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Analysis: The “S” in BDS: Lessons of the Elbit Systems Campaign (Part II)

Sept. 7, 2016 8:02 P.M. (Updated: Sept. 8, 2016 9:28 A.M.)
An Israeli Aerospace Industries technician works on a Heron Drone at a hangar in the IAI compound. April 27, 2015. (AFP/Jack Guez)
By: Al-Shabaka

Al-Shabaka is an independent non-profit organization whose mission is to educate and foster public debate on Palestinian human rights and self-determination within the framework of international law.

In this Al-Shabaka policy brief, Maren Mantovani and Jamal Juma analyze some of the trends facing Israel’s military industrial complex with a particular focus on the campaign against Elbit Systems. The brief examines the tough times facing the industry, the myth of Israeli technological superiority, the industry’s local and global shifts, and the alliances emerging to reverse the militarization and securitization of societies. Based on this analysis, they draw valuable lessons and identify avenues for the global Palestine solidarity movement to pursue.The first part of this brief was published on Tuesday, and the third and final part will be published on Thursday.

Dismantling the Myth of Israeli Technological Superiority

The Israeli military industry is a key element in the country’s economy. It employs some 50,000 people, supports another 50,000 suppliers, and accounts for 13 percent of all industrial exports. The 600 companies that constitute the sector rely heavily on external markets: 80 percent of Israeli military production is destined for sale abroad. Israel’s capacity to wage wars, maintain its military industrial complex, and compete in the global market depends on its reputation as a country with cutting edge and “battle proven” weaponry.

Over the last few years, public opinion has become increasingly aware that the label of “field tested” stands for weapons developed during massacres and war crimes against the Palestinian and Arab people. Worldwide protests such as the occupation of Elbit factories in the UK and Australia, die-ins in many places, petitions, and in depth reports and media coverage have all contributed to this growing awareness.

To counter the growing protests from civil society, those defending military relations with Israel argue that military cooperation with and sales from Israel are in a country’s national interests. However, the idea that Israeli weapons are inevitably the best choice from a technological perspective and that adopting a military embargo would mean compromising “national security” is another myth to be dismantled.

Since Israel’s 2006 attack on Lebanon, the myth of Israel’s superior weaponry has suffered setbacks. As even the Israeli media had to report, Hezbollah disabled at least 20 “indestructible” Merkava tanks. After the war, Israel started buying Abrams tanks made in the United States (US). As for Israel’s “Iron Dome,” its effectiveness was questioned in the wake of Israel’s 2014 assault on Gaza, and some Israeli and US defense technology experts even denounced it as the “world’s biggest hoax.” Even projects involving technology exports have suffered rising costs and difficulties. This is the case of the Watchkeeper drone rejected by the French government earlier this year. It has seen repeated crashes and even turned out to be unable to fly in UK weather conditions.

The Israeli military industry today attempts to penetrate new markets by promoting itself as a leader in cyber-security. However, the long record of spying scandals involving Israeli software and data processing companies has put Israel’s capacity to “secure” anything into question. Indeed, there are many reports that Israeli companies use contracts abroad to channel sensitive information to Israeli intelligence agencies. For example Amdocs, Israel’s biggest software company, has been repeatedly accused of espionage, including in the US.

In addition, there is a revolving door between Israel's top spy unit -- military intelligence Unit 8200 -- and the country's high-tech and cyber sector. "It's almost impossible to find a technology company in Israel without people from 8200," said Yair Cohen, a former brigadier general who once commanded Unit 8200 and today heads the intelligence cyber department of Elbit Systems. The process is quite simple: Israel allows former Unit 8200 personnel to use the technology to build their own start-ups (sometimes making immense profits) and in turn gains access to information across the globe, effectively installing a Trojan Horse within the institutions seeking cyber-security.

Some defense circles consider it beneficial to deal with Israel because it will transfer technology that other major arms exporters in the US or Europe will not. Israel has repeatedly sold to countries where public pressure has forced restrictions on military relations or arms embargos. Many United Nations (UN) General Assembly resolutions condemned military relations between Israel and apartheid South Africa during the 1980s. Israel also established military relations with the military juntas in Argentina and Chile in 1976 and expanded its ties with brutal dictatorships in Latin America after the Carter administration restricted US military assistance.

However, the transfer of Israeli technology comes with strings attached for those that want to make policy choices that are not in the interest of Israel and the US. During the most recent period of India’s National Congress administration from 2004-14, which officially maintained a pro-Palestinian position, diplomats informally complained that tight military relations with Israel made it difficult for the government to take effective steps in solidarity with the Palestinian people. The recent debate in Brazil about measures the defense sector could take to retaliate against the country’s firm stand against settlements is another example. China was one of Israel’s biggest military partners until 2005, when the US asked Israel to cut all military relations. As a result, even the military equipment China had already bought was grounded and given no maintenance.

Local and Global Shifts in Israel’s Military Industry

In the pre-state period and the early years of statehood, the Israeli military industrial base’s energies were focused on equipping a military that would conquer Palestine and expel its native population. In later years, retired members of the military created a multitude of small “security” companies to cash in on their know-how in repression. Israel outsources the dirtiest of its international military relations to these companies, which allows it to deny involvement. At the same time, the core military industries, Israeli Aerospace Industries (IAI), Rafael Advanced Defense Systems, and Israeli Military Industries (IMI), remained state-owned to ensure direct control. Only Elbit Systems has been able to thrive as a major private Israeli military company at the same level of the state companies.

Over time, the military industrial sector became relatively independent. It still serves the government in maintaining its regime and in its foreign policy needs, but it has developed its own interests. The alarm bell rung by the Israeli military industry in October 2015 was an effort to pressure the Israeli state and to ensure that it and taxpayers would guarantee that low exports and falling profits be offset by government intervention. The Israeli government handed out lucrative contracts at the end of the year. In addition, budget allocations for the military industry, including grants for marketing, were distributed generously.

Efforts to privatize IMI, which produces, among other weapons, Israeli cluster ammunition, are likely to be concluded soon. This means that the two-decade process of privatization of national assets has reached the core of the military industry. The IMI sale has run into difficulties because of concerns over a possible monopoly by Elbit Systems, which is the only bidder in the tender, as well as accusations of misconduct by the head of the State Companies Authority.

However, the latest news is that the deal is again on track. This is bound to deepen the dynamic whereby the profits of now privatized military companies are their own while the burden of losses is carried by the state and citizens.

Global trends in the military sector are another element producing changes within the Israeli military industry. The growing demand in the global arms sector to produce within the client country, including offset agreements and technology transfer and training, has led Israeli military companies such as Elbit Systems to pursue a strategy of global acquisitions. Instead of strengthening the national defense industry of client countries, this strategy creates a denationalization effect by outsourcing the industry to Israel. Elbit Systems is today present under many names and in many sectors around the world. One of Elbit’s latest acquisitions is Nice Systems, a data processing software company with a presence in over 150 countries that has private businesses as well as local public institutions as its clients. While this strategy aims to expand Elbit Systems’ profits, it potentially enables the global BDS movement to target Elbit’s interests not only at the level of federal ministries of defense but closer to home.

Furthermore, Elbit Systems’ acquisitions strategy means that it enters into debt in order to buy other companies and create a conglomerate. In order to sustain such a policy it needs to ensure a continuous cash flow. This is a substantial risk, as a breakdown in investments and contracts or decline in trust and negative perception in the investment environment could lead to a solvency crisis. And, if Elbit Systems wants to transfer potential global losses to the state, can Israel afford it?

In looking at the Israeli military industry’s prospects, it is important to highlight that the industry’s overall sales rose to over $5 billion by the end of 2015. This was due to a number of new year-end contracts, though sales were still significantly lower than previous years. However, Israeli military corporations have several major export opportunities coming up that will need the attention of the Palestine solidarity movement.

Israel’s current negotiations with the US for a new 10-year military aid deal is expected to grant Israel significantly more than the current $3.1 billion a year. Given the upcoming US presidential elections and the nominees of the two major parties, the movement will have its work cut out for it. Still, the deal has the potential to challenge the Israeli military industrial complex. Included in the discussions is a US desire to cut the percentage of funds Israel is allowed to spend on its own military industry.

Reuven Ben-Shalom, the former head of the North America branch of the Israeli military’s strategic planning division, defines such a prospect as “devastating to Israeli military industries.” The president of Israel’s Manufacturers Association, Shraga Brosh, also warned that if the US desire becomes a reality, “[d]ozens of production lines and even whole defense plants will shut down, thousands of workers will be fired, and the State of Israel will lose its security independence.” Thus an increase in military aid might actually end up a blow to the Israeli military industry, with the mid-term effect of Israeli companies relocating production or increasing joint ventures with the US to guarantee continued access to US military aid.

As for Europe, sales to the region more than doubled last year to $1.63 billion from $724 million in 2014. European cooperation with Israel is poised to continue to rise as the EU further tightens borders to counter rising immigration, with bombings and shootings in European cities used to justify increased spending on the militarization and surveillance of society.

Israeli officials and corporate leaders are aware that this trend is good for Israeli business. Immediately after the 2015 Paris attacks, Israeli leaders underlined that only Israeli technologies can save Europe. According to Itamar Graff, a senior official at SIBAT, the international defense cooperation agency of Israel’s Defense Ministry, Europe is expected to spend $50 billion on procurement in the “homeland security” field -- enough for Israeli companies of all sizes to make significant profits selling products developed to repress Palestinians.

Latin America, though it saw a downturn of sales to $577 million in 2015, might also offer new markets due to the ebbing tide of progressive governments in the region, particularly in Brazil, where the coup government has immediately pushed for closer ties with Israel. In Argentina, the newly elected right-wing government started its term offering stronger military and security cooperation to Israel.

The Asia-Pacific region’s imports slightly declined to $2.3 billion in 2015 compared to some $3 billion in 2014. However, the overall trend over the last decade shows a dramatic rise of military exports to this region. Asia accounts for 29 percent of Elbit Systems’ revenue, and there is scope for more given that Israel recently approved a special budget for Elbit Systems to market itself in China. Moreover, Elbit Systems has just formed a joint venture with Indian companies to sell more drones to the country, and Rafael Advanced Defense Systems signed a cooperation agreement worth $10 billion with Indian giant Reliance Defense in March this year. India’s government is also reportedly close to signing a $3 billion defense deal with Israel and is considering cooperation with Israel on the construction of a fence in Kashmir. Even more worrying than Israel’s spread in these markets are the reports that some Gulf states are vying to buy the Iron Dome anti-missile system.

Originally published in full on Al-Shabaka's website on August 24, 2016.

The views expressed in this article are the authors’ and do not necessarily reflect Ma'an News Agency's editorial policy.
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