Israel Pioneers Free Trade

by Simon Griver

During 1996, Israel signed Free Trade Agreements with Canada, Turkey and the Czech and Slovak republics. Similar agreements with Poland, Hungary and Slovenia are in the final stages of negotiations, while negotiations for such pacts with Romania and Bulgaria are underway.

Israel is unique in that it already enjoys free trade agreements with the United States, the European Union and EFTA. This means that Israeli goods are allowed duty free into most of the world's industrialized countries. According to Zohar Peri, deputy director general of Israel's Ministry of Industry and Trade and the head of the Foreign Trade Administration, Israel's integration into the world economic community is a top national priority. "Free trade pacts are the cornerstones of our foreign trade," he stresses.

Israel, a nation of nearly six million, has to export in order to flourish, like all small countries. In 1996, Israeli exports of goods amounted to $20.5 billion; of this, industrial exports accounted for approximately $12.9 billion, diamond exports climbed to $4.9 billion and agricultural exports reached $0.8 billion. Some 80 percent of Israel's industrial exports include high-tech and electronics components. In 1996 some 46 percent of Israeli exports went to Europe, 31 percent to North America, 19 percent to Asia and 4 percent to Africa, Latin America and Oceania.

Israeli exports to the Far East have increased in recent years, at the expense of exports to Western Europe and North America, even though Israel has free trade agreements with the latter two regions and not with the former. Thus, the Israeli government would like to negotiate such agreements with its rapidly growing trade partners in South East Asia.

Israel's macro-economic performance over the past decade has been very impressive. The growth rate has been one of the highest of any of the industrial countries, averaging 6% during the first half of the 1990s. Foreign investment increased last year to a record $1.2 billion, and unemployment is a modest 6.7 percent. On the downside, though, are an increasing balance-of-payments deficit and annual inflation of about 10 percent.

The country's strong economic performance is attributable to the mass immigration of well over 600,000 highly educated newcomers from the former Soviet Union, the Middle East peace process and economic reforms as Israel grafts free market policies onto its socialist base.

Still, the loss of momentum in the peace process may have adversely affected confidence in Israel's economy, while Dan Propper, president of the Manufacturers' Association of Israel, charges that the government must devalue the shekel and lower interest rates if the balance of payments deficit is to be diminished and growth increased. But both industrialists and the government agree that the more Free Trade agreements concluded, the greater the benefit to both Israel and its trading partners worldwide.