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The Next 25 Years of Israel United States Free Trade

n April 22, 1985, the United States Trade Representative and the Israeli Minister of Industry and Trade signed the U.S.-Israel Free Trade Agreement (FTA). The FTA was the
Embassy of Israel Commercial Mission

U.S.s first bilateral free trade agreement and Israels second (following Israels free trade agreement with the European Community, which was signed in 1975).
The Agreement entered into force in September 1985 after it was approved by the U.S. House of Representatives by a 422-0 vote and by a voice vote in the U.S. Senate. In his remarks after the FTA was signed, President Ronald Reagan said that the Free Trade Area Agreement symbolizes once again our two countries deep community of interest and our shared values and aspirations for a better future. It underscores the importance of Israel to the United States as an ally, as a trading partner, and as a friend. Prior to the FTA, Israel benefitted from the Generalized System of Preferences (GSP), which is a unilateral trade preference program that allows goods from developing countries to enter the U.S. duty free. In addition, beginning in the early 1970s, Israel was a recipient of U.S. economic aid. The FTA resulted in the mutual liberalization of bilateral

Israeli Prime Minister Shimon Peres and U.S. President Ronald Reagan, who were in office when the FTA was signed, meet in the White Houses Oval Office.

trade and the eventual elimination of U.S. economic aid to Israel. Under the FTA, the U.S. and Israel implemented phased tariff reductions culminating in the complete elimination of duties on manufactured goods on January 1, 1995. The FTA permitted the

U.S. and Israel to maintain certain import and 1996 bilateral trade restrictions, such in goods nearly tripled, reachas quantitative reing $12.4 billion. Between 1996 strictions and fees, other than customs and 2010, it nearly tripled duties, on agriculagain, reaching $32.3 tural products based billion. on agricultural policy considerations. Nonetheless, over 90% of U.S. agricultural exports by value enter Israel duty free. To qualify for preferential treatment under the FTA, manufactured goods must be (1) grown, produced, or manufactured entirely in the U.S. or Israel or (2) substantially transformed in the U.S. or Israel and contain at least 35% U.S./Israeli content. To meet the 35% content requirement, up to 15% of the products

Between 1984

Percentage of U.S. Exports to Israel by Industry in 2010


without diamonds

Fresh and Processed Foods Chemicals and Pharmaceutical Products Plastics Stones, Glass, and Metal Products Telecom and Electronic Products Transport Equipment Others Medical Devices

A PlATFORM FOR RegIOnAl ecOnOMIc cOOPeRATIOn


The FTA was amended in 1996 to serve as the platform for the Qualifying Industrial Zone (QIZ) initiative which seeks to encourage regional economic integration and promote prosperity and stability in the Middle east. In general, only factories in designated Jordanian and egyptian QIZs that meet the minimum Israeli input requirement may export duty free to the U.S. through the QIZ initiative. When the first QIZ was created in Jordan in 1998, Jordanian exports to the U.S. were only $16.4 million. Within 10 years exports from the QIZs peaked when they accounted for 65% of Jordans $925 million in exports to the U.S. When the first QIZ was established in egypt in 2004, egyptian exports to the U.S. totaled $1.3 billion. By 2010, egyptian exports to the U.S. reached $2.2 billion with QIZs accounting for 43% of it.

value may originate in the other country so long as the input complies with the FTAs rules of origin. Goods must also be shipped directly from one country to the other. The FTA, despite being over twenty-five years old and only twenty pages long, provides a stable business environment and a flexible platform to further enhance the commercial relationship. The FTA established a bilateral Joint Committee (JC) in order to provide a structure for discussing the enhancement of trade and issues of mutual concern. The JC meets annually and is headed by USTR and the Foreign Trade Administration of Israels Ministry of Industry, Trade, and Labor. The JCs broad mandate has provided the forum to further liberalize trade in agricultural products and establish cooperation on standardization.

Percentage of U.S. Imports from Israel by Industry in 2010


without diamonds Chemicals and Pharmaceutical Products Plastics Textiles, Apparel, and Clothing Stone, Glass, and Metal Products Telecom and Electronic Products Transportation Equipment Others Medical Devices

The United StatesIsrael Standardization Dialogue was established in 2007 to create a forum for the two governments and standardization bodies to work together on issues such as product standards, testing, labeling, and certification requirements in order to facilitate and further enhance trade. On October 18, 2010 the U.S. and Israel announced a decision to create a work plan to ensure the benefits of the economic relationship are further shared and sustainable. The work plan will aim to enhance regulatory cooperation and seek to further liberalize trade in agriculture and services. As initial steps under the work plan, the parties agreed to pursue negotiations towards implementation of a Mutual Recognition AgreeIsraeli comment for conformity assessment of telepanies such as Teva communications Pharmaceuticals, Tower Semi equipment and Conductors, and Strauss operate to explore ways significant manufacturing facilities to facilitate trade by looking at the in the U.S. that employ tens of relevant customs thousands of Americans. procedures and regulations. Both countries benefitted, and continue to benefit, from the FTA, as evidenced by the exponential growth of the U.S.-Israel economic relationship since its signing in 1985. Between 1984 and 1996, one year after the FTA was fully implemented and ten years after it was signed, bilateral trade in goods more than tripled from $3.9 billion to $12.4 billion, with U.S. exports to Israel totaling $6 billion and Israeli exports to the U.S. totaling $6.4 billion. Between 1996 and 2010, bilateral trade in goods nearly tripled reaching $32.3 billion. In general, about 50% of bilateral economic exchanges are concentrated in trade in goods; 30% are in investment; and 20% in trade in services. In 2010, bilateral trade has started to rebound from the global economic downturn and is up about 13% as compared to 2009 with U.S. exports to Israel up 18% and Israeli exports to the U.S. up 12%. Bilateral trade reached $32.3 billion in 2010 with Israeli exports to the U.S. totaling $21 billion and U.S. exports to Israel totaling $11.3 billion.

TRADE IN SERvICES USIsrael Bilateral Trade in Services 1992-2009


8000 7000 6000 5000 4000 3000 2000 1000 0 1992 1996 2000 2004 2009

A Potential for Growth:

U.S. imports from Israel

U.S. exports to Israel

Total bilateral trade

The majority of bilateral trade in goods, excluding diamonds, is concentrated in industrial and high tech items; for example, in 2010, chemicals and pharmaceutical products, plastics, telecommunications, transportation equipment, and electronic products accounted for nearly 78% of Israeli exports to the U.S. Similarly, chemicals and pharmaceutical products, plastics, transportation equipment, and telecommunications equipment and electronic products accounted for nearly 65% of U.S. exports to Israel. The FTA has served as the platform to spur significant levels of bilateral foreign direct investment (FDI). Between 2000 and 2009, U.S. direct investment in Israel totaled $77.2 billion and Israeli direct investment in the U.S. totaled $51.3 billion. In 2009, Israel was among the top 20 suppliers of FDI to the U.S. in terms of total and per capita investments. These Israel is among investments have created the U.S.s 12 largest export and supmarkets per capita. Despite a port tens of population of only 7.5 million people thousands of jobs in Israel is among the U.S.s 25 largest both counexport markets by value, ahead of tries.

countries such as Russia, Ireland, Spain, and Argentina.

Israel has
Israeli companies such as Teva Pharmaceuticals, ber of NASDAQ listed Tower Semi Conductors, companies after the and Strauss are heavily U.S. and China. invested in the U.S. and operate pharmaceutical, medical device, high-tech, homeland-security and defense plants throughout the country. Well known U.S. companies such as Microsoft, Google, IBM, Intel and Motorola have established major research and development facilities in Israel. Furthermore, Warren Buffets first foreign acquisition was a $4 billion investment in the Israeli tool manufacturer Iscar. Over the last several decades numerous bilateral business organizations seeking to advance and strength-

the highest num-

en U.S.-Israel commercial relations were established throughout the U.S. at the state and regional level. In October 2010 the U.S. Chamber of Commerce in cooperation with the Israel America Chamber of Commerce and the Israeli Ministry of Industry, Trade and Labor launched the U.S-Israel Business Initiative. The nationwide initiative seeks to bring together high-level American and Israeli government officials, business leaders, entrepreneurs, and innovators in a national foIsraeli comrum in order to panies have developed advance and strengthen hardware and software used in U.S.-Israeli most computers and cell phones commercial and pioneered the USB flash drive, relations.

the ingestible micro-camera, drip irrigation, and the portBInATIOnAl ReSeARcH And develOPMenT
Three joint U.S.-Israel Research & development foundations were established.

able MRI.

} The Binational Industrial Research and development Foundation


(BIRd) (www.birdf.com).

} The Binational Science Foundation (BSF) (www.bsf.org.il). } The Binational Agricultural Research and development Foundation
(BARd) (www.bard-isus.com). Since its establishment in 1977, the BIRd Foundation has granted $282 million to 813 projects. These projects have directly and indirectly generated $8 billion in sales. From these projects, the BIRd Foundation has received $88 million in repayments. In 2009, BIRd energy was established after the U.S. - Israel energy cooperation Program was authorized by congress in the energy Independence and Security Act of 2007, and was approved by the Israeli government in 2008. BIRd energy was created to promote bilateral cooperation in clean/renewable energy technologies.

For more information please visit www.trade.gov.il or contact the Commercial Mission at the Embassy of Israel, Washington D.C. at washington@israeltrade.gov.il