The Europe-Israel Alliance:
Where Politics and Economics Do Not Meet

Introduction
Europe & Middle East
Israel & EU: Economic Allies
European Platforms on Arab-Israeli Peace
Economic Sanctions
EU & Current Peacemaking
Conclusion


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Israel and the EU: Economic Allies

As a highly developed, industrialized state with advanced technology, Israel is a ripe partner for increased economic integration within the EU. Indeed, in recent years, Europe has become Israel’s largest trading partner, with one-third of Israel’s

"Israel-EU economic ties are active and close."
total exports going to Europe and more than half of Israel’s imports coming from there. In 1997, Israeli exports to the European Union amounted to $6.7 billion and its imports from the EU totaled $14.8 billion. While Israeli exports to the United States total $7.2 billion, Israeli imports from the U.S. amount to only $5.4 billion.

Israel-EU economic ties are active and close. Israel’s political, industrial, commercial and scientific elates tend to be EU-oriented. Many major Israeli and EU firms have branches in the other’s jurisdiction. Close cooperative relationships between enterprises are also widespread.

Israel’s economic relationship with the EU dates back to the signing of a simple commercial agreement in 1964. In the 1970s, Israel began a process of trade liberalization and of monetary and fiscal reforms on lines advocated by the EU and the U.S. In 1975, Israel and the then European Economic Community concluded an extensive trade and cooperation agreement that governed Israel-European relations for 20 years.

The EU’S European Council endorsed granting Israel special economic status in the European Union in December 1994. In a statement, the Council said:

"The Mediterranean represents a priority area of strategic importance for the European Union.... The European Council considers that Israel, on account of its high level of economic development, should enjoy special status in its relations with the EU on the basis of reciprocity and common interest. In the process, regional economic development in the Middle East, including in the Palestinian areas, will also be boosted."

In November 1995, Israel and the EU’S 15 member states signed a Treaty of Association agreement replacing and updating the 1975 trade and cooperation agreement. The accord, approved by the European Parliament in February 1996, strengthened economic and political ties between the parties. Economically, the accord expands the existing free trade zone through updated, more flexible rules and practices. It prohibits the imposition of customs duties on imports and exports between Israel and the EU, and it commits the two sides to policies of greater liberalization in agricultural trade. The agreement also eases restrictions on financial transactions and the flow of capital, and includes new areas of Israel-EU cooperation including the promotion of culture and education. On the political level, the agreement calls for regular dialogue at the level of ministers, senior officials and diplomats.

Israel was also accepted as a fill member of the EU’S Fourth Framework Research and Development (R&D) program — the first non-European state to be granted membership. Initialed in October 1995, the R&D agreement means that Israel can participate in the EU’S R&D committees, Israeli companies can participate in R&D tenders within the EU and Israeli institutions can participate in EU research projects. In May 1998, Israel became a member of the EU’S Fifth R&D program.

The European Union and Israel signed the Scientific and Technological Cooperation Agreement in March 1996, according Israel the opportunity to participate in 16 research programs now financed by the European Union. In return, European scientists will have access to Israeli-initiated projects. The accord also calls for Israel to contribute about $37.5 million annually to a program of jointly financed research projects.

In July 1997, Israel and the EU signed agreements on public procurement and telecommunications, according Israeli suppliers greater access to the $600 billion public procurement market and the $25 billion telecommunications market.

In October 1997, the Federation of Israeli Chambers of Commerce (FICC) was accepted as a full member of EuroChamber — the Federation of Chambers of Commerce of Europe (FCCE). The FICC had been seeking this status for some time; until then it had been participating as an observer.
 

Next: European Platforms on Arab-Israeli Peace


This report was published in August 1998

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