economic health of our major allies and fellow democracies is inherentiy important to the United Slates, because
in a very profound sense, the free nations stand or fall together. Second, the economy of Israel is the bedrock
of the nation's ability to sustain its own defense, and for this reason Israel's economic health is essential to the
stability of the region. Dr. Herbert Stein, former Chairman of the Council of Economic Advisors, put it best
when he said: "Hostile neighbors should be left in no doubt about the strength and stability of Israel's economy."
And third, it is important for the United States to ensure that Israel continue on the path of economic growth
and self-reliance. This is something we can do, and for our own interest, must do. Israel and the U.S. have
worked long and hard to establish one of the highest levels of economic cooperation.
American exports face protectionist trade barriers around the world. Even our closest allies refuse to
eliminate unfair trade practices, artd indeed are erecting new barriers to American products. In a report by the
Administfation. Japan was cited as the top offender in erecting barriers to trade. The European Community has
also been described as increasingly protectionist The General Agreement on Tariffs and Trade (GATT) are still
in jeopardy. In this negative environment, the U.S. can rely on its strong trade relations with Israel.
178
The historic U.S.-Israel Free Trade Agreement continues its phased implementation. A major step was
taken in 1989, and more recently, earlier this year, when Israel eliminated a host of tariffs on American goods
including consumer electronics and heavy machinery. Tariffs on both sides continue to fall, following the
schedule of the FTA; in 199S. all tariffs between the United States and Israel will be eliminated.
Two-way trade has more than doubled since the inception of the Free Trade Agreement in 1985. The
success of this unprecedented accOTd paved the way for a similar agreement between the United Stales and
Canada.
The increase in trade between the United States and Israel means more sales, proflts, and jobs for
American business. In fact, when compared with the major trading partners of the United States, Israel is second
only to Canada in terms of per-capita imports of U.S. products. Among Middle Eastern countries, Israel is first
in per-capita imports and second only to Saudi Arabia in overall imports. Total trade between the United States
and Israel last year was more than $7.5 billion. Israel is one of the few countries with which the United States
maintains a trade surplus.
As a result of the immigration from the former Soviet Union, U.S. exports to Israel are expected to grow
substantially over the next several years as the new immigrants are absorbed. These new U.S. exports will
include heavy machinery, agricultural products, textiles, automobiles, ships, planes, plastics, and chemical products,
to name a few of the U.S. industries that stand to gain, further helping the U.S. economy.
Along with increases in trade over the years, there is much cooperation in research and development
between the United States and Israel. Many U.S. companies invest in Israel to take advantage of its high-tech
R&D. Motorola. Intel, IBM. Digital, National Semiconductor and many other U.S. companies maintain R&D
facilities in Israel, taking advantage of Israel's high-tech capabilities and helping the United States maintain its
competitive edge in the high-tech field. Two of the most important technologies used in the world today were
developed in Israel by U.S. companies which invest there. The fint is the computer chip (286. 386 and 486)
that is the heart of the most widely used personal computers today, and the second is major components of the
cellular telephone. While these products were developed in Israel, the manufacturing and marketing takes place
primarily in the United States. These are but two examples of many products developed in Israel and
manufactured in the United States, creating thousands of American jobs and billions of dollan in sales each year.
In 1977, the United States and Israel established the Bi-National Research and Development (BIRD)
Foundation. The total endowment established then for BIRD is $110 million (each country providing equal
resources). BIRD is completely self-sufficient, operating off the interest of the endowment and royalties paid
from successful projects. BIRD provides grants to joint U.S.-Israeli research teams in the high-tech field. Grants
are paid back, with intei'est not to exceed one-and-a-half times the original value of the grant, only if profits are
shown from the R&D project. Since its inception, BIRD has invested more than $90 million in over 320 high-
tech R&D projects, each proposed by a joint U.S.-Israel partnership. To date, these projects have led to sales
of nearly $3 billion - the majority from the United Slates, creating thousands of American jobs - with
accumulated royalties to be used for reinvestment totaling more than $17 million. The tax revenue collected by
the United States to date, as a direct result of BIRD-funded projects, has been more than $200 million.
While BIRD has provided tremendous benefit to both the U.S. and Israeli economies, it could do more.
Each year. BIRD turns away many projects due to lack of resources. With an increase in the endowment. BIRD
could further help U.S. high-tech companies gain access to markets and technologies abroad.
In addition to BIRD, there is also the Bi-National Agricultural Research and Development (BARD)
Foundation, which operates similarly to BIRD but for joint agricultural programs. Since its creation in 1978,
BARD has funded hundreds of projects that have led to new technologies in the area of drip irrigation, pesticide,
fish farming, livestock, poultry, disease control, and advancements in farm equipment, to name but a few. Sales
of products developed under BARD have totaled more than $580 million to date. Israel's advancemenis in drip
irrigation have been of significant help to farmers in California. Texas, Arizona, and other areas in the United
States that have experienced severe drought
As is the case with BIRD, BARD turns away nearly 75% of the projects that the U.S. evaluaiors judge
as beneficial to the U.S. agricultural industry due to lack of resources.
179
As the above examples illustrate, the economic benefits we receive firom our relationship with Israel are
increasing at a time when our economy can use it mosL
n. ISRAEL'S NEED FOR AID
While U.S. assistance to Israel provides, as we have seen, solid benefits to our own country. Israel needs
U.S. aid for its continued survival U.S. military and economic aid safeguards Israel's security; sustains the peace
process: bolsters the Israeli economy; and fosters immigrant absorption in Israel.
Safeguardin£ Israel's Security
The Arab Military Buildnp:
While Iraq's defeat in 1991 removed a horrifying threat fiom the region and should have reduced the
need for new arms sales to the Middle East, the opposite has occurred in the past two years. The Arab states,
joined by Iran, have resumed their previous pattern of large-scale arms procurement In February, the massive
IDEX arms show was held in the United Arab Emirates, a gathering at which arms merchants from around the
world displayed their wares to the Arab world. The Arab slates have placed orders for billions of dollars worth
of new weapons each year, and have tens of billions of dollars more still in the pipeline from past years. In the
last 20 years, since the Yom Kippur war, the leading Arab nations still in a state of war with Israel have spent
about $500 billion on their armed forces. U.S. arms sales in the region are increasing again. Even after the
destruction of much Iraqi hardware, the Arab world and Iran now oumumber Israel eight-to-one in manpower (see
Chart 1), seven-to-one in tanks and armored fighting vehicles (see Chart 2), and more than four-to-one in aircraft
(see Chart 3). Many of the largest arms-importing countries in the worid are nations actively hostile to Israel:
Iraq, Iran, Libya, Syria, and Saudi Arabia.
Until Operation Desert Storm, Iraq represented the largest single strategic threat to Israel. While Iraq
remains a long-term security concern for the Jewish Stale, its defeat in 1991 has allowed Israel to focus more
anention on the other radical states in the region.
Iran is rapidly becoming the most serious threat to stability in the Middle East and is swiftly developing
the means to strike Israel. The radical Islamic regime has embarked on a large-scale military modernization
program since the defeat of Iraq in Desert Storm, in a bid to become the dominant power in the Persian Gulf.
From Bosnia to Sudan to Tajikistan. Tehran is also taking advantage of regional instability to promote its concept
of radical islamic fundamentalism. Iranian rearmament and military expansion, which started at the beginning
of the 1990s and has gathered momentum ever since, represents the greatest single long-term threat to the region.
It has publicly announced its intention to acquire nuclear weapons, and according to some reports, may have
illegally obtained as many as four tactical nuclear warheads from Kazakhstan. Some reports indicate Iran may
have six to ten separate facilities for developing nuclear weapons-related technology, and it has concluded
agreements with Russia and China to obtain additional reactors. U.S. intelbgence sources have publicly described
Iran as also having active chemical and biological weapons programs. Until recently, however, Tehran has not
had the means of reaching Israel with these deadly weapons. Now it appears Iran is on the verge of acquiring
a new, accurate long-range missile from North Korea, known as the No-Dong 1. This system will be able to hit
Israel with unconventional weapons from a distance of 8(X) miles.
Without more stringent limitations on technology exports to Iran by the United States and Europe,
including pressure on Russia and China, the mistakes of the Iraq policy may be repeated and Tehran will become
a nuclear weapons state by the late 1990s.
As part of its $10 billion rearmament program, the Islamic Republic has been buying large quantities
of tanks, advanced fighters, submarines and missile systems from eastern Europe, the former Soviet republics.
China, and North Korea, in return for oil and gas. The Iranian Air Force has already integrated the best Iraqi
fighters which it acquired during the Gulf war. One of the most alarming developments in 1992 was the
180
CHART 1
MnjTARY Threat to Israel
J
- Arab and Iranian Armed Forces
Oatnnmber Israel's by More than 8:1
(Table U)
1992 Figures
Millions
5
4
3
2
1
Egypt
Iran
i^^N^
5,183,550
4,169,550
3,291,550
Israel
607.500
Figures include reserve forces
Source: The Military Balance 1992-1993 . The International Institute for Strategic Studies
181
I
MnjTART Threat to Israel
CHART 2
Arab and Iranian Tanks and
Armored Fighting l^iiicles
Outnumber IsraePs by More than 7:1
(Table 10)
Thousands
30
25
20
15
10
Egypt
1992 Figures
28,797
25,237
24.317
Israel
3.960
Source: The Military Balance 1992-1993, The International Institute for Strategic Studies
182
CHART 3
MnjTART Threat to Israel
Arab and Iranian Combat Aircraft
Outnumber IsraeFs hy Hlore tban 4:1
(Table 9)
1992 Figures
3,443
Source: The Military Balance 1992-1993. The International Institute for Strategic Studies
183
announcement of a Russian-Iranian deal to sell the Islamic Republic 24 To-22M3 strategic bombers, capable of
reaching targets throughout the Middle East, including Israel. Russian-made attack submarines have been
purchased and are being delivered. Tehran is also acquiring production facilities for many of these arms,
including assembly lines for T-72 tanks and perhaps MiG-29 fighters.
This buildup poses a long-term strategic threat to Israel, particularly if Iran obtains long-range ballistic
missiles and strategic bombers. Even without these weapons, it is not safe to assume that Iran's threat to Israel
is minimized by the distance between the to countries. Iran is playing an important role in Syria's military
growth and may serve as a future strategic reserve for Damascus in the post-Soviet era. Iran's support of
Hezbollah terrorism further increases the threat to Israel
Syria continues its quest for "strategic parity' with Israel, and now has more troops, tanks, aircraft, and
artillery than Israel. The Assad regime fields armed forces totalling over 400,000 men, with another 400.000
troops in reserve. Syria's arsenal includes over 4,000 modem tanks and some 600 sophisticated combat aircraft,
including MiG-29 interceptors and Su-24 fighter-bombers. Syrian Scud ballistic missiles can carry chemical
weapons, which the Syrians are manufacturing and stockpiling, while the accuracy of its SS-21 missiles increases
Syria's Tirst-stiike'' attack capabilities against key Israeli installations, including air bases and mobilization points.
Syria received a financial windfaU from the GCC stales as payment for its nominal contribution in the
Gulf crisis, totaling almost $3 billion. Much of this has been spent on modem weaponry. Already, Syria has
taken delivery, via Iran, of as many as 150 extended-range North Korean Scud-C missiles, and is reportedly
building new launching sites for these wej^ns. This has more than doubled the size of Syria's ballistic missile
arsenal and given it the ability to hit any point in Israel. Efforts to obtain even more advanced M-9 intermediate-
range missiles from China are still underway. This coincides with an ongoing effort by Syria to stockpile
chemical weapons. A major report in 1992 by expert Ken Timmerman indicated that at present, the Syrians can
manufacture several hundred tons of chemical warfare agents per year at four separate production facilities. These
can be deployed as warheads on Syria's ballistic missiles or bombs for its Su-24 strike bombers.
Additional tanks and combat aircraft are being obtained from the cash-starved fonner Soviet republics
and eastem European states. Hundreds of new T-72 tanks have begun to arrive from the fomier Czechoslovakia
and from Russia. Well over half of the Syrian tank corps now fields T-72s, and even more advanced ex-Soviet
models may be obtained. Russia and Ukraine may also provide the Syrian Air Force with additional MiG-29 and
Su-24 aircraft. SA-IO air-defense missiles, with similar capabilities to the Patriot's, are also being sought.
While the Assad regime can no longer look to Moscow as a strategic ally, this role is being partially
filled by Iran, with which ties have grown steadily in recent years. Iran could become a strategic reserve for
Syria in a new conflict with Israel.
Libya , despite its massive arsenal of Soviet-supplied weaponry, has until recently possessed only limited
capability to directly attack Israel. Qaddafi has now acquired the capacity for aerial refueling, giving Libyan
bombers the range to reach Israel. Libya, like Iran, has been dealing with North Korea to acquire its long-
range No-Dong 1 ballistic missile, now under development This will allow Qaddafi's regime to target Israel for
the fust time. Tripoli is also continuing to fund development of the shoner-range Otrag and Al-Fatah missiles.
According to recent reports a second Libyan chemical plant is being built underground, in addition to the Rabta
facility. Libya's current isolation makes it an even more unpredictable factor in the region.
In Iraq . Saddam Hussein's thirst for power and conquest engulfed the entire region in bloody warfare,
and Israel was one of his prime targets. While much of Iraq's remaining arsenal of unconventional weaponry
has already been destroyed, the regime has been playing a shell game with inspectors, using both evasion and
intimidation to prevent the United Nations from locating the remainder. Iraq still remains a long-term concem
for Israel's security. Saddam is still clearly bent on rearming Iraq. Unless sanctions are effectively maintained.
Iraq could rebuild its former power in several years' time. Iraq's standing anny is still one of the largest in the
Middle East, totaling several hundred thousand troops. The army still has almost 30 divisions and the Republican
Guards some half dozen divisions. Roughly 2.500 to 3.000 tanks and 400 combat aircraft remain m service.
184
Much of Iraq's chemical arsena], nuclear facilities, and hundreds of mobile ballistic missiles survived the
conflict intact and Saddam has continually resisted UN efforts to destroy them. Although Iraq was forced to
destroy many of its remaining Al-Husayn and Al-Abbas Scud missiles, it has still been able to keep many hidden.
Estimates on the number vary from 200 to 300 remaining missiles, with a limited number of launchers. The
United States is especially concerned that Iraq may be able to restart its biological warfare program because of
the difficulty in controlling the necessary manufacturing technology.
Saudi Arabia continues to order weapons on a massive scale, leading the Arab states in military
expenditures. New arms agreements since the Gulf crisis have totaled almost $25 billion, in spite of a short-
term cash shortage. Saudi Arabia has purchased roughly $50 billion in weapons and military construction from
the United States in the last ten years, including sophisticated AW ACS, advanced missile systems, and, most
recently, 72 new top-of-the-line F-15s, which will have a major effect on the aerial military balance with Israel.
This year the Saudis also finalized an agreement to purchase 48 Tornado strike bombers, even though these had
been cited as an alternative to the U.S. F-15. The Saudi Navy is also undergoing a major expansion, as it seeks
to acquire three new frigates from Fiance or Canada as part of its Sawari modernization program.
While Saudi Arabia has not traditionally been thought of as a major player in past Arab aggressions
against Israel, the massive expansion and modernization of its military during the past 15 years has given Riyadh
the potential to play an important supporting role in a fiiture conflict The very fact that this capability now
exists will bring pressure from other Arab states to join in a military coalition aimed at Israel. The Saudi armed
forces gained confidence and experience during Operation Desert Storm, possibly making them an even more
formidable potential threat fOT Israel.
The Arabs purchase these arms from dozens of different nations around the globe. The United States
has been a major supplier, selling in recent years billions of dollars of military goods and services to avowed
enemies of Israel. American sales of new wei^n systems to hostile Arab nations have had a particularly
profound impact on the military balance between Israel and those states because American technology is often
superior to that of competing nations. These sales have significandy raised the cost to Israel of maintaining its
own defenses, exacerbating the strain on Israel's economy; barring a change in American policy, they will
continue to do so in the future. The old cry that if the United Slates does not sell arms, someone else will, is
no longer valid. The previous Administration's Middle East arms control initiative produced few results; stronger
efforts must be made by the Clinton Administration to curb the regional arms race.
Israel's Defense Needs:
U.S. assistance to Israel has a critical impact on the security of the Jewish state as it continues to face
these military threats. While Israel will benefit in the short term from the reduction in Iraq's military capability.
its vital margin of security nevertheless continues to erode. This results largely from the severe financial and
budgetary shortfalls faced by the Government of Israel for a number of years. Indeed, the effects of recent years'
defense budget cuts will continue to be felt well into the 1990s. Defense expenditures in coming years will
continue to be limited and the Israel Defense Forces are facing the choice of canceling important projects or
stretching them out over extended periods, thus driving up their ultimate cost. Just two days ago. the commander
of Israel's tank corps stated that as a result of cuts in training and equipment, the capabilities of the IDF's reserve
forces have diminished.
Despite the overall defense downsizing Israel is facing, a number of important steps were taken within
the past year to offset the cutbacks. In the laner part of 1992. agreements were reached for Israel to receive U.S.
military equipment, including Apache and Blackhawk helicopters, through a drawdown of U.S. slocks. The United
States also agreed to preposition advanced munitions in Israel. The IDF also is buying additional Apaches and
MLRS artillery with its security assistance allotment. Further, in order to avoid the situation during the Gulf War
in which there was a delay of several minutes in transmitting warnings of an incoming Scud missile attacks from
U.S. satellites to Israel, the two allies have agreed that Israel will have a direct communications downlink from
U.S. early warning systems during future crises.
Still. Israel's ability to fund its defense requirements faces some daunting challenges. The austerity
measures have cut Israel's defense spending by about 20 percent in a two-year period. The Israeli defense budget
has shrunk from 10% of Israel's GNP in 1986 to 8.2% in 1992. National defense now represents roughly 17%
185
of the budget, and feces increasing competition because of the deniands of immigrant absorption. While Israeli
military planners have attempted to make the cuts without enxling Israel's narrow margin of safety, reductions
of this magnitude have, inevitably, added to the element of risk in many areas.
The IDF has revised its multi-year budget and procurement plans in light of the continuing financial
crunch, exacerbated by the costs associated with the Persian Gulf war. Among the options the Israeli military
is being forced to consider are a further reduction in the size of the IDF, including retiring professional soldiers
and dismissing civilian staff, cutting back on the number of annual days for reserve duty, reducing investment
in day-to-day security within Israel and the territmies, canceling R&D projects, and disbanding various commands
within the IDF. The IDF's Chief of Staff, Lieutenant General Ehud Barak, stated that the defense cutbacks are
leading to reductions in tanks, mechanized artillery, aircraft, and training of reserves.
In recent years, active combat units have been disbanded, reduced in size, ot converted into reserve
formations. Aircraft have been mothballed. This has decreased the number and size of army brigades and air
force squadrons available to meet a surprise attack. This means a serious decline in Israel's visible deterrent
capability as well as a decline in its war-fighting ability.
Thousands of active duty military personnel have been released from the IDF. Pay cuts and personnel
releases have produced an exodus of highly trained and motivated professionals. Three to four thousand military
and civilian personnel of the IDF will have to retire in the next few years. Ammunition and equipment stockpiles
have suffered deep cuts in order to lessen the impact of reductions in other areas.
As a result of this downsizing, the multi-year plan calls for funds to be diverted towards defense research
& development But as relayed in past years, expenditures on R&D have also been curtailed. This has
diminished Israel's ability to develop and produce the unique new weapons and countermeasures needed to
confront increasingly sophisticated weapons entering Arab arsenals. This in turn reduces Israel's qualitative
advantage over its opponents. Increasingly Israel will have to count on its own technologies to stay ahead of
its adversaries, as the West is more willing to sell Arab states weaponry matching that of Israel. Within the past
several years. Israeli defense industries were forced to reduce their staffs and plant facilities and thus are less able
to suppon Israel's military needs. Israel MiUtary Industries (TAAS), Rafeel. and Israel Aircraft Industries, the
country's leading defense manufacturers, have been especially hard-hit Increasing the level of joint U.S.-Israeli
R&D programs is one area that would thus be mutually advantageous.
These ongoing reductions in Israel's defense resources continue to make American Foreign Military