3
billion earmarked in annual FMF over the life of the agreement. Over the
next four years (FY2020-2023), OSP falls by a mere $10 million. But by
fiscal year 2024 – year number five of the accord – Israel’s OSP allowance
drops $50 million to $725.3 million.
The following year (FY2025), OSP falls by $275 million, leaving Israel
$450.3 million to spend locally. It drops by another $200 million in the two
years after that (FY2026-FY2027) until finally, by fiscal year 2028 – the
tenth and final year of the agreement – Israel will no longer be able to
spend US aid in country.
Missile Defense Matching Funds
The MOU imposes no conditions on how Israel can spend the $5 billion in
missile defense funds allotted over the ten-year period, as long as such
funds are used “primarily for the purposes of developing and procuring
articles and services necessary to missile, rocket and projectile defense
systems for the defense of Israel.”
The last five words of that caveat – “for the defense of Israel” – means
that Israel cannot use US missile defense funding for spinoff programs
destined for export; something Israeli experts say will be exceedingly
difficult to enforce.
As for matching funds, the MOU states that “both sides jointly understand”
that US missile defense funding “should be made available on the basis of
best efforts at matching financial and non-financial contributions by Israel
for such systems.”
Furthermore, the MOU highlights the importance of US-based co-production of
missile defense-related parts and components “at a level equal to or greater
than 50 percent of US-appropriated” production funds.
The MOU allows for leeway in Israel’s prescribed use of US missile defense
funding for Iron Dome, David’s Sling and Arrow-3-related system elements,
provided that departures from the text are codified in separate bilateral
agreements governing bilateral cooperative missile defense programs.
Transparency and Accountability
The MOU clearly states that FMF funding aims “to help enable Israel to
defend itself by itself and develop long-term capacity, primarily through
the acquisition of advanced capabilities that are available from the United
States.” As such, it calls on Israel not to use FMF for purchase of fuel or
other consumables, as it has done in recent years to the tune of $1.2
It also calls on both parties to “maximize understanding and transparency
regarding how US funding is used” through active dialogue and regular
consultations. At the same time, the MOU calls for Israel to be transparent
in how it uses its own national funds to safeguard its security.
To that end, it obliges Israel to provide “detailed programmatic information
related to the use of all US funding, including funds used for OSP.” It also
calls for Israel to provide annual updates on all cooperative defense
programs – “to include progress reports and spending plans” – along with
topline figures from the budget of Israel’s Missile Defense Organization.
The last line of the agreement, signed by Thomas Shannon, US undersecretary
of state for political affairs, and Jacob Nagel, acting Israel National
Security Advisor, has been interpreted in Israel as a possible escape route
should Washington encounter unanticipated budgetary constraints.
It reads: “Both sides acknowledge that the funding levels in this
understanding assume continuation of adequate funding levels for US foreign
assistance and missile defense overall, and are subject to the appropriation
and availability of funds for these purposes.”