TEL AVIV – More specifics about congressional restrictions on US military aid for Israel have emerged with the State Department release of the memorandum of understanding (MOU) governing the bilateral pact signed nearly four months ago.

Details of the $38 billion deal, which covers fiscal years 2019 to 2028, provide context to a fact sheet released by the White House when the agreement was inked on Sept. 14, 2016.

As previously announced, it commits to providing Israel with $3.3 billion each year in grant Foreign Military Financing (FMF) aid, along with $500 million per year for missile defense.

What was not included in the White House fact sheet are the specific terms and conditions under which the US aid will be made available to its top Mideast ally:

No Congressional Plus-ups

Under the agreement, both countries "jointly commit to respect the FMF levels specified in this MOU, and not to seek changes to the FMF levels for the duration of this understanding."

With regard to the 2017 and 2018 budget years that precede the new agreement, the State Department posted a letter from Israeli Prime Minister Benjamin Netanyahu to Secretary of State John Kerry in which the Israeli leader pledged to refund any congressionally-appropriated FMF funds that exceed the $3.1 billion earmarked for Israel under the existing MOU.

As for the $500 million in annual missile defense funding, the MOU stipulates that both sides commit "not to seek additional missile defense funding from the United States for the duration of this understanding, except in exceptional circumstances as may be jointly agreed by the US administration and Israel, such as in the event of a major armed conflict involving Israel."

'Buy American' Provisions

Under the new MOU, the administration underscored "the importance of making FMF resources available to finance the purchase of US military goods and services in the United States." As such, Washington will gradually reduce so-called Off Shore Procurement (OSP), the amount of FMF funding that Israel has been allowed to convert into Israeli shekels for local defense research, development and procurement.

For decades, Israel had the unique privilege of being able to convert 26.3 percent of its FMF funds for OSP; an amount in the last years of the current agreement has totaled $815.3 million. But in consideration of Israel's claims that removal of the OSP privilege would harm its defense industrial base, the agreement will phase it out gradually.

The new MOU allows Israel to retain its current level of $815.3 million OSP in the first year (FY2019), which represents some 24.7 percent of the $3.3 billion earmarked in annual FMF over the life of the agreement. Over the next four years (FY2020-2023), OSP falls by a mere $10 million. But by fiscal year 2024 – year number five of the accord – Israel's OSP allowance drops $50 million to $725.3 million.

The following year (FY2025), OSP falls by $275 million, leaving Israel $450.3 million to spend locally. It drops by another $200 million in the two years after that (FY2026-FY2027) until finally, by fiscal year 2028 – the tenth and final year of the agreement – Israel will no longer be able to spend US aid in country.

Missile Defense Matching Funds

The MOU imposes no conditions on how Israel can spend the $5 billion in missile defense funds allotted over the ten-year period, as long as such funds are used "primarily for the purposes of developing and procuring articles and services necessary to missile, rocket and projectile defense systems for the defense of Israel."

The last five words of that caveat – "for the defense of Israel" – means that Israel cannot use US missile defense funding for spinoff programs destined for export; something Israeli experts say will be exceedingly difficult to enforce.

As for matching funds, the MOU states that "both sides jointly understand" that US missile defense funding "should be made available on the basis of best efforts at matching financial and non-financial contributions by Israel for such systems."

Furthermore, the MOU highlights the importance of US-based co-production of missile defense-related parts and components "at a level equal to or greater than 50 percent of US-appropriated" production funds.

The MOU allows for leeway in Israel's prescribed use of US missile defense funding for Iron Dome, David's Sling and Arrow-3-related system elements, provided that departures from the text are codified in separate bilateral agreements governing bilateral cooperative missile defense programs.

Transparency and Accountability

The MOU clearly states that FMF funding aims "to help enable Israel to defend itself by itself and develop long-term capacity, primarily through the acquisition of advanced capabilities that are available from the United States." As such, it calls on Israel not to use FMF for purchase of fuel or other consumables, as it has done in recent years to the tune of $1.2 billion annually.

It also calls on both parties to "maximize understanding and transparency regarding how US funding is used" through active dialogue and regular consultations. At the same time, the MOU calls for Israel to be transparent in how it uses its own national funds to safeguard its security.

To that end, it obliges Israel to provide "detailed programmatic information related to the use of all US funding, including funds used for OSP." It also calls for Israel to provide annual updates on all cooperative defense programs – "to include progress reports and spending plans" – along with topline figures from the budget of Israel's Missile Defense Organization.

Wild Card?

The last line of the agreement, signed by Thomas Shannon, US undersecretary of state for political affairs, and Jacob Nagel, acting Israel National Security Advisor, has been interpreted in Israel as a possible escape route should Washington encounter unanticipated budgetary constraints.

It reads: "Both sides acknowledge that the funding levels in this understanding assume continuation of adequate funding levels for US foreign assistance and missile defense overall, and are subject to the appropriation and availability of funds for these purposes."

About Barbara Opall-Rome

Opall-Rome is Israel bureau chief for Defense News. She has been covering U.S.-Israel strategic cooperation, Mideast security and missile defense since May 1988. She lives north of Tel Aviv. Visit her website at www.opall-rome.com.

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