THE POSSIBLE implications for Israel of Brexit – that is, of Britain leaving the European Union (EU) − merit serious consideration.
The legal position is that at 11 p.m. (UK time) on Friday, March 29, 2019, Britain ceases to be a member of the EU.
However, to give commercial and business interests time to adjust to the change in trading arrangements, both parties have agreed on a subsequent “transition period” during which they will adhere to current regulations governing their trading relationship.
The EU has proposed, and Britain has not objected, to a final cutoff date of December 31, 2020.
With so momentous a change in the nation’s fortunes approaching rapidly, it is not surprising that the public’s attention was – until the recent attempted assassination of Russian double agent, Sergei Skripal – almost entirely focused on the delicate, not to say precarious, state that negotiations with the EU have reached. Apparently intractable problems remain to be resolved while, in the constantly repeated words of EU negotiator, Michel Barnier, “the clock is ticking.”
The baseline from which Israel’s trading position will develop after Brexit is, of course, Israel’s current relationship with the EU, of which Britain has been an important member for the past 40 years. That relationship, especially over the past few years, might best be described as one of “creative tension” – a situation where trade interests have been engaged in a tug of war with political considerations. In truth, the political objectives of the EU in light of the Israel-Palestinian Authority situation have inhibited trade with Israel from expanding at the rate, or to the levels, that might have been possible.
A prime example is the EU’s 2015 decision to enforce a special labeling system for Israeli goods produced beyond what the EU itself has determined to be the borders of sovereign Israel − the lines which mark where the Arab and Israeli armies stopped fighting in 1949. For the last 40 years, the EU and its predecessor, the European Economic Community (EEC), have maintained that the territory occupied by the Arab armies on the day the armistice between them and Israel was signed – July 20, 1949 – are the borders of a putative sovereign state of Palestine.
Of course, Israel was not fighting Palestinians in 1949. There was no such Arab entity. It was facing the armies of Egypt and Jordan, and it was with those sovereign nations that Israel signed the armistice. Article II of the Armistice with Jordan explicitly specifies that the cease-fire agreement had been “dictated exclusively by military considerations,” and did not “prejudice the rights, claims and positions of the parties.”
Those original armistice lines still obtained in June 1967 when Israel, facing an attack on four fronts from allied Arab forces, captured Gaza, the West Bank and Jerusalem from Jordanian forces. In November 2015, in a “Notice on indication of the origin of goods from the territories occupied by Israel since June 1967,” the European Commission stated that the EU does not consider those territories to be part of sovereign Israel. So, the notice advises, all products originating from these areas and being sold in the EU should be labeled to indicate they are not from Israel proper.
“For products from Palestine that do not originate from settlements,” states the notice, “an indication… could be ‘product from the West Bank’ (Palestinian product), ‘product from Gaza,’ or ‘product from Palestine.’” The EU seemed blissfully unaware of the anomaly it was promulgating. Bending over backwards to ensure that certain goods were to be labeled as not emanating from the Israel that the EU recognizes, it recommends they they be labeled as coming from a state of Palestine that does not exist and that it has not recognized.
The legal basis for Israel’s trade relations with the EU is the EU-Israel Association Agreement, which came into force in June 2000. Over the past 18 years, it has certainly fostered healthy, although somewhat unbalanced, trade between the parties. Israel currently has a trade deficit with the EU – in other words, it imports more than it exports.
Latest available figures show Israeli imports in excess of 21 billion euro, against exports to the EU of some 13 billion euro.
Britain’s departure from the EU should not adversely affect
bilateral EU-Israeli trade, even though EU-Israeli political relations are far from cordial.
The same cannot with justice be said of the UK-Israel relationship. Both Britain’s prime minister, Theresa May, and its foreign secretary, Boris Johnson, have made no secret of their friendship towards the Jewish state. The latest manifestation, of course, is the recent announcement that the first-ever official royal visit to Israel will take place in the summer of 2018, when Prince William tours the Middle East.
That projected visit follows the recognition and celebration by the British government last November of the centenary of the Balfour Declaration. Prior to that, Palestinian Authority President Mahmoud Abbas twice called upon the British government to apologize for what he termed, in his address to the UN General Assembly, as “this infamous declaration.” The official UK response ran: “The Balfour Declaration is an historic statement for which Her Majesty’s Government does not intend to apologize.
We are proud of our role in creating the State of Israel. The task now is to encourage moves towards peace.”
Peace through trade is what Britain has been assiduously fostering for the past few years. Israel’s ambassador to the UK, Mark Regev
, announced on February 27 that bilateral trade between the UK and Israel had increased by 25% in 2017 to a record 6.9 billion British pounds. Speaking at the UK Israel Business Awards dinner, Regev called the rise from 5.5 billion pounds in 2016 to 6.9 billion pounds in 2017 remarkable: “It demonstrates the momentum behind our economic relationship.”
THE PACE is only likely to increase as Brexit approaches, and once the UK finally leaves the EU, the current Association Agreement will no longer apply. The two countries will be free to determine the best deal for themselves. In anticipation, ever since March 2017, the two governments have been negotiating a new Free Trade Agreement. Such an agreement will open up the UK market to more Israeli exports, in both goods and services, and make a huge contribution to Israel’s economy. It will also foster increased interest by UK companies in the Israeli market, and give Israeli consumers a wider range of product choice.
In a keynote speech delivered by UK Prime Minister Theresa May on March 2, she made it crystal clear that, after withdrawal, the UK would not enter into any formal customs union with the EU. Several considerations affected this decision, but high among them was the UK’s determination to negotiate independent trading arrangements around the world – impossible when locked into a customs union.
Israel stands high among the nations with which Britain would seek an early trade agreement. In a recent UK government White Paper, Israel was identified as a trading priority for post-Brexit Britain because of the potential synergies between Israel’s high levels of innovation and British strengths in design, business growth, finance and high-technology.
The groundwork for a powerful collaborative partnership has already been laid. The rapid increase in British-Israeli trade built up in the past few years has been possible because the areas in which Israel excels − especially in high-tech fields, such as cyber security, Research and Development, and financial technology − are largely outside the EU-Israel agreement, which currently governs the terms of trade.
The Anglo-Israel Chamber of Commerce is a major driving force behind expanding UK-Israel trade. In the past two years, it has encouraged more than 30 Israeli firms to open operations in the UK, investing 152m. pounds and creating almost 900 jobs.
After Brexit, many Israeli firms will want to use the UK as their main hub outside Israel.
The UK is easily accessible in terms of distance and time zone, and is a convenient base to access Europe and elsewhere.
Moreover, the UK government has been actively promoting foreign investment. The UK’s Enterprise Investment Scheme and its Seed Enterprise Investment Scheme already offer UK taxpayers incentives to invest in early-stage firms, and reduce the costs in the event of failure. These schemes, which enable Israeli companies to operate from Britain while keeping their Research and Development in Israel, make the UK an especially attractive place for Israeli start-ups.
Once Britain is free of EU restrictions, such schemes will undoubtedly be extended.
In addition, the UK government offers grants to companies in certain industrial sectors. Israeli entrepreneurs in fields such as electric vehicles and agricultural technology are already choosing to base their entire business in the UK, partly because of targeted government grants, which go hand in hand with British expertise. After Brexit, incentives like these will not only be maintained, but almost certainly expanded.
The fact of the matter is that the UK is already so attractive to Israeli entrepreneurs − especially, but not exclusively, those engaged in start-up enterprises – that once Britain has cast off the shackles of restrictive EU regulations, the prospect is that the UK-Israel trade relationship will flourish as never before. Floreat
Brexit! The writer is Middle East correspondent for Eurasia Review. His latest book is ‘The Chaos in the Middle East: 2014-2016.’ He blogs at: www.a-mid-east-journal.blogspot.com
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