Historical Background On 4th June 1964 the Community of the then Six signed a three-year trade agreement with Israel. This provided for the temporary and partial suspension of the common external tariff duties on about twenty industrial and commercial products. It also provided for the removal, in whole or in part, of the quantitive restrictions still applied by individual member states in their trade with Israel. For its part Israel made a commitment to facilitate the importation of Community products. A joint committee was set up to promote the implementation of the agreement and the development of trade. A new 5-year preferential agreement was signed in Luxembourg on 29th June 1970 under Art. 113 of the Treaty of Rome and came into force on 1st October of that year. Between 1st October 1970 and 31st December 1973 the Community progressively reduced its customs duties on Israeli industrial goods to 50% of the full duty, with some exceptions in the case of sensitive products. Tariff dismantling was accompanied by the removal of many of the quantative restrictions on Community imports from Israel. Preferential treatment was granted covering some 80% of the Community's imports of agricultural products from Israel, in the form of reductions in the Common Customs Tariff duties ranging between 30% and 70%. In the case of citrus-fruit the tariff reduction was made conditional on the observance of price discipline, which also applied to the other large scale citrus-fruit producer countries of the Mediterranean region. This agreement, seen as the start of a free-trade zone and registered as a free trade zone within the GATT Secretariat, provided for Israeli tariff concessions vis-à-vis the Community. Some 60% of Community exports benefited from staged tariff cuts which, depending on the product, took the reduction from 10% to 25-30%. Meanwhile, Israel gradually liberalised the conditions of importation of these products. No sooner had the 1970 agreement come into force, however, than relations were affected by the forthcoming enlargement of the Community and the adoption by Community institutions of an overall approach to the Mediterranean region. The Israeli government drew the attention of the Community to the disadvantages which the EC enlargement posed to it in terms of the balance of the preferential agreement as well as the changes it would involve between Israel and the four applicant states. The Community introduces a common Mediterranean policy On 9th February 1971 the European Parliament adopted a resolution inviting the Member States' foreign ministers to draw up a common policy towards the third countries of the Mediterranean. The arrangement would recognise the individual needs of Mediterranean states and would transcend purely commercial interests in order to contribute to the overall development of the Mediterranean region. On 27th and 28th June 1972, the Council of Ministers decided to consider the problems of the Mediterranean region as a whole, an overall approach which was endorsed by the Heads of State and Government meeting at the Paris Summit of 19th October 1972. Following the accession of the United Kingdom, Ireland and Denmark to the Community in 1973, the Commission drew up proposals aimed at defining the Community's overall Mediterranean approach in the fields of trade, economic, technical and financial cooperation and labour. Negotiations with Israel began on 18th July 1973. Meanwhile, Israel and the Community had signed a Supplementary Protocol postponing the application of the trade provisions of the 1970 agreement in trade between Israel and the new Member States. These were twice extended. (New proposals for a renewed Mediterranean policy were introduced by the Commission in May 1990). The 1975 agreement The basis for the present relations between the EC and Israel is the Agreement of 11th May 1975, concluded within the framework of the overall Mediterranean policy defined by the Community in 1973. The objectives of this agreement are the reciprocal abolition of trade barriers and the institution of cooperation arrangements. On 1st January 1989 a free trade zone in the industrial sector was fully established. On that date, Israel abolished its last remaining customs duties vis-à-vis the Community. Since 1977, the Community has guaranteed free access to its market for Israeli industrial products. In the case of agricultural products, the Community now grants Israel tariff concessions for almost all exports. The Community is today Israel's most important trading partner with approximately 35% of the country's total exports and 50% of its total imports. Since 1975, Israel has achieved a significant increase in the weight of industrial exports in its trade with the Community, this sector now accounting for about 70% of total exports from Israel to the Community. Agricultural exports have remained stable thanks to the tariff concessions, and have been diversified. The overall development of Israel's trade balance with the Community has been stabilized for a number of years with a deficit of about ECU 1.7 bn. Recently there has been a slight increase in exports from Israel to the EC (2.27 bn. ECU in 1991, 2.283 in 1992), whereas imports to Israel from the EC have increased significantly (up to 4.3 bn. ECU in 1991). Half of Israel's trade deficit is attributed to the diamond trade, Israel importing uncut diamonds from Europe, cutting them in situ, and re- exporting them internationally. At their informal meeting at Brocket Hall in September 1992, EC Foreign Ministers expressed the wish to update the 1975 EC/Israel agreement, in order to take into account the new developments in international relations : the Single Market, the Treaty of European Union, the creation of the EEA and the new partnership agreements proposed by the EC to the Maghreb countries. Financial Protocols In the field of cooperation, within the framework of the 1975 agreement, three financial protocols were concluded. They comprise provisions for European Investment Bank (EIB) loans on the basis of market conditions amounting to ECU 30, 40 and 62 million respectively over a five-year period. A fourth financial protocol amounting to ECU 82 million was signed in June 1991, and it is in the process of being programmed by the EIB; it will be devoted mainly to environmental projects. Funds from the protocols are intended to finance small and medium-size enterprises. In addition, the 1975 agreement provides for cooperation arrangements in a wide range of fields (in particular industrial, agricultural, and scientific cooperation). In 1991, following the Gulf War, Israel was granted a 160 MECU medium term loan (borrowed by the Commission on international capital markets) for balance of payment support, in order to mitigate the negative effects of the war on the Israel economy. The loan was accompanied by a 27,5 MECU interest rate subsidy financed on the 1991 EC budget. At the same time, a 60 MECU grant was earmarked for the Occupied Territories for alleviating socio-economic problems in the health, education and housing sectors. Other forms of cooperation The Commission has financed, since 1983, a certain number of actions, in particular in industrial, agricultural and scientific cooperation, on the basis of Community grants. In 1991 the sum committed for these operations was about ECU 2.3 million, in the fields of industrial, agricultural and scientific cooperation. Within this framework, it has been possible to initiate a research programme involving a wide range of sectors. Similarly, in the high technology sectors meetings held between European and Israeli businesses with a view to promoting the creation of links through cooperation and the setting up of joint Euro-Israeli companies. EC-Israel Commercial Balance (ECU billion) 1986 1987 1988 1989 1990 1991 1992 6 months ------------------------------------------------------------------------- EC exports 4.3 4.7 4.7 5.1 5.2 5.8 3.2 EC imports 2.5 2.6 2.9 3.2 3.5 3.4 1.8 Balance 1.8 2.1 1.8 1.9 1.7 2.4 1.4 ------------------------------------------------------------------------- (Source : Eurostat) * * *
