Manufacturers Association of Israel Asks Netanyahu to Forge New Economic Pact With U.S.

Group head presents plan aimed at increasing Israeli companies' access to the American market

Ashdod Port
The Ashdod Port: The U.S. is Israel's prime export market. Pavel Tulchinsky

With U.S. President Donald Trump arriving in the country for a two-day visit on Monday, the president of the Manufacturers Association of Israel, Shraga Brosh, has asked Prime Minister Benjamin Netanyahu to seek a new strategic economic cooperation pact between Israel and the United States.

Brosh presented a plan to the prime minister that is aimed at increasing Israeli companies’ access to the American market. His association is also seeking to have an exception carved out for Israeli corporations as the Trump administration aims to lower corporate taxes to lure jobs to the United States. The proposal would include a policy granting recognition of investment in Israeli companies as if they were made in the United States.

The plan calls for refinements to the existing treaty between the two countries on double taxation and cooperation in investment in research and development. The Manufacturers Association is also proposing joint efforts to reduce regulation and lift barriers to trade.

Although Israel was the first country, in 1985, to sign a free-trade agreement with the United States, there hasn’t been any major development when it comes to strategic economic cooperation between the countries since, Brosh asserted.

Over the course of many years, the United States has been Israel’s primary export target market and the leading supplier of Israeli imports.

“Creating a new strategic pact with the world’s strongest economic superpower could be a real springboard for the Israeli economy that would help put Israel in a relatively preferred position over the other countries of the world regarding everything related to the international economic ties with the United States,” Brosh wrote to the prime minister. “The strength of the State of Israel is dependent no less on a strong and growing economy, and the creation of an economic partnership between ourselves and the United States would constitute a strategic asset for the economic strength of the State of Israel.”

The officials at the Manufacturers Association, which represents major industrial companies over a range of sectors, are proposing that the two countries establish joint goals with regard to their economic relations in the fields of investment, research and development, defense industries and the reduction of unnecessary regulation. The Israeli industrialists’ group is also proposing that the trade agreements between the two countries be upgraded to remove non-tariff barriers.

The association took note of plans by the Trump administration to reduce the U.S. corporate tax rate from 35% to 15%, in part in an effort to lure jobs back to the United States that had gone abroad. The Manufacturers Association is seeking, however, to prevent companies from leaving Israel for tax reasons and is therefore seeking special dispensation for Israel, on the argument that the companies that would benefit from the exception in Israel also serve American economic interests.

Last year, total trade between the United States and Israel was worth about $19 billion, up 3% over the prior year, the Israel Export Institute reported. Last year Israel exported about $11.6 billion in goods to the United States, an increase of 5% over 2015. Israel’s imports of American goods were stable last year over the prior year at about $7.4 billion. Last year’s expansion of Israeli exports to the United States was particularly notable in high-tech products.

Israeli Economy and Industry Minister Eli Cohen noted that the United States has always been the most important target market for Israeli exports, adding that his ministry is working to expand Israeli exports to the United States.

The chairman of the Israel Export Institute, Ramzi Gabbay, said he expected Israeli exports to the United States to grow this year. “The recovery of the American economy is reflected in figures regarding Israeli exports to the United States. We estimate that 2017 will show an additional increase in the scope of exports to the American market against the backdrop of continued growth of exports of high-tech, chemicals, software computer services and research and development.”

In the first three months of this year, the total trade between the two countries actually declined, however, by 4% – compared to the 1st quarter of 2016 – to $4.8 billion. That was due to a drop in imports of American goods to Israel, but it was in large measure the result of a drop in Israeli imports of American aircraft, a sector that is subject to major fluctuations.