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Information
& Training Seminar for Diplomats
28th September - 5th October, 1996
Papers
ISRAEL'S
EXPERIENCE IN DEALING WITH THE EU
Paper
presented by Alfred Tovias, Visiting Research Fellow at CEPS
A
birds-eye view of Israel-EU institutional relations until now
On
October 30, 1958, Israel handed over its first memorandum to the
newly-created EEC, which dealt with the necessity to make a comprehensive
agreement between the EEC and Israel. Israel's intention was to
conclude an Association Agreement with the new entity. The agreement
should provide for a just solution to the problems created by the
establishment of the EEC for Israeli exports to some member countries.
It appeared to Israel that the EEC was gearing towards increasing
self-sufficiency in the agricultural field, as a result of the introduction
of new common trade barriers in favour of agriculturally important
member countries, such as France, Italy and Holland. The British
intention to join the EC in the early 1960's caused the first serious
bout of anxiety in Israel. The UK was Israel's most important destination
country for citrus fruit export. Total British imports from Israel
in 1958 were approximately equivalent to EC imports from Israel
in the same year. A successful accession of Britain into the EEC
could have endangered Israeli exports seriously. Therefore, Israel
increased her pressure again on the EEC for the conclusion of an
Association Agreement. Exploratory talks were opened by the EEC
in 1962, and in 1964 a Commercial Agreement was signed, including
a series of duty reductions on agricultural exports to the Six of
interest to Israel. However, those tariff reductions were extended
to all countries in the GATT. The Community refused to consider
Israeli requests for a Preferential Trade Agreement. The duration
of the 1964 agreement was three years and included tariff reductions
by the EEC on products of interest to Israel, but all the concessions
were on a most-favoured-nation basis.
Up
to 1969, Israel's efforts to reach a new agreement with the Community
encountered French and Italian resistance. In 1969 G. Pompidou was
elected as president of France and this country's opposition to
fresh dealings with Israel receded somewhat. Negotiations were opened
towards the conclusion of a Preferential Agreement valid for five
years which was signed on June 29, 1970. New tariff reductions were
accorded (this time on an exclusive basis)on Israeli imports of
industrial and agricultural products, as follows: a 50% reduction
of the ECs Common Customs Tariff for industrial products (but 113
of Israel's industrial exports were excluded from this treatment),
On citrus fruit (lemons excluded) the reduction was limited to 40%;
all other fresh and processed fruit and vegetables were excluded.
For oranges, grapefruit and other fruit and vegetables a protective
reference (i.e. minimum entry) price system was imposed.
Already
in 1971, Israel pointed out that the Enlargement of the Community
to the North would have negative consequences for its exports to
the new members, considering the lower tariffs prevailing in the
United Kingdom, Denmark and Ireland on products imported from Israel,
compared to those imposed by the Community. Israel, therefore, repeatedly
demanded a renegotiation of the Preferential Trade Agreement arguing
that the original arrangement was signed with the Community of Six
and not with the Community of Nine. The EC on the contrary argued
that the agreement had been concluded without territorial definition
and that it was, therefore, applicable to the Community as a whole
including new member states. Israel, concerned about the economic
consequences of this first Enlargement, refused to negotiate a protocol
simply to facilitate the technical adaptation of the Preferential
Agreement by the three new members, without consolidating the framework
of future relations. Similar requests were put forward by other
Mediterranean countries such as Spain, Morocco, Tunisia, Cyprus
and Malta, linked to the EC by various agreements. It is in this
context that the idea of the so-called Global Mediterranean Approach
was launched by the Community in 1972. To overcome all the problems
envisaged by the other side, the EC promised to conclude a Free
Trade Area Agreement with Israel within the framework of this new
approach by January lst, 1974. This endeavour enabled Israel to
agree to the Transition Protocol mentioned above. Late in 1974 negotiations
between EC and Israel on a Free Trade Area were reopened again.
On May 11, 1975 such an Agreement was signed and entered into force
on July lst, 1975.
Terms
and conditions of the 1975 EC-Israel agreement
The
new agreement was of unlimited duration but was subject to reexamination
twice in 1978 and in 1983. The Agreement is still in force at the
time of writing. In February 1977 complementary protocols to the
1975. Agreement were signed.
The
contents of the agreement and the protocols were as follows:
- A
Free Trade Area Agreement on industrial goods (excluding many
processed agricultural products) was to be established after a
transitional period. Tariff-free access with respect to Israel's
exports to the EC would be achieved by July 1977. Thus, for about
18 years Israel's industrial exports enter duty-free in the EC.
This was very significant for specific sectors, such as clothing,
until the early 1980s. However, by 1994, the average ECs customs
tariff on industrial products has dropped to 3.5% due to successive
GATT rounds, so that the tariff preference given to Israel is
not as important as it used to be and it will be even less so
after implementation of the concessions provided for by the EC
in the Uruguay Round negotiations. In the reverse direction the
elimination of tariffs by Israel on EC-originating products was
delayed in practice for most sensitive products ultimately to
January 1 1989, while for the rest to 1980. Summing-up tariff-free
trade in industrial goods between Israel and the EC prevails since
more than six years now.
- Establishment
of preferential trade(but not free trade) for a number of agricultural
products (including certain processed ones), with no transitional
periods and including a much higher average preferential tariff
reduction for Israeli originating products than for those flowing
from the Community to Israel. In fact until now agricultural concessions
made by Israel to the EC were mostly symbolic, but this is bound
to change with the new agreement (see later). Note however that
the EC made no concessions whatsoever to Israel for many agricultural
products exported by Israel, regarding which this country was
to be subject to the usual most-favoured-nation treatment. In
some cases the preference was limited to certain seasons and/or
certain volumes.
c)
Financial support, whereby the EC endeavoured to allocate credits
at the usual market interest rate over a period of four years for
a total amount of 30 million European units of account. This was
the so-called first financial protocol The protocol has been renewed
four times every five years. For instance for the period 19921996
Israel has access to loans granted by the European Investment Bank
for a total of ECU 82 Mo, at an interest rate slightly more favourable
than the one of the market, Moreover the EC opened a credit of ECU
130 Mo to Israel at special conditions to compensate for damage
caused by the Gulf War. All this however is not much when compared
to bilateral aid allocated by the US or Germany, which is a member
country(Germany's ODA amounting to 140 MO.DM each year).
Practical
experience with the 1975 agreement
Two
major political developments greatly influenced EC-Israel relations
from the mid- 1970s until the end of the last decade:
One
was the Arab boycott on Israeli products and on (European) firms
connected with Israel. There are no serious studies on the effects
of the Arab boycott on EC-Israel trade. The only thing that can
be said with some certainty is that the boycott has prevented the
integration of Israel in the emerging European system of intra-industry
trade based on 1) European direct investment (wholly-owned, partially
owned, subsidiaries)and related intra-firm trade and/or on 2) subcontracting
or joint ventures. The completion of the Community's Internal Market
has strengthened this system. But such a unified market includes
more and more giant European-wide oligopolies with a large business
profile which therefore have tended to be even more sensitive to
the boycott than other smaller firms. Moreover because of the boycott
Israel has not been able to function as a bridge in trade between
the US and the EC in spite of the fact that Israel has FTA agreements
with both of them(and since 1993 with EFTA as well).
The
second event affecting Israel-EC relations was the movement towards
EC membership by three Southern European states (Spain, Portugal
and Greece). This forced Israel (as well as other Mediterranean
non-member countries) to press the Community for compensations,
in view of potential losses to be absorbed by farmers and more generally
by exporters of labour-intensive products. Viewed from an Israeli
perspective, EC membership by the three countries implied two very
different steps: The establishment of a customs union between the
Community and the new members and the creation of an industrial
free trade area between the latter countries and Israel The second
step was a direct result of the engagement taken by new member countries
to adopt all external trade agreements (including with Israel) which
the Community had previously concluded with non members. Not surprisingly,
the Israeli government focused on the first aspect, trying to minimize
trade diversion against Israel and in favour of Spanish agriculture.
The reason for Israel's anxiety were understandable given the similarity
in the range of products supplied by her and by the three new members
(extremely important in relation to Spain) and because of the fierce
competition among all of them in the EC market The Community's Mediterranean
Policy, that intended to regulate EC - Mediterranean countries economic
relations as from the mid 1970's, was considered by Israel as losing
much of its attractiveness because of the expected erosion in the
value of preferences on agricultural and labour-intensive exports
given by the Community and this as a result of the Enlargement to
the South.
After
long negotiations for compensation between Israel and the EC, an
Additional Protocol between them was signed in December 1987. The
protocol as well as the third financial protocol was not ratified
by the European Parliament until October 1988, for political reasons.
According to it products listed in the protocol (some vegetables
and fruit, flowers)originating in Israel would benefit from the
same tariff treatment applied by the Community on imports from Spain
and from Portugal, although leaving some exceptions aside, only
for those volumes deemed to represent traditional Israeli exports
to the Community.
Barely
had the "trauma' of the Southern Enlargement been swallowed,
that a new one was going to rise Israel's anxieties to new highs,
namely the completion of the ECs Internal Market mentioned before(or
in Community's parlance "EC-92'). The subject deserves a separate
paragraph later on.
Israel's
trade dependence on the EC
The European Community has been traditionally the most important
export outlet for Israeli goods and services. This is not surprising
given:
- the
small economic distance to the EC (which can be reached easily
and rapidly by sea or air), coupled with its huge purchasing capacity,
- the
short geographic distance(since Israel and Western Europe are
only one-hour away in terms of time zones), facilitating real-time
commercial intercourse(e.g. opening and closing times are practically
the same; there is no 'let lag" when traveling to Europe;
quick feedback from markets is possible; highly perishable products
are tradable);
- the
fact that Israel and parts of Western Europe share the same sea
and meteorological factors, conferring easy knowledge of the natural
conditions prevailing in the trading partner;
- the
limited possibilities that Israel has to export to its immediate
neighbors, not only due to the state of war with some of them,
but also because of their limited absorption capacities; unfortunately
this will not change with peace. All recent studies confirm this
point;
- a
tariff-free and quota-free access into ECs industrial markets
and preferential access for agricultural products (see above);
- local
consumption and cultural patterns and standards which largely
overlap with European ones; the climate is similar to the one
of Southern Europe.
- the
widely diffused knowledge of European languages and way of life,
On
the negative side, there is no shade of a doubt that the deterioration
in political relations between Israel and Europe from the mid- 1970s
until recently, coupled with real or imaginary threats of an Arab
boycott with whoever dealt with Israel have had a negative incidence
on industrial exports to the EC. There is a slight change for the
better more recently, particularly since 1991 when the peace process
started.
There
are several factors which with time increase or will increase the
relative importance of the European Union (EU) for Israel as a trading
partner, at least in relation to the US or Japan. Once and foremost
are its past and future enlargements. In fact with time the EC is
coming closer to Israel from a geographic and cultural viewpoint
This is what happened with Greece's entry in 1981 and this will
happen again the day Cyprus, Turkey or Hungary will join the EU.
Using the terminology of P.Krugman(1991),the EU appears increasingly
to be the "natural trading block" for Israel In that respect
one may note in passing that communism had cut many Israelis from
"their' Europe. Eastern Europe's rapprochement to the EU after
the end of communism pushes indirectly Israel towards the Union,
Second, the US because of the end of the Cold War is probably going
to rely less on Israel as a strategic partner and wants to create
its own regional block centered in the Western Hemisphere(or around
the Pacific). A first step in this direction has been the signature
of the NAFTA Agreement in July 1992. Third, the new immigrants from
the former USSR who by and large come from the most Westernized
towns in Russia will increase the cultural overlap between Europe
and Israel Fourth, the "emotional boycott' of Germany by many
Israelis will recede with the change of generations. Fifth, the
introduction of cable TV including mostly programmes from Western
European networks will have a tremendous influence on Israeli local
culture and behaviour,
In
1992 34.5% of Israel's exports were to the EC, rising from 30% in
1986(see Table 1), while the share of the US in Israel's exports
reached 30.5%. The 1993 figure is not normal and reflects in all
probability the fact that EC economies were in recession, while
the US and Eastern Asia markets were booming. Half of Israeli imports
originated in the EC-12 in recent years (e.g. 50.2% in 1992), which
contrasts with a US share of less than 20% (e.g. 17.2% in 1992),Table
1
Share
of the EC12 in Israel's trade in goods(in %)
|
1986 |
1987
|
1988
|
1989
|
1990
|
1991
|
1992
|
1993
|
| In
Exports |
30.7
|
32.4
|
33.6 |
31.9
|
32.3
|
35.7
|
34.5
|
29.7
|
| In
Imports |
51.3
|
53.2
|
51.8
|
50.5
|
49.3
|
47.7
|
50.2
|
48.9
|
The
EC has been for many years now by far the first among Israel's clients
when referring to tourism services. In 1990, e.g., 43% and 23% of
incoming tourism originated respectively in EC countries and in
the US. The relative importance of the EC and the US as a source
of tourists has been reversed over time. For instance and as point
of reference one may remind here that twenty years earlier, in 1970,
37.8% of the number of tourists entering Israel originated from
the US, if one takes a wider historical perspective starting in
1965 one sees that export dependence on the US was small until 1980
(between 14% and 19%) rising dramatically in the early 1980s with
the advent of the first Reagan administration- and the strategic
partnership with the US(in 1986:34.2% !).But in the second half
of the decade, this share decreased progressively (to 29% in 1990)
and stayed around the 30% mark since then. When relating to the
12 EC countries during the period 1965-80, dependence was stable
at around 40%, dropping to 30-3 1 % during the first Reagan administration
but rising again thereafter, In imports the dependence on the US
was substantial until 1980 (between 22-25%) but since then it dropped
to 16-18%. In the case of the EC, it hovered around 45% in the 1970s,
shooting to 50% or more in the mid-1980s. The EC has maintained
its share in Israel's imports since then.
Israel
and the completion of the Single Market
The
completion of the European Single Market which was attained on January
1 1993 must be placed against the background of Israeli efforts
since at least a decade to penetrate EC markets of machinery, telecommunications
and transport equipment and related services, all of which cover
by far and large the domain of high tech, where Israel has been
highly successful and in regards to which, exports to the US have
played an important role. The latter are at least partially a direct
consequence of the special defense relationship between Israel and
the US since 1973, which with the end of the Cold War and maybe
peace in the Middle East may recede. The pattern of Israeli exports
to the EC is totally different than to the US, which is the dominant
buyer of polished diamonds, machinery, instruments and software.
On the other hand the EC is the principal client. of Israel's vegetable
products, processed food and beverages, chemicals, plastics, textiles,
clothing and base metals.In spite of the non-tariff barriers that
Israeli industrial exports encounter in their way to EC markets,
their share in total exports has continuously increased (1979:77,7%;
1986:80,3% ; 1990: 91.8%). ft is because of recent Israeli successes
in penetrating those markets, that industrialists have been worried
by the discriminatory removal of non-tariff barriers as a consequence
of the Completion of the European Single Market, not only among
countries of the EC, but among countries of the so-called European
Economic Area launched in 1994, which besides the EC- 12 included
five countries of EFTA until January 1 1995, namely Sweden, Finland,
Norway, Iceland and Austria. For example, the elimination of duplication
of testing and certification procedures in intra EEA trade as from
1994 by application of the principle of mutual recognition grants
an advantage to EEA-based exporters in relation to Israelis. There
is no mutual recognition of laboratories and tests. Another example
is government procurement If EEA preference becomes the rule, any
present exports of goods or services by Israel to the EEA are entirely
endangered. Thus it is the creation of a Single European Market
including 17 countries which is behind the willingness by successive
Israeli governments to negotiate with the EC since 1988. Not for
nothing did past Israeli governments seek a status similar to those
EFTA countries joining the EEA. Barren this, the aim has been to
review the 1975 EC-Israel agreement so as to eliminate some of the
NTBs on mutual trade(see later). In fact, in industrial exports
it is membership of Austria, Sweden and other EFTA countries in
the EEA which was the critical step for Israel, not future membership.
Thus the crucial dates for Israel were January 1 1993 with the Completion
of the EC- 12 Single Market and January 1 1994 when the EEA entered
into force.
On
the other hand, figures on Israel's import dependence on the EC
prove clearly that the ECs presence in the Israeli market is overwhelming.
This will have a particular significance in the long run, now that
EC markets of industrial products have been finally unified. Suppliers
of intermediary products, machinery equipment have a large influence
in shaping the future economic structure in the purchasing country
(by imposing its standards, patterns, models, norms, customs, procedures
and so on). In that respect, it is striking to realize from a perusal
of table 2 that the ECs share in Israeli imports was larger than
the corresponding one for Norway, a member of the EEA, and for Germany,
an EC member state, Note as well that this share is not much smaller
than in Denmark, Iceland or even Sweden.
Table
2: ECs Share(%) in Particular Member and Non-Member countries'
imports, 1992
| Switzerland
|
76.8 |
| Finland |
61.6 |
| Sweden |
55.5
|
| Britain |
55.3 |
| Iceland |
53.6 |
| Austria |
67.8 |
| Denmark |
53.3 |
| Israel |
50.2 |
| Germany |
47.8 |
| Norway |
44.5 |
Source:
Statistical Abstract of Israel 1993; Direction of Trade Statistics,
IMF, June 1993.
Clearly
Israel's trade posture vis-à-vis the EU is akin to the one
of Scandinavian countries which are members of EFTA, but for the
fact that most have a much higher purchasing capacity than Israel
Moreover both EFTA countries and Israel offer the EC tariff-free
access. This is not the case of some Mediterranean countries, like
Turkey, Malta, Cyprus or ex- Yugoslavia, all potential members of
the EU.
Israel's
government's answer to the economic challenge of EU's bloc creation
From
the above, it is obvious that Israel has been confronting over the
years serious challenges directly endangering the vitally important
economic relationship it has with the EC, which appears to be Israel's
natural trading block. All the challenges derive from the fact that
the EC, with all the criticisms that can be made to itis a confederation-in-the-making
and Israel is not a part of this process. Access to each other member
country markets constantly improves and therefore there is a tendency
for Israel's relative privileges to decrease. The future deepening
of the EU which will materialize with the emergence of the economic
and monetary union by the end of this century will further erode
Israel's relative privileges(since exchange rate volatility is a
barrier to trade) as does periodically any enlargement of the integration
process to more countries. In the last couple of years alone the
objectives of the European Union have been to prepare the ground
for monetary union by implementation of the second stage in EMU
plans and by creating a European Monetary Institute; and to negotiate
an enlargement of the EU to include Sweden, Austria, Finland and
Norway. Eastern Germany has been absorbed in 1990 into the EC as
well. The Twelve have been able to approve successfully almost all
the directives for the completion of the Internal Market. The Maastricht
Treaty, which entered into force in November 1 1993 contemplates
the organization of an Intergovernmental Conference in 1996 whose
agenda includes deciding upon a clear strategy for the full integration
into the EU of Eastern European countries, Malta and Cyprus.
Israel
cannot remain passive in view of these developments, given her trade
interdependence with the EU. All other things remaining equal, the
larger the area of geographic discrimination in international trade,
the more non-members in the periphery suffer from exclusion. In
other words, trade diversion is an inescapable by-product of preferential
treatment Of course, in the domain of trade policy rarely do other
things remain equal In particular, the EC has facilitated market
access for non-members mostly by negotiating reciprocal market opening
either under the GATT umbrella or under bilateral trade agreements(including
with Israel), but sometimes the EC has liberalized market access
on an e= omnes basis. Thus external trade creation effects have
partially if not more than compensated trade diversion effects.
But the fact remains that the latter ultimately affect Israel's
growth rate negatively. These negative effects are a function of
the relative importance for Israel of the export markets overseas
which are moving towards more integration. In particular, Israel
must take notice of the movement towards continental-wide regionalism
and the creation of huge trading entities, because lack of traditional
opposition by the US to the idea. On the contrary the US is joining
the movement (e.g. with the emergence of NAFTA).
The
government of Israel tried since at least 1988 to negotiate some
improvements in the 1975 EC-Israel agreement on the basis of its
evolutionary clause(article 23). The idea was from the start that
Israel should negotiate EC concession of some of the advantages
that EFTA countries benefited from, like free trade in services,
participation in some of the ECs technological programmes (like
ESPRIT //, RACE), introduction of the SAD (Single Administrative
Document) in trade between Israel and both the EC and EFTA, participation
in ERASMUS, and so on. At the same time the negotiations with the
EC would deal with other outstanding issues between the latter and
Israel such as the restricted access into EC markets offered to
Israeli agricultural products and the revision of the facto increasingly
restrictive origin rules contained in the 1975 agreement, viewed
from an Israeli viewpoint. The reason is that over the years Israel
has specialized with success in high tech products, whose share
in total exports has been constantly increased at a time that EC
countries have been losing export competitiveness in the production
of components used by the Israeli high tech industry.
Until
the Gulf War in early 199 1, the EC refused to consider Israeli
requests for political reasons, basically a total rejection of Israeli
policies in the territories, be it regarding the settlements or
the on-going intifada.
After
the Gulf War, the Italian Foreign Minister De Michelis, and president
of the Troika at the time, proposed that Israel became part of the
European family by entering the future EEA and giving the former
the economic security needed to take bold steps in the region, He
argued that Israel should be told by the European side that it was
not alone and be given a sense of belonging, particularly after
the end of the Cold War, which had transformed Israel and Turkey
as orphans of the US. The idea was launched for the first time and
by the European side that Israel should be anchored institutionally
in Europe. Israel should be treated as an EFTA country rather than
as a Mediterranean non member country. According to informed European
sources, at the time there was not a word of dissent from other
EC Foreign Ministers attending the relevant meetings. However De
Michelis conditioned his suggestion to progress in the peace process
and to the creation of a Palestinian state. He also insisted in
obtaining a role for the EC in the peace process, since according
to him, the Middle East was more important for Europe than for the
US. De Michelis' approach was a departure from the past in that
it tried to exert pressure on Israel by using the carrot rather
than the stick. But it didn't carry the day. In fact, the Commission,
by way of Mr.Matutes, then in charge of the ECs Mediterranean Policy,
let it know that what the Troika said in June 1991 did not have
legal standing and therefore was not binding, The Commission insisted
it needed a mandate to negotiate. Moreover the Commission rejected
using the word "anchoring" when referring to the future
status of Israel in the EC. The Commission adopted furthermore the
stand of the French Foreign Minister Dumas, stressing that Israel
could not be singled out for special treatment, given the repercussions
this would have for EC relations with other Mediterranean non member
countries. From then on, the EC Commission would insist that Israel
was part of the Middle East.
It
is only at the 1992 Cooperation Council that matters began to take
shape. The EC spoke of ameliorating the existing agreement, while
Israel sticked to its former position of desiring anchorage in the
EEA without studying the latter' contents. Very soon it appeared
that Israel understood by anchorage in the EC the adoption by the
two sides of only three out of the four freedoms which would prevail
in the EEA. Freedom of movement of workers would be excluded from
the deal The underlying idea was that both sides would refuse the
fourth freedom; the EC in order not to create a precedent with a
Mediterranean non member country; Israel for fear of facilitating
emigration to and immigration from the EEA.
The
EC insisted on a double track-approach. Israel had to deepen first
its relations with its neighbors and only then with the EC. Anchoring
Israel only in the EC would do a disservice to Israel if it brought
with it being detached economically from its region. Israel could
not be part of the EEAs decision-shaping, although the relations
of the EC with Israel could be "EFTA-like'. Israel could not
be part of the EEA because the EC could not discriminate positively
in face of other Mediterranean non member countries, even if this
could be justified in economic terms.
Given
the ECs Commission frontal opposition to Israel's membership in
the EEA and Israel's own interpretation of the desired "anchorage'
in the EC, the government of Mr.Rabin, issued from the Knesseth
in 1992, decided that the best would be for Israel to have a new
agreement dealing with norms, rules of origin, free trade in services,
right of establishment, easing of border controls, capital movements,
joining research programmes such as ESPRIT, RACE, and so on. In
other words, a revision meant improvement of the 1975 agreement(e.g.
in the realm of agriculture and origin rules) and adding new chapters
dealing with subjects not well covered or not covered at all by
the 1975 agreement such as rights of establishment or supply of
services. Such a revision would lead automatically to a deepening
of the relationship without a change in the grand rules.
Essentially
as a result of the Madrid Conference on Peace in the Middle East,
exploratory talks were conducted from mid-1992 until the summer
of 1993, The Commission received a formal mandate from the Council
of Ministers in late December 1993. This was the EUs response to
the Oslo process for peace initiated several months before between
Israel and the PLO, Negotiations leading to a new EC-Israel agreement
"establishing an association" started on February 1994
and concluded in November 1995 with the signature of the agreeement.
The object of the negotiations was to overcome the problems of the
1975 agreement(agriculture, rules of origin) and cannot be taken
as essentially being the Israeli answer to the creation of the EEA
nor of the 1995 enlargement. But the creation of the EEA was mentioned
explicitly by the ECs Council of Ministers as early as September
1992 as one of the developments to be taken into account to justify
the decision to up-grade relations with Israel together with the
Single Market, the creation of the EU and the new Partnership agreements
with Maghreb countries proposed. The creation of the EEA has had
as weg the indirect consequence of being an inspiring model Some
of the solutions found in the context of the EEA negotiations have
been adopted in the new Israel-EU agreement For instance regarding
origin rules those in the EFTA-EC agreements had been liberalized
since 1983 and therefore were already much more liberal than those
in the 1975 agreement between Israel and the EC. Israel and EFTA
adopted in their mutual relations those liberal origin rules contained
in the EFT'A-EC agreements. However it seems that intra EEA origin
rules were the most liberal of all. Israel tried to get from the
EU this liberal rules but had to compromise for rules which are
more liberal than those in the 1975 agreement and more liberal than
those contained in the Israel-EFTA agreement but less than those
contained in the EEA agreement.
Since
the ECs opening to Eastern Europe, there is a delocalisation process
taking place in Europe whereby textile and clothing firms are being
moved to Eastern Europe which is outside the EUs territory. This
poses a new problem for Israeli textile firms which have been used
over the years to export fiber or cloth to the EC for further processing
there, making good use of the duty- and quota-free provisions contained
in the 1975 agreement This privileged treatment does not apply if
the Israeli textile exports are processed in Eastern Europe since
in that case textiles and clothing exported from there will not
comply with origin rules contained in all EU trade agreements. Thus
Israel tried to negotiate out a solution to this technical problem
with the Eu. MM hut did not succeed in the end. On the other hand
the impact of the 1995 enlargement on a series of fresh agricultural
and food products exported to the new member states are taken into
account in the new Israel-EU agreement.
Negotiations
regarding the reciprocal opening of the four sectors excluded by
GATT regarding government procurement(telecommunications, energy,
water and transport) were to be conducted separately as well, although
the intention of the parties to liberalize in these domains are
indicated in the new 1995 association agreement Israel wanted talks
to be confined to telecommunications but the EU wanted the reciprocal
opening to apply to the other three sectors for obvious reasons,
The creation of the EEA and the subsequent enlargement have had
the effect in raising further the issue in the EU-Israel agenda;
first because this issue was resolved long ago between the EC and
EFTA countries in the context of the EEA; second because the three
new member countries could become important markets for Israel's
telecommunication industries Israeli bidders are put on a level
playing field with other competitors from the EEA and third, because
the new members tend to adopt in the EC Council of Ministers vis-à-vis
Israeli access to European procurement markets a liberal attitude
closer to the German and British positions than the French or Spanish
ones.
The
issue of mutual recognition of tests made in local laboratories
and technical certification delivered by local authorities is not
part of the new association agreement However Israel is included
in the first list of 10 countries drawn by the EU with which the
latter intends to negotiate on this issue. Bilateral negotiations
with the first countries on this list (e.g. the US) have already
started.
In
sum, the new agreement does not contain much more than the 1975
agreement does in the domain of trade in goods. The most significant
improvement is in the domain of R and D and in terms of starting
an institutionalized political dialogue between the parties. Israel
can take part in most P and D programmes launched by the EU. In
the area of services, not much is covered, essentially because Israel's
fears of competition from Europe. In financial services the goal
is to liberalize slowly on a reciprocal basis. Air and sea transport
are not covered. Thus, Israel is still be very far from having the
status of an EEA country belonging to EFTA regarding its relations
with the EU, which brings us to the question whether a further up-grading
of relations would have been desirable and feasible. ft is also
doubtful that the new agreement will contribute to the reduction
of the trade deficit of Israel with the EC, which the government
of Israel puts forward as the main reason for negotiating a new
agreement and which has increased although with time to $ bn 7 5
currently. ft is to be noted that with the new 1995 enlargement
import trade dependence on the EC increases by more than export
trade dependence and that the trade deficit tends to increase too.
Concessions being offered to Israel in the new agreement with the
EU affect more agricultural and service rather than industrial trade,
which is the item accounting for the huge Israefi trade deficit
with the EU. New government procurement rules affecting mutual trade
are done on a @ pm qiin basis, therefore not affecting favorably
the trade balance. ft is difficult to believe that the reform of
origin rules and the removal of some technical barriers to trade
will take care of the tremendous industrial trade imbalance between
the two partners.
BIBLIOGPAPHY
Ahiram
E and Tovias A.(Editors), Whither EU-Israeli Relations: Common and
Divergent Interests, Frankfurt, Peter Lang, 1995.
Greilsammer,l.and
Weiler, J.,eds.(1987), Europe and Israel.- Troubled Neighbours,
Berlin, Walter de Gruyter (for the European University Institute,
Series C: Political and Social Sciences. 9).
Krugman,P.(1991),
"Is Bilateralism Bad?'in Helpman, E and Pazin, A., ed., International
Trade and Trade Policy,Cambridge, Mass., The MIT Press, pp.9-23.
Nonneman,
G., ed. (1992), The Middle East and Europe 7 An Integrated Communities
Approach, London, Federal Trust for Education and Research.Tovias,
A.(1994), 'The Mediterranean Economy" Chapter / in Ludlow,
P.(ed.), Forp.g2e and the Mediterranean, London, Brassey's (for
CEPS), pp. 1-46.
Table
1: Israel's trade with the EC-12 and with the EC-15 (1993)
|
Exports |
%
in total exports |
Imports
|
%
in total imports |
|
| World |
14825.5 |
100
|
20517.6 |
100 |
|
| EC-12 |
4396.6 |
29.7
|
10042.6 |
48.9 |
|
| Austria |
|
67.1
|
115.2 |
.6 |
.6
|
| Finland |
22.1 |
.2
|
104.3 |
.5 |
|
| Sweden |
52.3 |
.4
|
286.2 |
1.4 |
|
| Tot.
new members |
141.5 |
1.0 |
505.7 |
2.5
|
|
| EC-15 |
4538.1 |
30.7
|
10548.3 |
51.4 |
|
Source:
Israel's Statistical OfficeTable 2: Israel's trade deficit with
the EC-12 and with the EC-15(1-992;lg-gx 1992 1993
EC- 12 4914.9 5646
EC-15 5151.2 6010.2
Source: Israel's Statistical Office
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