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Israel has free trade agreements with many other countries, including the EU, the US, Canada and Mexico. They reduce or eliminate import taxes and other restrictions on goods which originate in the countries concerned according to detailed rules of origin in each agreement.
Recently it was reported that Industry, Trade and Labor Minister, Eli Yishai, and Mexican Economics Minister, Eduardo Sojo Garza-Aldape, signed an amendment to the Israel-Mexico Free-Trade Agreement of 2000.
The amendment was negotiated over a long period of time by the Mexican commercial attachÃ© and the foreign trade division at the Industry,Trade and Labor Ministry. Boaz Hirsch, foreign trade division director, said that the new amendment was a breakthrough in the bilateral agreement. It was aimed at solving a problem faced by many companies that want to transit products made in either Israel or Mexico through a third country, such as the US or the EU. This commonly happens due to the distance between Israel and Mexico.
Under the existing agreement, the transit of such goods via a third country resulted in payment of customs duties, because the free-trade agreement required direct shipment of goods between Israel and Mexico as a precondition for the customs exemption.
The newly signed amendment allows for goods originating in Israel or Mexico to undergo minimal processing or storage in a third country, before shipment to Mexico or Israel without this transit affecting the goods' duty-free exemption, under the bilateral free-trade agreement. This should make things simpler and more flexible for Israeli exporters and importers.
A similar possibility also exists in the Israel-Canada free trade agreement. The new amendment with Mexico goes further as it will apply not only to the use of Canada and the US but also countries in the EU and EFTA (Switzerland, Norway, Iceland and Lichtenstein).
In addition to the free trade amendment, Israel and Mexico signed an economic cooperation agreement covering technology, related industries and small and medium enterprises.
In the first 11 months of 2008, Israel's exports to Mexico totaled $297 million and imports from Mexico totaled $106m., according to the data by the Central Bureau of Statistics. Exports to Mexico mainly related to communications, agricultural inputs, medical equipment and plastics. Imports from Mexico mainly related to machinery and electronic components.
Currently each country is working on ratification of the amendment and it is expected to become effective in mid-2009.
As always, consult experienced tax advisers in each country at an early stage in specific cases.
Leon Harris is an international tax specialist.