Israel’s Security Cabinet has decided by unanimous vote to establish an advisory committee to evaluate the national security aspects of foreign direct investment (FDI).
Senior representatives from Finance Ministry, the Defense Ministry and the National Security Council, as well as observers from the Foreign Ministry, the Economy and Industry Ministry, the National Economic Council and an additional representative from the Finance Ministry, will participate in the committee.
According to a statement to TV7 from the Security Cabinet’s Ministerial Committee on National Security Affairs sent by Prime Minister Benjamin Netanyahu’s Media Adviser, “Following lengthy staff work led by the National Security Council, the Finance Ministry and the National Economic Council, and after a series of Security Cabinet discussions, Staff work on establishing the committee and its work procedures will be completed within 45 days.”
The statement underscored that the agreed-upon processes “will find the appropriate balance between the need to encourage foreign investments in Israel and ensure continued economic prosperity, and considerations of national security.” The envisioned-body “will assist regulators in factoring considerations of national security into the approval process for foreign investments in the areas of finance, communications, infrastructures, transportation and energy,” and “The guideline will be formulated subject to the security considerations of the State of Israel while placing strong emphasis on relevant economic aspects.”
The mechanism will in practice serve as an advisory committee of the Israeli Finance Ministry, to aid in its review of national security issues in the process of authorizing overall investment by other nations in Israel. The regulators will be able to contact the committee as of 1 January 2020, and the Israeli Security Cabinet will convene every six months to evaluate the work of the committee in order to implement any necessary adjustments. Israel joins other world monetary frameworks that have already instituted their own systems to optimize FDI oversight on national security grounds, including the U.S., Canada, Britain, Germany and Australia.
While there is no specific mention of China in the official resolution, the creation of a domestic mechanism to assess FDI is tacitly aimed at preventing a potential Chinese takeover of companies and organizations that could ultimately undermine Israeli national interests; particularly Jerusalem’s close relationship with Washington. The decision comes after three years of extensive deliberations and at least two delayed Security Cabinet votes on the issue, driven by intensive American pressure.
A showdown between Jerusalem and Washington had been brewing over increasing economic ties between Israel and China – which are expected to complete a free-trade agreement in the near future. Chinese imports of Israeli goods, excluding diamonds, rose by 50 percent over the past year, to some $4.7 billion; while the Asian nation’s state-owned corporations have invested at least $20 billion in Israeli infrastructure projects, including naval ports, tunnels and a light rail system.
Top Trump Administration officials including National Security Adviser John Bolton and Energy Secretary Rick Perry have been pressuring Israel to impose tight restrictions on China’s growing presence in Israel, while cautioning that failure to do so could harm U.S.-Israeli security relations. Secretary of State Mike Pompeo issued a stark warning during his March visit to Jerusalem that fallout could include the reduction of “intelligence sharing and co-location of security facilities.”
In June, the US Senate expressed “serious security concerns” over China’s impending control of Israel’s key port in Haifa in 2012; and according to an exclusive Jerusalem Post report, American lawmakers informed Jerusalem that the US Navy’s 6th Fleet will no longer dock there, as it often has in the past, if the plan proceeds. Washington’s primary concerns are security leaks, as well as the “theft of intellectual property, and Chinese telecoms companies that are being used by China for intelligence-gathering purposes,” according to what one highly-placed source told Reuters.
This is not the first time Israel’s deepening defense cooperation with China has affected relations with the US. Previous objections manifesting in threats to sever the $2.8 billion in annual US aid to the Jewish State resulted in Jerusalem’s scrapping of a deal to sell the Israel Aircraft Industry-designed Phalcon airborne early warning and control radar system to Beijing in 2000; that obliged Israel to pay $350 million in compensation (significantly above China’s $160 million advance payment).
A planned vote by the Israeli security cabinet on July 24th on the creation of a mechanism to monitor foreign domestic investment was postponed by Prime Minister Benjamin Netanyahu, who in 2007 became the Israeli premier to make a state visit to Beijing. He then entrusted National Security Advisor Meir Ben Shabbat to formulate a proposal after consultations with Israeli Ambassador to the US Ron Dermer, and officials at the Finance and Foreign ministries.
Dror Strum, President of The Israeli Institute for Economic Planning (IEP) non-profit think tank dedicated to transforming the Israeli economy into a free market competitive economy, stressed to TV7 that the mechanism under consideration isn’t specifically directed at China, but the safeguarding of “essential infrastructure from being governed by any other sovereign states.” Strum, who is also the former General Director of the Israel Antitrust Authority, explained that after studious research of other international oversight systems, the IEP favors a “very limited mechanism” restricted solely to the oversight of foreign involvement; and that the importance of non-interference in private business transactions by Israel’s own government could not be over emphasized.
Former Mossad Director, Efraim Halevy, has consistently voiced concern over geopolitical considerations of Chinese involvement in Israeli infrastructure projects, such as the 2014 deal to build a cargo railway line between the Red Sea port in Eilat and the Mediterranean ports in Ashdod and Haifa, as a viable shipping alternative to the Suez Canal. Yesh Atid Member of Knesset Ofer Shelah, who has a background in economics and is a former member of the Foreign Affairs and Defense Committee, has taken a strong stand on the issue, previously arguing that Israel needs a “comprehensive policy,” particularly with regard to China. He has stated that his “main concern is the security and strategic ramifications to our state,” and warned that the lack of a “serious public discourse” could lead to “the possibility that Chinese companies will eventually control chunks of our economy.”
While speaking to TV7 before the Security Cabinet decision, cross-cultural strategist Reuven Ben-Shalom stressed the long-term ramifications foreign investment may have on domestic security, as well as on Israel’s strategic posture and alliances, which he said “may not have yet been sufficiently addressed.”
For now, Israel has been trying to do a tenuous balancing act, by avoiding the imposition of restrictions that could dissuade Beijing or other foreign nations from investing – while maintaining strong relations with its most powerful ally, the United States. An Israeli official with knowledge of the matter told state television that the envisioned committee will only be empowered with limited oversight, similar to what has been set up in several European countries, in an apparent effort by Jerusalem to simultaneously appease Washington while refraining from harming relations with Beijing.
Senior officials at the Prime Minister’s Office, Knesset, National Economic Council and the Foreign Ministry all declined TV7’s request for comment on this report; while China’s Embassy in Israel has to respond.
– By Erin Viner and Jonathan Hessen