A bilateral trade agreement is a contract of an economic nature between two countries that is aimed at improving economic imbalances between nations. Israel became the first country to sign a Bilateral Free Trade Area Agreement with the US in 1985. Having been isolated from the regional trade by the Arab boycott Israel sought for ways to integrate itself into the growing global economy as one way of overcoming the limitations of the small domestic market that it had. The interest that the US had for entering into the pact was sparked by a readiness to increase trade relations and also due to the awareness that the 1975 EEC- Israel trade agreement had been in a way responsible the reduction in the US agriculture and merchandise exports to Israel (Lubarsky 1).
The principle goal of trade agreements is usually to eliminate all duties on trade between two countries forming the pact. This was precisely the goal of the Israel-US bilateral trade agreement. The Agreement did not just apply to tariffs but also to subsidies, licenses and other measures of trade restrictions for both industrial and agricultural products. In this agreement, tariffs on nonagricultural products were phased out leading to the elimination of all duties by January 1st 1995, but article VI of the same agreement allowed each country to maintain nontariff barriers as a way of protecting the sensitive agricultural products produced domestically. This saw Israel maintain fees and levies on a number of agricultural products and on others, it placed bans and quotas. In many cases, an agreement is usually a document that is dynamic and therefore is subject to regular scrutiny. It provides the two countries involved a consultative mechanism, for instance, in 1996; Israel and the United States came back to the table and agreed on a five year program that was to bring about a gradual and stable liberalization of Israel’s market for agriculture and food products. One of the major objectives that the agreement advocated for was provide an immediate access for all farm products from the United States, an objective that should have been achieved by 1st January 1995 as per the 1985 Agreement. This had not been achieved because the nontariff barriers and also the technical barriers to trade continued to hinder the access of the United States to the Israel market. But when one looks on the other side of it, it is realized that the reduction in the duties and the setting up of tariff rate quotas for about a hundred different products helped a lot in increasing some US exports such as breakfast cereals and frozen fruit to Israel (Kurtzig & Pick 97).
The GATT multilateral trade commitments, the agreements with the US and the European Union, were not the only agreements that Israel was engaged in, it also had trade agreements with other countries like Turkey, Canada, the Czech Republic, Slovakia, Hungary, Jordan, and the European Free Trade Association states. Just as the other countries, Israel substituted the steeper tariffs for the nontariff barriers and embarked on reducing them. But in relation to the US, import liberalization programs and trade agreements with Israel have diluted the advantages of the US that were under the 1985 bilateral Agreement. When you look at the first five years before the Agreement, the total agricultural imports for Israel averaged approximately $800 million, the five years after the Agreement realized imports that were slightly above $900 million per annum. The US on the other hand had imports averaging 38 percent in the first five years before the Agreement, a percentage that dropped to just 29 percent in the five years following the signing of the Agreement. There was a rise in the EEC share from 29 percent to 42 percent. The agreement also saw bulk commodities dominate agricultural exports from the US to Israel (U.S. Dept. of Commerce 18).
Agricultural imports from Israel to the US have been historically low, averaging just over $50 million in the five years before the signing of the Agreement and about $80 million after the signing of the Agreement. This is just a 0.3 percent representation of the total of the agricultural imports from the US and just 6 percent of agricultural exports for Israel. Two thirds of all the agricultural imports for the US from Israel are mostly consumer oriented. These include goods like biscuits, dairy products, and wafers which realized a 44 percent increment after the Agreement. Agricultural imports from Israel on the other hand doubled. This data clearly shows that this trade Agreement brought about a trade growth that was not in any way beneficial to the US, it only benefited Israel. The nontariff barriers placed on agriculture in Israel necessitated the 1996 Agreement on Food and Agriculture. On top of this, the Agreement was negotiated because ther was need to reconcile the inconsistencies that existed between the 1985 Agreement and the rules of the global trade that were arrived at, at the Uruguay GATT meeting. The meeting together with the Israel membership in the just formed WTO called upon the government to transform all administrative or the nontariff barriers to trade, into tariffs. All these requirements had been provided for by the Israel-US Agreement. This led to many products that had been banned or subjected to small quotas to be covered by the tariffs in Agreement for Food and Agriculture. The AFA was very comprehensive, providing for immediate and sustentative access for the farm products from the US. In the AFA, products were categorized as: those that were free from duty or any other restrictions, those that are imported without duty within a specified TRQ, and those subject to tariff treatment that is preferential. This Agreement reduced duties and put in place TRQ’s for about 100 US products. The Agreement was to be in place for only five years after, a period in which the two governments committed to look for further improvements (Kurtzig & Pick 98).
Obstacles to trade still exist between the United States and Israel, these include among others, the national treatment, kosher certification, weights and measures, and the violation of Article 6 of the trade Agreement of 1985 in relation to the products that are not domestically produced. For instance in the year 1994, Israel put in place the Israel Kosher Meat Import Law that prohibited all imports of non-Kosher meat. This ban was carried out in violation of both the WTO national treatment provisions and the 1985 Agreement because non-Kosher meat was already being produced and sold in Israel (article 8 of the 1985 agreement). In 1997, trade estimates for Israel indicated that immediately the Kosher certification issue is resolved, and the US slaughter houses meet all the veterinary requirements put in place by the Israel authorities, then there was a possibility for tremendous increase in the US beef together with beef products, estimated between $25-$100 million every year. But in another twist of events, the Israel parliament in 1998 approved an amendment to the basic law, which is Freedom of Occupation, which made the existing ban on non-Kosher meat imports to be permanent. This meant that neither the 1996 AFA nor the 1985 Agreement could help to lift the nontariff barrier (Israeli FTA 1).
Another problem had been and still is the Israel labeling and the requirements of standard weights. There is a requirement by the US government that household products should be sold in packages that are fixed in sizes, sizes which are arrived at using metric measures and weights. This requirement as well as the lack of an English translation for some regulations and the Israeli certification standards, precluded many US products export. The 1994 review of the Israeli trade policy by the GATT, and Canada, a country with trade agreements with Israel, cited similar issues of marking, packaging, and labeling as major obstacles to trade with Israel. There is no doubt that these trade barriers hurt very much the US exports of important value added products. This was particularly felt in the export of products such as fruits, vegetables, and pasta (Kurtzig & Pick 98).
When the US-Israel Free Trade Agreement came into force 25 years ago, there were concerns that many people raised. There are those who argued that Israel was a low wage economy, therefore elimination of tariffs on labor intensive goods would bring about an intense competition with other well off countries that could be a disadvantage to Israel. But concerns seem irrelevant in this generation. Israel is no longer a low wage country; it is no longer prone to inflation nor is it still an isolated economy that relies on aid. Israel is now a developed country that is in fact under negotiations to join OECD. It is among the countries that support the world’s most ambitious dedication to research and development. The US-Israeli pact is now big, encompassing an aerospace industry, military project collaboration, and medical technology. These developments have seen trade replace aid, as already mentioned, since the coming into effect of the Agreement, trade increased and now Israel only follows Germany as a source of machines for x-rays for the American hospitals. Israel on the other hand imports US radiology with records showing that it has risen from 1.5 percent to 5 percent. In summary, about $25 billion in goods and services are exported to the US from Israel. Seven times of this value is in military and economic aid, this has seen to it that Israel caters for two thirds of all manufacturing products from the Middle East. When you look on the other side of the economy, Israel is a major export market for US products. Statistics show that almost $15 billion every year come from US exports to Israel. It is estimated that at present, Israel’s economy ranks 45th in the world with a GDP of about $200 billion. It is ranked 25th in the world as a buyer of US good s and services. It is argued tat Israel buys more goods from America than much big European countries (Gresser 3).
The trade agreement has also helped a lot in fostering regional integration. Advocates of the 1985 Agreement cited the economic difficulties that Israel endured during the Arab League boycott as among the issues that agreement was to solve. The Agreement has not yet solved this issue, but there is no doubt that it has helped to ease the problem. When the tariff elimination was completed in the 1990s the US joined Israel in extending similar agreements to other countries. Of notable recognition was Jordan where factories were partially owned by Israeli businesses, or they were using inputs in the process. Other countries involved included countries from North Africa where the qualifying industrial zones are now home to many factories many Jordanians and Egyptians. These efforts marked tremendous steps towards economic integration, shared benefit, and common interest that is very important if an Arab-Israeli peace settlement has to be achieved (Gresser 4).
It has to be noted here that the main objective that trade agreement between the US and other countries, is to eliminate quota limits and tariffs trade in physical goods. This policy only remains relevant in an American trade with countries that are poor. When you exclude agriculture, then trade agreements become a very minor issue in the relationship of America with wealthy and more sophisticated nations. The reason of this is because in the 1990s, trade agreements eliminated tariffs on hi-tech goods and sophisticated products from rich countries. For instance, in 1985, telecommunications equipment carried a US tariff of 8.5 percent, but at present it has no tariff. The same applies to medicine, x-ray machinery, radiology equipment and many others. The creation of WTO and the 1996 Information Technology Agreement made sure that these tariffs were eliminated in the US and Israel. With minimal or no tariffs at all, the American importers of the affected products see no need of registering them under the agreement. They therefore avoid the paper work cause by the Free Trade Agreements so as to save money and capitalize on the more flexible supply chains. Research shows that at present, the agreement only applies to 14 % of the imports that come from Israel to America. These are among the issues that have made many economists to suggest that the agreement should be looked at. It does not need to be rewritten from scratch or to be renegotiated, but should be updated to meet the requirements of this century. There are many parts of the agreement that are still relevant today. For instance, the agreement covers a low-tech manufacturing, heavy industry, and natural resource trade very well. It is still the best to foster economic integration in the Middle East. The agricultural supplements that were negotiated in the past still work well today, therefore the two governments should use this experience in future to come up with supplementary agreements in high technology areas. The two countries should launch similar initiatives in other willing countries to foster economic integration especially in the Middle East (Gresser 6).
If appropriate up dates are done to the trade agreement between these two nations, then would help in future to grow their relationship in new areas, a factor that can greatly bring about a deeper cooperation in the innovation and research based industries that thrive in both countries especially when it comes to employment and security. In future, these two countries can build on the massive experience they have so far acquired to come up with more ties of shared benefit and mutual interest with other peace partners. When we say the agreement should be updated, it does not mean that revolutionary changes should be made to it. It simply means that it should be modernized into one successful initiative that is designed for new and different economic times. Just as it happened in 1985, the updates will only add new dimensions to an already good document. If this is rightfully done, then it will go along way in deepening relationships among businesses and researchers, it ensure that the economic pillar that holds the Israeli-US relationship is very strong just as it is in the area of security. This will no doubt, strengthen the collaboration that has been deep between publics and governments that have so far made the US-Israeli relationship very rigid and durable. This was the intention of those who advocated for the agreement in the first place.