Embassy of Israel Commercial Mission

Twenty Five Years of United States – Israel Free Trade

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n April 22, 1985, the United States Trade Representative (USTR) and the Israeli Minister of Industry and Trade signed the U.S.-Israel Free Trade Agreement (FTA). 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. The FTA was the U.S.’s first bilateral free trade agreement and Israel’s second (following Israel’s free trade agreement with the European Community, which was signed in 1975). Prior to the FTA, Israel benefitted from the Generalized System of Preferences (GSP), which allows for unilateral duty free import of goods into the U.S. from developing countries. In addition, beginning in the early 1970’s, Israel was a recipient of U.S. economic aid. The FTA resulted in the mutual liberalization of bilateral trade and the eventual elimination of U.S. economic aid to Israel.

Between 1984 and 1996 bilateral trade in goods nearly tripled, reaching $12.4 billion. Between 1996 and 2010, it nearly tripled again, reaching an estimated $32 billion.

The FTA - 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. By 2009, Jordanian exports reached $924 million, with QIZs accounting for 65% of the total. When the first QIZ was established in Egypt in 2004, Egyptian exports to the U.S. totaled $1.3 billion. By 2009, Egyptian exports totaled $2.1 billion with QIZs accounting for 41% of the total.

Under the FTA, the U.S. and Israel implemented phased tariff reductions culminating in the complete elimination of duties on manufactured goods on January1,1995.The FTA permitted the U.S. and Israel to maintain certain import restrictions, such as quantitative restrictions and fees, other than customs duties, on agricultural products based 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 product’s value may originate in the other country so long as the input complies with the FTA’s rules of origin. Goods must also be shipped directly from one country to the other.
About 50% of bilateral economic exchanges are concentrated in trade in goods; 30% are in investment; and 20% in trade in services.

The JC’s broad mandate has provided the forum to further liberalize trade in agricultural products and establish cooperation on standardization. The United States–Israel 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. 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

The FTA, despite being 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 Israel’s Ministry of Industry, Trade, and Labor.

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 to an estimated $32 billion.

In 2010, bilateral trade has started to rebound from the global economic downturn and is up about 16% as compared to the same period of time in 2009. For 2010, we estimate that bilateral trade will reach $32 billion with Israeli exports to the U.S. totaling $21 billion and U.S. exports to Israel totaling $11 billion.
Israel is among the U.S.’s 12 largest export markets per capita. Despite a population of only 7.5 million people, Israel is among the U.S.’s 25 largest export markets by value, ahead of countries such as Russia, Ireland, Spain, and Argentina.

A Foundation for Bilateral Investment
• Between 2000 and 2008, U.S. Direct Investment in Israel totaled $67.2 billion and Israeli Direct Investment in the U.S. totaled $44.1 billion. • In 2008, Israel was among the top 20 suppliers of Direct Investment to the U.S. in terms of total and per capita investments. • Well known U.S. companies such as Microsoft, Berkshire-Hathaway, IBM, and General Electric have extensive investments in Israel, while Israeli companies such as Teva Pharmaceuticals, Tower Semi Conductors, and Strauss are heavily invested in the U.S.

Outside of diamonds and jewelry, the majority of bilateral trade in goods is concentrated in industrial and high tech items; for example, in 2009, chemicals, plastics, and telecommunications and electronic products accounted for nearly 70% of Israeli exports to the U.S. Similarly, chemicals, transportation equipment, and telecommunications equipment and electronic products accounted for nearly 60% of U.S. exports to Israel.
Israel has the third highest number of NASDAQ listed companies, behind the U.S. and Canada.

Trade in Services – A Potential for Growth: US-Israel Bilateral Trade in Services 1992-2008
In Millions of U.S. Dollars
8000 7000 6000 5000 4000 3000 2000 1000 0 1992 1996 2000 2004 2008 U.S. imports of services from Israel U.S. exports of services from Israel Bilateral trade in services

Percentage of US Exports to Israel by Industry in 2009
(without Diamonds and Precious Stones)

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

Percentage of US Imports from Israel by Industry in 2009
(without Diamonds and Precious Stones)

■ Chemicals ■ Plastics ■ Textile, Apparel and Clothing ■ Stones, Glass and Metal Products ■ Telecome and Electronic Products ■ Transport Equipment ■ Medical Devices ■ Others

Binational Research and Development
Three joint U.S. - Israel Research & Development foundations were established. • 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

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