Israel is involved in several foreign trade agreements designed to reduce tariffs and promote international exports. Israel is the only country which has free trade agreements with the United States of America, the European Union, and the European Free Trade Association, allowing it to serve as a "trade bridge" for corporations seeking to export their products to all three regions. Israel has also signed the General Agreement on Tariffs and Trade (GATT) and has been granted benefits under the Generalized System of Preferences (GSP) agreement with Australia, Canada, and Japan - which can import many Israeli products duty free or at reduced tariffs.

Israel and the USA

Israel currently enjoys "Most Favored Nation" status with the United State of America. In 1985, they signed a Free Trade Agreement that was implemented in four steps and finally took full effect on January 1st, 1995, eliminating virtually all customs restrictions and trade barriers between the two countries. Import restrictions are still allowed for agricultural products, food items that involve Jewish dietary laws, and certain "sensitive" items. Temporary tariffs may also be imposed in the event of a serious trade imbalance.

Products covered under this treaty must be entirely the growth or manufacture of Israel, the United States, or both. If they involve any foreign components, they must be substantially changed. Products must contain at least 35% of "locally added value", although up to 15% of that can originate in the importing country. The manufacturer's cost of materials, labor costs, equipment costs, and research and development costs are all used to determine the product's value. Profits and indirect costs, such as advertising and administration, are not included.

Products must be imported directly from Israel to the United States, and be accompanied by a signed certificate of origin. If they went through a third country, they must prove the products did not enter their commerce. While this agreement does not include the trade of services, there is a non-binding statement encouraging the two countries to open up their service industries to each other.

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Israel and the EU

Israel and the European Union signed a Free Trade Agreement in 1975, providing a free trade arena for industrial and some agricultural products, which are exempt from all customs duties. In February 1995, Israel and the European Union signed a new agreement that expanded the earlier one, covering services, the deregulation of public purchasing, research and development, energy, the environment, and the fight against drug trafficking. Israeli companies may also participate in the same Research and Development programs as those originating in the European Union.

Products must be manufactured or obtained entirely from locally produced material, or from that originating somewhere in the European Union. Materials from other countries are only acceptable if they have been substantially changed in the final product and have local added value. For customs purposes, the value of the import will be the value of the product. While most agricultural products and processed foods are excluded from the treaty, the European Union has granted preferential duty reductions on most of Israel's agricultural exports. As with the Israel-USA agreement, products must be accompanied by a signed certificate and may be transported through a third country only if they did not enter their commerce, and either country may impose temporary restrictions if they experience serious damage to native industries or balance of payments.

At this writing, the European Union is considering imposing an economic boycott on Israeli products manufactured in Israeli "settlements" in the West Bank territories. It remains to be seen how this will affect their trade relationship.

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Israel and the EFTA

On January 1st, 1993, Israel ratified a Free Trade Agreement with the member states of the European Free Trade Association: Iceland, Liechtenstein, Norway, and Switzerland. This agreement provides for the abolition of fiscal customs duties and quantitative import restrictions on certain products, although tariffs remain in effect on most agricultural products. If an increase in imports causes serious damage to domestic producers or a sector of the economy or balance of payments, the injured party may apply the measures provided in the agreement.

Products are considered to have originated in a state if they were grown from the soil, extracted from the earth, or manufactured entirely within. Materials obtained from other states may only be incorporated in the final product if they have originated in Israel or another EFTA state or have undergone substantial reworking or processing. Products may be trans-shipped through other states only for geographical reasons and if they have not entered that country's commerce other than reloading or preservation of perishable goods.

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