This 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). 
 
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SUMMARY 
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¶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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