- The Washington Times - Monday, July 3, 2000

TEL AVIV Israel is concerned that canceling its contract to supply China with a radar surveillance plane under pressure from Washington would have a chilling effect on potential deals with Turkey, India and South Korea, officials here said over the weekend.

The officials, among them leaders of the country's defense industries, argued that submitting to U.S. demands would result in more than just lost income from the $250 million deal and a setback in relations with China.

"This could wreck our ability to market the Phalcon altogether, and not just the Phalcon," said one official, who asked not to be named.

Turkey, India and South Korea all have expressed interest in the Phalcon system.

"If you're one of these countries and you see that Israel is forced to cancel a deal years after it was signed, would you want to make a deal?" he said.

Another official told The Washington Times that Israel was watching to see if controversy would affect a tender in Turkey where Israel had offered the Phalcon.

Ankara's decision is due next month.

He said work on the China project was continuing at full speed, despite a groundswell of U.S. opposition to the deal that has inspired some of the toughest language ever directed at Israel by members of Congress.

Some on Capitol Hill have accused Israel of putting American soldiers at risk by going ahead with the sale, and have pledged to cut aid to the Jewish state.

Israel receives $2.8 billion in annual U.S. assistance, more than any other country.

But Israel says it informed the United States about the China deal before it was even signed. Officials here say if Israel backs out, other countries will supply China with the same equipment, including Russia and Britain.

Some Israelis point to U.S. commercial interests in explaining the controversy.

"I don't understand why they woke up to this suddenly. They should have said something years ago," an official said.

Israel signed the deal with China in 1996, after securing Russia's agreement to provide an Il-76 transport plane for the project.

Israel strips the inside of the plane bare and installs sophisticated radar and sensors that can track dozens of targets, hundreds of miles away.

The Russian transport plane arrived in Israel seven months ago, where it is being fitted with systems made by government-owned Israel Aircraft Industries.

Members of Congress took up the issue after Israeli newspapers published pictures of the plane shot from the outer fence of the Israel Aircraft plant.

The United States is concerned the Phalcon, known in military jargon as an airborne early warning system, would upset the balance of power between China and Taiwan and could be used against American soldiers sent to intervene in a conflict between the two countries.

On signing the deal, China made an advance payment of around $80 million, and received an option to buy three more after the first Phalcon is built.

Defense officials say Israel would have to compensate China not only for the first plane but also for losing the option on three more.

Ironically, officials here say, Israel will not make a profit on the China deal even if it goes ahead. The bid Israel entered in the competition was lower than projected expenses. But Israel Aircraft hoped it would earn revenue on the additional planes.

"It's not the money. It's a matter of Israel's own political autonomy," said Yitzhak Shichor, an expert on Israeli-Sino relations.

He argued that it was better for the United States that China get its equipment from Israel than from Russia, which last week offered to sell or lease its own airborne surveillance systems to Beijing, according to Jane's Defense Weekly.

"When you sell arms to another country, they become dependent on you for training, for parts and for other things. Politically, that's very good," Mr. Shichor said in an interview.

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