Foreign Minister Silvan Shalom stood proudly before a podium at the United Nations Internet summit in the Arab capital of Tunis last month and called on Arab countries to establish relations with Israel. The Jewish state, he said, had much to offer the Arabs in the way of technology and know-how.
The Arabs, however, already knew that. And they didn't need Shalom to invite them to make contact. They were already making it.
Outside the hall where Shalom spoke was an enormous exhibition where hundreds of countries and companies showed off their latest developments. Traffic was heavy at the Israeli pavilion as Bahrainis, Omanis, Tunisians and other Arabs and Muslims entered the blue and white booth to speak with the Israelis about possible exchanges of information and technology. One Omani gentleman who came to hear about Israel's e-government technology ended up making an order for Israeli fruit.
"He saw a picture of cactus fruit on the computer screen," said Finance Ministry official Itsik Cohen, pointing to the wall monitor.
"Then he said, 'Oh! That's what I want! I want to buy those.' I told him I'd tell the Agriculture Ministry to contact him."
A FEW thousand kilometers away from the UN summit and a few days later in another Arab capital, representatives from 19 Arab states met at the Damascus-based Office of the Arab Boycott headquarters to discuss the "infiltration of Israeli goods into Iraq" and think of ways to tackle companies that violated boycott regulations.
Thirty years ago, CEOs around the world would have lost sleep the night before such a meeting. Companies feared that they might be found "guilty" of somehow violating the Arab League's economic boycott of Israel and subsequently be put on the dreaded blacklist.
In its heyday, the Damascus headquarters blacklisted 8,500 foreign companies for buying products from Israeli companies, stopping in Haifa port, having a branch in Israel, or any number of moves from which Israel could benefit economically. The OAB went even further, blacklisting companies doing business with blacklisted companies.
Today, however, the OAB can't even stop its own members from doing direct business with Israel.
The combination of US anti-boycott legislation, the decline of the power of oil, peace deals between Israel and its neighbors, and pressure by the world's only superpower have given the boycott the sharpness of a dull knife.
Now, even the most hard-line Arab countries are officially dropping the primary level of the boycott in order to join trade organizations and agreements. Last September, Saudi Arabia agreed to drop the primary boycott of Israel in order to join the World Trade Organization. Several of the North African and Persian Gulf countries have dropped at least the secondary and tertiary trade restrictions with Israel.
"Today the Arab boycott is all bark and no bite," said Danny Halperin, a former Israeli official who led the fight against the boycott. "We succeeded."
THE OAB was established in 1951 by the Arab League as an economic tool to hurt Israel. But the boycott goes back to long before the creation of the state. In 1922, the Fifth Palestine Arab Congress passed a resolution calling on Arabs to boycott Jewish businesses in Palestine. (The Arabs wanted to prevent the expansion of Jewish settlements by boycotting the Jewish goods and services in the land.)
It was not until 1951 that the League of Arab States got organized and set up the office in Damascus to run the boycott. With the Zionist state a reality, the Arab goal became to use economic tools as a means to weaken it. The Arab League expanded the boycott to include secondary and tertiary boycotts.
The secondary boycott prohibits foreign firms from operating in Arab states if they have trade or commercial dealings with Israel. Until today, the OAB maintains and updates a blacklist of firms that are banned from the Arab world.
The tertiary boycott prohibits foreign firms from acquiring technology from, and establishing partnerships or joint ventures with, blacklisted foreign companies. Boycott resolutions also contain a provision banning the purchase of components that exceed 10 percent of the total cost of production from blacklisted firms.
For the first decade or so, the embargo was not seen as a major threat to Israel's economy. The Arab countries were poor and underdeveloped, so they did not attract much foreign investment except in the way of oil infrastructure development.
Another hurdle to the boycott's success was that most of the oil-rich Gulf countries were under British control until the late Sixties, and did not wield full control over their vast oil wealth until the Seventies. Arabs often overlooked infractions of the boycott by major international companies
Arab economic power at that time was just not great enough to make the boycott a serious deterrent. Several companies willingly suffered being blacklisted for creating jobs in Israel by opening an office or a factory. Coca-Cola set up a plant in Israel in 1966, the same year that Ford Motor Company licensed an Israeli company to manufacture its trucks and tractors. Both were blacklisted.
After the Yom Kippur War in 1973, though, things took a turn for the worse. The Arabs were furious that Western countries helped Israel withstand the surprise Egyptian and Syrian attack. Consequently, the Arab and Muslim oil-producing members of OPEC embargoed the US, the Netherlands and Japan, refusing to sell them oil. The result was higher costs for petrol-dependent industries and less foreign investment. Pressure on companies doing business in Israel also grew stronger and more effective.
Israelis began to get scared.
"After the Yom Kippur War, we started getting concerned that companies would start avoiding Israel in an effort to get a slice of the petrodollars. Indeed, US companies thought twice before investing in Israel," said Halperin, who had surveys taken about the effect of the boycott. "We came to the conclusion that, yes, it was hurting."
Halperin suggested setting up a body to fight the boycott, but he ran into dissent from others in the government.
"Some of the [government] people discussing it said that if we admit that the boycott is harming us then [the Arabs] might strengthen it," said Halperin. "I told them that if you don't admit you have a problem, no one can help you solve it."
The following year, Halperin founded and headed the Authority Against Economic Warfare, which was subordinate to the Finance Ministry and worked in close cooperation with the Foreign Ministry.
"We gave it a little bit of a bombastic name," said Halperin with a small laugh. "But we wanted to draw attention to the danger inherent in this issue."
Halperin and his department then made a war plan. The first target: the United States.
"We aimed at making anti-boycott legislation and assumed from the beginning that the main battlefield was in the US," explained Halperin, who now runs a consulting firm advising companies on US-Israel economic relations.
He believed he was likely to have a better chance of success in America due to a more workable legislative system and a strong Jewish lobby. Also, Halperin said, if the legislation were to pass and the US wouldn't suffer any economic damages from it, then other countries would take heed.
IT WAS rough going in the beginning. The administration led by president Gerald Ford opposed the anti-boycott legislation, fearing that Saudi Arabia would retaliate. When Jimmy Carter came into office the idea found more receptive ears, but both the US Department of Commerce and the Treasury remained opposed to the anti-legislation.
"They were saying that this would put American companies at a disadvantage compared to other countries that would give in to Arab demands," said Halperin. "We were saying all the time that the Arab Boycott Office was not very strong and that no Arab country would cut off its nose to spite its face, that if they would have to give up American products and technology, they would think twice about it."
When Carter signed the anti-Arab boycott bill in June 1977 - threatening a fine of up to $50,000 and five years' imprisonment for US companies' refusing to do business with Israel because of the boycott - it was the beginning of the end for the Arab boycott.
The US government set up an anti-Arab boycott office and, in the early 1980s, many US companies were fined for abiding by the boycott. Slowly, they began to follow the rules.
"It took (companies) a while to figure out how not to abide by it," said Halperin, who in 1979 was made the economic attach to the Israeli Embassy in Washington, DC. Companies were required to report to both the Commerce Department and the Treasury about any questions Arab customs officials had regarding the products.
Initially, the legislation negatively affected US companies - reflected, for example, in the loss of building contracts in Arab contracts - but for how long and to what extent remains an open question.
According to Paul Sullivan, a professor of economics at the National Defense University in Washington, the boycott did not affect the US greatly.
"Outside of oil and gas, US investment in the region has been tiny compared to US investments in Europe, East Asia, and North America," said Sullivan. "US trade with the MENA [Middle East and North Africa] region is a blip on the US trade screen."
As Halperin expected, Arab countries made exceptions or adjustments to accommodate the new legislation and their own needs. Within a year of legislation, The New York Times reported, some Arab states abandoned the requirement for "negative certification," meaning documentation that a company does not have economic ties in Israel.
Pragmatism proved powerful as well. When, in 1980, the Arab League states had only received one bid on a $100 million satellite communications project, the OAB removed Hughes Aircraft Company from their blacklist so the company could bid.
Canada, Belgium, Luxemburg, and Holland either fiercely opposed the boycott or made it illegal.
Some governments, though, were found complicit in the economic boycott of Israel. In Britain, it was only notionally condemned; the Foreign Office even agreed to provide "negative certification" that a company had no dealings with Israel. And many companies - particularly most Japanese and Korean car manufacturers - abided by the boycott regulations. For years, the only Japanese car seen in the streets of Israel was the Subaru.
THE BIG crack, though, took place in September 1978, when the biggest member of the Arab League made peace with Israel. The peace accord that prime minister Menachem Begin and Egyptian president Anwar Sadat signed began to break apart the Arab bloc.
Meanwhile, Arab governments faced increasing pressure back home. A baby boom in the '50s and '60s left Arab countries with large young populations in the '80s but not enough jobs to fill them. The insular economies were stagnant, with little foreign investment allowed. The countries were no longer as invincible as they felt in 1973.
Two years after the US Army liberated Kuwait from Iraqi occupation, Kuwait rescinded the secondary and tertiary boycotts of Israel. A year after that, the other Gulf Arab states made a similar announcement following the 1994 Oslo Accords between the Israelis and the Palestinians.
From that point until the outbreak of the Aksa Intifada in 2000, numerous Gulf and North African states developed low-level relations with Israel, opening up trade and economic interest offices in Qatar, the United Arab Emirates, Tunisia, Morocco and Oman.
"I think the boycott ended with the peace agreement with Egypt," said Halperin. "It changed a lot in the position of the Arab boycott. Then Oslo no doubt weakened it."
So, the peace process was the final nail in the coffin of the Arab boycott. Although the Arabs said they would not compromise until a full land-for-peace settlement was reached between the Israelis and the Palestinians, they partially rescinded the boycott following Oslo anyway.
In 1996, the OAB stopped convening entirely. There was no point: The boycott had become so porous and so individual that there was no sense in pretending to work together on the issue when half the states involved were ignoring it.
TWO ASPECTS of the Arab boycott against Israel are almost impossible to measure exactly: how much money Israel has lost (and continues to lose) because of the boycott's enforcement, and how much money Israel earns in trade with Arab states that have defied (and continue to defy) the boycott.
The blockade of the Suez Canal, added expenses in the delivery of oil, and the construction of the Eilat port as well as a gas pipeline from Haifa to Eilat all added up to hundreds of millions of dollars in costs to the Jewish state.
But figuring out how much actual trade has been lost over the years is "not like counting babies not born, it's like counting babies not conceived," Halperin said. "We could count the companies that were in Israel and left, or other foreign companies that negotiated with Israeli companies and then broke contracts. But we can't show the companies that didn't even consider [dealing with Israel] because of the boycott."
Some companies didn't know the regulations and "just stayed away," Halperin added.
Estimates of the cumulative damage to Israel exceed $40 billion in direct trade and investment.
The decreased business also means less employment opportunities for Israelis, said Uriel Lynn, president of the Federation of Israeli Chambers of Commerce. Nevertheless, "we advanced very well despite the Arab boycott," he said. "But if it had not existed, we would be somewhat more ahead."
How much more ahead would Israel be? Secret deals that Israeli authorities either don't know of or won't reveal make it impossible to tell how much trade took place in the past, but official accounts from recent years show considerable gains.
Before 1997, according to Israel Export Institute records, there were no known exports to Kuwait. That year, exports to the formerly hard-line Gulf State were valued at a modest $27,000. Despite the intifada, that number jumped to $423,000 in 2001.
In 1996, Israel exported $328,000 in goods to Bahrain. By 2004, that figure had jumped to $1.8 million.
Israeli exports to the Arab world exceeded $180 million in 2004, according to the IEI. Most of that went to Egypt and Jordan, with whom Israeli is a partner in special joint industrial projects, and the Palestinian Authority. The number is also skewed by exports to Iraq, which were almost entirely destined for the US military.
Trade with the Arabs remains, on the whole, "undercover." Jordan is the main route because it is close and therefore a cheap conduit for goods from Israel. But Cyprus and Holland also have offices where clerks remove Israeli merchandise from its package showing the country of origin and fill in new customs forms, before sending it on to the Gulf. The products cannot be identified as Israeli or they may end up back on the ship, returned to Israel. Hi-tech products get through more easily, though, because computer chips and the like do not have a "Made in Israel" stamp.
IF ANYTHING proves that the boycott is dying, it is the failure to stop trade with Israel in the past five years. Of the more than 20 Arab League states once committed to the boycott, only Iraq, Lebanon, Libya, Saudi Arabia, Syria and Iran remain steadfastly committed to it.
"This just goes to show that, besides Syria, the Arab boycott is now just lip service," said Doron Peskin, head of research at InfoProd, a consulting firm for foreign and Israeli companies specializing in trade to Arab states. "Even in Damascus it took them two years after the intifada broke out to convene the Office of the Arab Boycott."
Some Arab business leaders believe that the boycotts are self-defeating. Shafik Gabr is one of them. The chairman of the Arab Business Council, which was established by the World Economic Forum to help implement economic reform in the Arab world, said, "In today's globalized world, boycotts and sanctions do not work. History has shown us that they do not achieve their objectives.
"Moreover," he said, "as ABC chairman, I can attest that the ABC and many Arab economies across the region are embracing competitiveness versus protectionist policies, and attempting to integrate in the global economy on a win-win basis."
Besides Syria, Lebanon and Iran, the last hard-core adherents to the ban, the place where the Arab boycott remains deeply embedded is in the minds of the Arab consumers. There, the official agreements, the signatures and the handshakes have no bearing.
"Even if Arab governments remove all official/legal impediments to trade with Israel, Arab importers and consumers would continue to boycott Israeli products by exercising their rights to choose," said a Bahraini banker who asked not to be named.
Peskin said it's psychological. "We haven't gotten to the point where a consumer in Saudi Arabia, Bahrain and Kuwait will feel comfortable to open and use a product labeled 'Made in Israel,'" said Peskin. "It's a psychological barrier."
Seifallah Fahmy, the CEO of Almonah, an Egyptian firm consulting to foreign companies, believes the Arab boycott has actually gotten worse.
"No, it's not over," he said. "On the contrary, it's even stronger now. There's a lot of public opinion against Israel. We had [Israeli] agricultural advisors but they were all asked to leave because sentiment against Israel was so strong."
Fahmy is waiting for the day when Israel and the Palestinians come to final status agreement. He thinks business will quadruple then.
"I know a lot of people who want to do business with Israel but they will be frowned upon now if they do," said Fahmy, adding, "There is so much technology and knowledge that we want from Israel. It's huge. And it will be cheaper and easier from Israel - it's right next door to the whole Arab world."
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