China Files Colossal $2-billion Lawsuit Against Israel over Phalcon Deal
China is suing Israel for US$2 billion for canceling the supply of four Phalcon aircraft.
Israel had agreed initially to sell to China the Phalcon Airborne Warning and Control System planes at a cost of US$250 million each. Yet, during 2000 Israel reneged on the deal due to U.S. pressure. In a major development, former Israeli Ambassador to China, Ora Namir, broke her silence on Monday and told Israeli radio that the existence of the 2000 Camp David Summit between Israel and the Palestinians, was contingent on Israel’s cancellation of the deal. Namir, a long-time advocate of closer ties with Beijing, was strongly opposed to the deal during her time in office, worrying that the system could fall into the hands of Iran, which procures Chinese military hardware.
Under the deal, the Chinese had already paid the total price of the first Israeli spy plane, which Israel had prepared for delivery. The 1996 contract stipulated in a binding agreement one aircraft, which was nearing completion at IAI headquarters, and contained options for an additional three planes.
Israeli negotiators are talking with Chinese counterparts to lessen the compensation fee. Israel expected the reparation to total only US$500 million (a sum doubling the cost of the first plane), and was reportedly shocked by the suit’s sum. However, the Chinese side argues that the cancellation caused spillover damages, since the preparation to accept the planes was costly.
Major General Yitzhak Ben Israel, the head of business development for the Israeli defense department was shocked at the damages requested in the suit. He stated, “They [the Chinese] filed a huge lawsuit. I do not want to discuss details, but discussions are underway.”
In July of 2000, the Prime Minister Ehud Barak informed the U.S. President at the time, Bill Clinton that Israel would terminate the Falcon deal. Earlier, Washington had called on Israel to cancel the agreement, which it deemed as a threat to the balance of powers between the U.S. allies, including Taiwan and China. The fact that the deal was cancelled due to U.S. pressure angered the Chinese. The deal would have given China its first advanced airborne early-warning (AEW) capability.
The Phalcon, which is similar to the US Awacs system, enables military commanders to track and target large numbers of enemy planes and ships within a radius of some 300 kilometers. It was to have been installed aboard a Russian-made Ilyushin aircraft, and China reportedly planned to order as many as seven more such systems worth a total of $2 billion. Barak’s predecessor, former Israeli Prime Minister Benjamin Netanyahu, initially struck the deal.
The Phalcon issue has had major political fall-out, viewed by many experts as an obstacle to improving Chinese-Israeli relations. In the 15 months since U.S. political pressure forced Israel to terminate the contract, Tel Aviv has tried repeatedly to engage China in talks. China rejected these attempts, demanding the delivery of the finished aircraft.
According to Israeli press reports, Israel is proposing to return the Russian-built A-50I minus the sensitive phased-array Phalcon radar, built by a subsidiary of government-owned Israel Aircraft Industries Ltd., Lod. In addition, according to press reports, the Israeli side is prepared to propose a compensation package that could include additional cash; offers to sell less controversial civilian and defense equipment, including unmanned aerial vehicles and pilot training devices; and the transfer of manufacturing technology and testing gear. (Albawaba.com)
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