March 22, 2019 | Policy Brief

Foreign Investment in Israel’s Critical Infrastructure: Towards New Legislation

March 22, 2019 | Policy Brief

Foreign Investment in Israel’s Critical Infrastructure: Towards New Legislation

An important debate is playing out in Israel over foreign investment in strategic infrastructure. The debate was sparked by Chinese investment in the Haifa port, which in turn prompted warnings from U.S. authorities. The debate now reflects an understanding among Israelis that foreign strategic infrastructure investment is a serious national security challenge that must be met with proactive policies. Israel is also assessing how investment decisions might impact Israel’s relationships with its closest allies.

In recent months, as this debate has played out, senior Israeli officials have convened several high level meetings where draft proposals have been weighed and evaluated. According to recent reports, Israel is close to announcing a new body, probably led by the Prime Minister’s Office, to review foreign investment in Israel. The new policy may even be announced before the April 9 elections.

However, the bureaucratic outcome of this debate may be suboptimal. This is due to the objections and input of actors from across the Israeli bureaucracy that have played a role in the debate. They include the Ministry of Finance, Ministry of Defense, Ministry of Commerce, Ministry of Foreign Affairs, Ministry of Justice, and some inside the Prime Minister’s Office. These actors often have conflicting agendas and interests.

Critics say Israel does not need another bureaucratic body, especially one that might complicate high-tech investments. This is short sighted. A committee on foreign investment in Israel should be viewed as an essential means to protect Israel’s critical national assets from outside influence and possible damage, and nothing else.

Indeed, the Haifa port is not the only Israeli critical infrastructure that risks being controlled by outside investors. There is also foreign interest in the port of Ashdod, the underground tunnels and control systems in the Carmel mountains, Tel Aviv’s underground tunnels and control systems, and even Israel’s public transportation. The strategic importance of maintaining sovereignty over this infrastructure cannot be overstated.

Israel can learn from the recent (and long overdue) changes to the Committee on Foreign Investment in the United States (CFIUS) and the new law the president signed in August, the Foreign Investment Risk Review Modernization Act (FIRRMA). The law is expected to refine U.S. policy on strategic investment in ways that will bolster American security.

Like its U.S. counterpart, the new Israeli committee that may soon be announced should have clear and strong authorities. However, Israel may adopt a mechanism that makes it merely voluntary to appear in front of such a committee. This might make the relevant legislation easier to pass. But Israel should ensure that the committee has ultimate authority to cancel deals that pose a threat to Israeli security, even if such a decision might have a deleterious financial impact. In this way, not consulting the committee in advance could carry significant risk.

The message must be clear: Outside investments are crucial for the health of the Israeli economy, but not if they come at the expense of the country’s security or threaten the health of the country’s most important alliances.

Brigadier General (Res.) Professor Jacob Nagel is Israel’s former acting national security advisor. He is now a visiting professor at the aerospace faculty, Technion Haifa and a visiting fellow at the Foundation for Defense of Democracies (FDD).  Follow FDD on Twitter @FDD. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.

Issues:

Military and Political Power