Tensions aside, Israel and Egypt do booming business

The Qualifying Industrial Zone is just one of Israel’s foreign trade success stories, says the country’s top trade official

Wall Street Journal journalist Bret Stephens speaks at the Foreign Trade Conference in Tel Aviv (Photo credit: Courtesy)
Wall Street Journal journalist Bret Stephens speaks at the Foreign Trade Conference in Tel Aviv (Photo credit: Courtesy)

Despite the ongoing talk of boycotts against Israeli products, trade between Israel and the rest of the world continues apace – sometimes in the most surprising of places, according to Ohad Cohen, who heads the Foreign Trade Administration in the Israeli Economy Ministry.

For example, there’s Israel’s annual $100 million trade with Egypt, the result of an economic deal worked out in 2004 between Israel, Egypt, and the US.

“Our QIZ agreement with Egypt keeps getting stronger,” said Cohen, referring to the Qualifying Industrial Zone. “It was strong under the Mubarak administration, but surprisingly got even stronger when Mohammed Morsi took over the leadership of Egypt in 2012 – and now, with Abdel el-Sissi leading the country, it continues to flourish.”

There were concerns among Israeli officials that Morsi, former head of the Muslim Brotherhood – the “parent” of Hamas – would attempt to undo the 1979 Israel-Egypt peace treaty. But, at least on trade issues, the opposite took place. Now, said Cohen, with Sissi helming the government in Cairo, trade with Israel is stronger than ever.

Under the Qualifying Industrial Zone agreement, Egypt can export goods to the US duty-free if 10.5 percent of a product’s components are made in Israel. Last year, said Cohen, Israel exported about $100 million of raw material products to Egypt – which in turn used the Israeli components to produce and export about a billion dollars worth of goods to the US.

“It’s a good deal for both Israel and Egypt,” said Cohen.

According to the agreement, the finished products must also contain at least 24.5% Egypt-contributed components. In the case of textiles, which account for more than a quarter of Egypt’s exports and are mostly made of Egyptian-grown cotton, that figure is close to 90%, said Cohen.

“Under the QIZ, our $100 million in exports to Egypt is worth at least $250 million to them, and because textiles constitute so much of Egypt’s exports to the US, the deal is worth a considerable amount of money to Cairo.

“For Israel, it helps create a stable relationship with the most important Arab country in the region. For years, we tried to persuade the Egyptians to send a joint roadshow delegation with us to the US to speak to apparel buyers, but they always shied away. But under the Morsi administration, it was Egypt that asked us to organize the delegation.”

“Now, we do these roadshows as a matter of course,” said Cohen, with the most recent one taking place last May. Among the biggest customers for QIZ-produced clothing are retailers like JC Penney, Gap Inc., Levi Strauss, and VF.

Ohad Cohen (Photo credit: Courtesy)
Ohad Cohen (Photo credit: Courtesy)

Administering the QIZ from Israel’s side is all in a day’s work for Cohen, who is in charge of the 41 Israeli trade delegations located around the world.

For the first time, representatives of those 41 delegations gathered together in Tel Aviv for a trade conference hosted by the Foreign Trade Administration at the Economy Ministry. On the agenda were topics such as seeking new business opportunities in Western countries where the population is aging; how better to reach the businesses serving a growing middle class in developing countries; and marketing Israel’s tech achievements. Guest speakers included Economy Minister Naftali Bennett, Wall Street Journal editor Bret Stephens, and Cohen himself.

Israel has trade representatives in most European countries, as well as in the US, where there are five, China (also 5), India (3), Brazil (2), Australia, Japan, Mexico and several other Latin American countries. Cohen is also in charge of Israel’s free trade agreements (FTAs), of which there are currently eight, as well as the separate QIZ agreements with Egypt and Jordan.

Among the countries that Israel does a great deal of business with – many of them part of FTAs, as well – are countries where there is a great deal of pressure to boycott Israeli products. For example, Israel has a free trade agreement with EFTA-bloc countries (EFTA is the “other” EU, consisting of countries that did not join the original European Economic Community), which include Denmark, Sweden, and Norway – all three of which recently took, or seriously considered, economic sanctions against the Israeli settlements. But business is business, said Cohen, and study after study shows that the BDS movement is not affecting Israel in a substantial manner.

“We’ve been tracking this very closely since 2006, and we find that trade goes down during periods of war, like the Second Lebanon War and the wars in Gaza,” said Cohen. “But it bounces back after a couple of months, with a full recovery.”

Even ongoing enmity, it seems, doesn’t change the bottom line; despite Turkey’s very negative attitude to Israel, the free trade agreement between the two countries is still in effect and 2014 set yet another record for Israel-Turkey trade.

The greatest danger to Israel’s trade prospects, Cohen believes, is complacency: failing to pursue new markets, or missing out on new trends.

“You have to diversify, whether it’s for products or customers. Until ten years ago we were mostly reliant on exports to the developed world, and only 13% of our exports went to Asia.”

With the balance of economic power shifting eastward Israel has tried to keep pace, and today a quarter of the country’s exports go to Asia.

“There are other growing markets, like Latin America, that we have to try harder to reach, and we have a lot more work to do in Asia, especially in China and India, which within a decade and a half will be responsible for 40% of the world’s GDP. These are the markets we have to reach, and the Foreign Trade Administration is ready to help any exporter achieve those goals.”

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