Israel, China Agree on Compensation for Canceled Phalcon Deal

Amnon Barzilai, Ha'aretz Correspondent
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Amnon Barzilai, Ha'aretz Correspondent

Israel and China signed an agreement in Beijing on Wednesday that should end their long running dispute over the cancellation of the Phalcon spy-plane sale. Israel Aircraft Industries was building the airborne early warning system for the Chinese Air Force before American pressure killed the deal.

On Wednesday, the director-general of the Defense Ministry, Amos Yaron, signed an agreement under which Israel will pay China $350 million in compensation for the cancelation. The agreement was signed in a friendly atmosphere, with both parties expressing satisfaction and looking forward to fruitful cooperation in the future.

The construction of the early-warning spy plane, together with the option to build three more planes, was scrapped in July 2000 in the face of serious U.S objections. The Americans said the spy plane would give China a strategic advantage over America's AWACS aircraft in any conflict over Taiwan.

The cancelation of the deal, a month-and-a-half after a visit to Israel by Chinese President Jiang Zemin, undermined the warm relations that had developed between the two countries. China all but completely suspended visits by official delegations to Israel.

Some six months ago, China submitted a demand for compensation of more than $1 billion, requesting also that it be reimbursed for the payments it made to IAI for the development of the plane's radar system. The total cost of building the plane and its components stands at $260 million.

Prior to the cancelation of the deal, China had paid Israel a total of $190 million. The agreement signed yesterday for the $350 million in compensation includes reimbursement for the sum already paid by China.

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