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Pressed by U.S., Israel Mulls Regulation of Tech Exits for China

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FILE Photo: U.S. President Donald Trump and China's President Xi Jinping meet business leaders at the Great Hall of the People in Beijing, China, November 9, 2017.
FILE Photo: U.S. President Donald Trump and China's President Xi Jinping meet business leaders at the Great Hall of the People in Beijing, China, November 9, 2017.Credit: Samir Sagolj/Reuters

Bremerton in Washington State, one of the largest ports in the U.S. Northwest, serves both the civilian and military sectors. It’s home to Puget Sound Naval Shipyard and the Bremerton Annex of Naval Base Kitsap. Nuclear submarines dock at Bremerton on a regular basis.

It’s not a place Israelis visit, or for that matter have ever heard of, but it will nevertheless be coming up in cabinet deliberations soon by virtue of the fact that just across the Puget Sound lies another big port in the city of Seattle known as Terminal 30. A large share of Terminal 30 is operated by Chinese companies.

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Ministers will be asking the question why the Chinese are allowed to operate a port so close to U.S. Navy facilities but Israel is under intense pressure from Washington to pull out of a signed agreement with a Chinese company to operate a civilian port close to an Israel Navy base.

Terminal 30 isn’t the only port in the United States operated by Chinese companies. And even more ports use Chinese-made equipment. For example Norfolk, Virginia, which is home to the U.S. Fleet Forces Command, which is responsible for the Atlantic Ocean, the Mediterranean Sea and Indian Ocean and has been upgraded with state-of-the-art Chinese cranes.

Chinese companies are building two private ports in Israel — one in Haifa and the other in Ashdod — at a total cost of 2 billion shekels ($552 million). From the point of view of the Israeli government, which has been in a protracted struggle with unions over control of Israel’s inefficient state-owned ports, the new ports are a critical investment in Israel’s maritime future.

The two Chinese companies not only have the capability of constructing and operating ports. They have close alliances with the big Asian shipping companies, like COSCO and MSC, that will help ensure that they continue to call on Israeli ports.

Today Haifa and Ashdod compete with other Mediterranean ports, such as Egypt’s Port Said and Greece’s Piraeus (the latter operated by Chinese companies). Israeli officials fear that the big Chinese shipping companies will favor those rival ports to unloading cargo, then forwarding goods destined to Israel on smaller vessels.

Goods shipped that way add about $400 to the cost of each container, or between 1 billion and 2 billion shekels annually.

Eighteen years after Israel was forced under heavy American pressure to break a contract to sell Phalcon early warning and control jets to China, history seems to be repeating itself. This time Washington is threatening to stop the U.S. Sixth Fleet from using Haifa as a port of call out of fear the Chinese will use the adjacent civilian port for spying.

The United States blocked the Phalcon deal before the aircraft were delivered; this time, they are coming five years after Israel asked for bids to build and operate the ports. Worse than that, there is strong scent of commercial interests behind the U.S. pressure.

The fact is the Americans allow the Chinese to operate U.S. ports, even facilities located in sensitive areas. Another fact is that the Chinese operate ports all over Europe, most recently the Italian port of Trieste, without feeling the same threats as Israel is receiving.

Furthermore, because China has such deep maritime interests, it would be stupid of Beijing to risk its investments by using the ports its companies operate as a base for spying or to close them in time of war.

Meantime, the U.S. pressure is having its effect: Over the last several months, a major debate has been underway between the National Security Council, the National Economic Council and the Finance Ministry over setting up a mechanism for vetting foreign investments, meaning for all intents and purposes, Chinese investment.

The debate emerged over Haifa Port, even if it wasn’t relevant by the time it started because defense officials had been consulted before the tender for building the new port. Nevertheless, the issue of Haifa Port has exposed the fact that, up to now, there have been no formal requirements to get a green light from the national security apparatus even when a strategic asset, like a port, was up for sale. The defense establishment is now demanding such a rule in the case of strategic infrastructure, but the National Economic Council and the treasury aren’t prepared to give the army veto power over investment.

This is an important debate because Israel is on the cusp of a wave of infrastructure investment and the presence of Chinese bidders in government tenders is expected to lower overall prices by 10% or 20%. Barring Chinese bidders simply because they are Chinese could raise the cost of developing new infrastructure by as much as $20 billion.

That’s a lot of money to pay to remove any suspicions of surveillance and in many cases, such as the Tel Aviv Light Rail, it’s hard to imagine that there are any attractive espionage opportunities arising from it. The alternative to a veto being proposed by the National Economic Council and the treasury is giving the defense establishment a mandate to be consulted on strategic tenders. That leaves an even more fundamental debate on the right to veto foreign investments in the private sector.

Today companies making dual-use technology for civilian and military applications need approvals from the economy and defense ministries to export it. These days the approval process is pretty efficient, except when it comes to China.

If the same standards apply to the sale of startups, Israel’s high-tech industry will quickly feel the impact because exits involving foreign buyers are such a big part of the scene. Last week, for instance, the Chinese e-commerce company Alibaba bought the Israeli startup Infinity Augmented Reality Israel.

In the sensitive field of computer security, officials have reached a compromise whereby companies providing cyberdefense technology need no approve while those with cyberhacking capabilities do. Officials are aware that it is often hard to made a clear distinction between the two, but the fact is there is no simple solution.

But now the defense establishment wants to expand the requirement for approval to all dual-use tech companies — a move that could encompass all cybersecurity, self-driving vehicles and telecommunications to name a few sectors.

The treasury and National Economic Council oppose the plan. The cabinet will be asked to decide on the matter but there is a good chance it won’t be able to, leaving a cloud of uncertainty hovering over Israel’s tech sector.

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