Israel, UK need to sign a free trade accord ASAP, report indicates
UK-Israel trade relations could be ‘harmed’ unless EU agreements are replaced post-Brexit, especially in agriculture, pharmaceuticals and aviation
Shoshanna Solomon was The Times of Israel's Startups and Business reporter
Israel and the UK should prioritize the setting up of a bilateral free trade agreement, officials from both Israel and the UK say, according to a new report by Israel and Middle East think-tank BICOM, which says it has found “consensus” among officials from both sides about the matter.
With the UK having said it will leave the EU Customs Union, as part of Brexit, the process the UK has initiated for withdrawing from the EU, it faces the task of replacing trade agreements with non-EU trade partners that were previously covered by UK membership of the EU.
Israel and the European Union signed a 2000 EU-Israel Association Agreement, which ensures the free movement of capital, some liberalization of trade in services, and ongoing economic and social cooperation. Some components of the trade relationship between the UK and Israel currently operate under this agreement. With the exit of the UK, this agreement will now need to be replaced.
“There is exceptional potential for growth in bilateral trade and investment, including UK exports to the expanding Israeli market, but this will be harmed if there is no arrangement to ensure the continuation of trade terms currently covered by the EU-Israel Association Agreement,” the report says. “A UK-Israel working group is focused on this, though there is a risk of the UK being overwhelmed by the challenge of simultaneously establishing new trade agreements around the world.”
While agriculture, pharmaceuticals and aviation fall under Israel-EU agreements and thus need alternative agreements following Brexit, technology sectors in which UK-Israel ties are significantly expanding are primarily bilateral rather than EU-related, which eases the challenges, the report said.
Israel and the UK set up a technology-based cooperation in 2012, the UK-Israel Tech Hub, which has created, according to the report, more than 80 business partnerships between the two countries.
The report is the first in a series of studies assessing the impact of Brexit on Britain-Israel trade and the wider implications for British trade with countries around the world, BICOM said in a statement on Wednesday.
The publication is a detailed sector-by-sector analysis of Brexit’s potential impact on bilateral trade that draws on in-depth interviews with officials, diplomats, lawyers and business leaders in Britain and Israel, BICOM said.
Among the key findings:
- In the 12 months since the referendum the number of Israeli companies setting up in the UK has increased by 28 percent, compared to the 12 months before. Investment increased by 33.5 percent and the number of UK jobs created by Israeli companies increased by 12.8 percent.
- The UK is still the top destination for Israeli foreign direct investment in Europe, with 28 Israeli companies listed on the London Stock Exchange with a market capitalization of £11.5 billion ($15 billion).
- These figures indicate that Israeli businesses see Brexit, and the potential withdrawal from the UK by EU, companies as an opportunity, and reflect the underlying attractiveness of the UK for Israelis, based on language, culture and access to financing, the report said.
- Israeli business leaders working in the UK in high-tech, fintech, advertising and gaming are largely unconcerned about the consequences of Brexit and continue to be attracted to doing business in Britain. Even so, the UK’s ability to attract more Israeli firms after Brexit will depend on whether London remains a global center for capital. A prolonged period of uncertainty and concerns as to the future of regulatory and other requirements may lead some companies to reconsider operating out of Britain, the survey showed.
- British companies are failing to take full advantage of investment opportunities in Israel. Only five British companies have opened innovation centers or acquired Israeli firms since 2014, a much smaller number than companies from the US, China and Canada, the report said.
- One in seven UK’s National Health Service (NHS) drugs are purchased from Israeli pharmaceutical companies. Experts interviewed in the study have warned that a new UK-Israel trade agreement must exclude customs duties on medicines to avoid very significant increases in the NHS drugs bill.
- Agricultural products constitute a significant share of British imports from Israel. In 2016 this amounted to $25 million of potatoes, $25 million of dates and $8 million of avocados. A free trade agreement between Israel and the UK could lead to much greater quantities being imported from Israel, greater competition with other foreign producers and lower food prices for British consumers.
“It is very positive news that officials in both Israel and Britain are keen to complete a free trade agreement as soon as they can,” said James Sorene, CEO of BICOM .
A 2011 UK government-issued white paper identified Israel as a trade priority for post-Brexit Britain because of the potential synergies between Israel’s high levels of innovation and British strengths in design, business growth and finance, as well as the UK’s own high-technology and scientific strengths. However, realizing the opportunity requires being ready with new bilateral agreements or transitional arrangements, the report said.
In foreign policy and defense outlook, the UK and Israel will continue to share a “broad strategic foreign policy and defense outlook, and will have even more in common post Brexit, as two important powers on the periphery of the EU and highly integrated with it, but with no aspiration to membership,” the report said. “Israel may however miss the UK’s voice in the EU council on deliberations on the Israeli-Palestinian arena.”
