Australia/Israel Review

Europa Europa: Trading Places

Feb 7, 2020 | Douglas Davis

A new UK-Israel trade deal is in the works
A new UK-Israel trade deal is in the works


Among the myriad uncertainties confronting Britain in its post-Brexit iteration, one of the brightest lights to shine is its future trade relationship with Israel.

Nothing could be officially concluded as long as Britain remained within the EU, but from the end of January, when that hurdle was scheduled to be cleared, one of the priority items on the agenda was expected to be the announcement of an Anglo-Israel trade deal.

In place of a formal trade deal, the two countries last year signed a “trade continuity” agreement, which had the effect of removing any potential new trade obstacles, such as tariffs or barriers, between the UK and Israel after Britain’s withdrawal from the European Union.

Israel’s Foreign Trade Administration (FTA) said the value of all Israeli exports – including products and services – to all countries in 2019 grew by 4.5% over 2018, with Israeli high-tech exports leading the charge. Israeli services exports grew by 11.7% last year alone.

Israeli firms seeking to establish themselves in Europe have long looked to the UK as the base for doing so, with 300 small to medium-sized Israeli firms now located in Britain. Many list on London’s stock exchanges.

The two countries are not strangers when it comes to trade. According to figures published in January, Israel’s exports to the UK grew by almost 300% over the past decade. The FTA said the country’s overall exports increased by almost 70%, while exports to the UK have grown by a whopping 286% since 2010.

Last year, the British Government put the value of UK-Israel bilateral trade at around A$14.5 billion a year, with cross-border business particularly strong in such areas as pharmaceuticals, technology and defence.

However, it is not just in the UK that Israeli firms have sought to trade, and Israel’s export markets around the world have grown increasingly varied, with “significant growth” in Asia and Latin America.

The FTA said exports to China had now increased five-fold, while other important markets include Turkey, Brazil, Chile, Taiwan and Japan.

Israeli Minister of Economy and Industry Eli Cohen said: “Export data for the past decade is proof of the good economic situation of Israel’s economy.”

Just how good was demonstrated in a bond sale in London last month. Israel sought to raise US$3 billion (A$4.35 billion). In fact, the bonds were massively oversubscribed and demand reached US$20 billion (A$29 billion), equivalent to 6.8 times the amount being sought.

Investors included major banks, pension funds, insurance companies and institutional investors which already held long-term Israeli government bonds. The bonds were purchased by 400 investors from 40 countries.

The successful issue of the bonds represented a vote of confidence by the world’s large investors in the Israeli economy, said an Israeli economic official.

Particular interest in Israel’s economic boom has come from Japan, which was traditionally considered to be ultra-cautious on the question of trade with Israel because of its dependence on Arab oil. That inhibition appears to have diminished, with 53 new deals amounting to A$1.18 billion, according to data released by the Harel-Hertz Investment House. This is the largest number of investments in deal terms since at least 2001, according to the data.

Japanese investments in Israel have totalled over A$10.44 billion in 233 investment deals since 2000. The level of investments surged after 2015, following visits by Israeli Prime Minister Binyamin Netanyahu to Japan in May 2014 and by Japanese leader Shinzo Abe to Israel in January 2015. In May, El Al announced that it would operate direct flights to Tokyo from March 2020.

In a related development – and another historic first – Israel began exporting natural gas to Egypt from its offshore gas-processing rig near Caesarea last month. In terms of a landmark agreement between the two countries, Egypt’s Dolphinus Holdings is purchasing 85 billion cubic metres of gas, worth A$28 billion, from Israel’s Leviathan and Tamar offshore fields in a 15-year deal.

In a joint statement after their meeting in Cairo, Israeli Energy Minister Yuval Steinitz and his Egyptian counterpart Tarek el-Molla declared that the beginning of gas exports from Israel to Egypt was an “important development” that would “serve the interests of both sides”. The gas is being exported by an undersea pipeline from Ashkelon to the Sinai peninsula, and Egypt is seeking to re-export some of it to Europe.

That might not be so easy. The move comes as tensions reached a new high in the eastern Mediterranean after the Turkish parliament approved a measure to deploy Turkish troops to Libya in support of the UN-backed government there. The Turkish move came as Israel, Cyprus and Greece inked a massive new pipeline deal to transport natural gas from the eastern Mediterranean to markets in Europe.

Turkey, which has nursed decades of tensions with Greece and Cyprus, and more recently with Israel, strongly opposes the pipeline. It also recently signed an agreement with Libya’s Tripoli-based government setting maritime boundaries that conflict with those envisioned by Israel, Cyprus, Greece and Egypt, and which could block any pipeline route without Turkish approval. 

And so the wheel turns. 


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