Post-Brexit Israel

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       The UK will be leaving the European Union at precisely 11 pm on March 29, 2019.  There will be significant consequences for Israel. 

         
          Israel’s current relationship with the EU, of which Britain has been an important member for the past forty years, might best be described as “creative tension” – a constant tug-of-war between trade interests and politics.  The truth is that the political objectives of the EU 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 labelling system for Israeli goods produced beyond the temporary boundaries that delineated sovereign Israel prior to the Six Day War in 1967.  The EU regards those lines, which simply mark where the Arab and Israeli armies stopped fighting in 1949, as Israel’s international borders – a position fraught with anomalies.  The EU asserts that East Jerusalem is occupied Palestinian territory, but does not acknowledge West Jerusalem to be part of Israel.  It objected strongly when US President Donald Trump declared Jerusalem to be Israel’s capital, even though he left wide open the possibility of an eventual separate or conjoint Palestinian capital in the Jerusalem municipality.  Indeed, recent reports indicate that he will be asking Israel to relinquish control of four neighbourhoods in East Jerusalem to allow this to take place.

          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 eighteen 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, against exports to the EU of some €13 billion.  Britain’s departure from the EU should not adversely affect this bilateral EU-Israeli trade, even though EU-Israeli political relations are not cordial.

The same cannot with justice be said of the UK-Israeli 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 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 characterised, 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, 2018, that bilateral trade between the UK and Israel had increased by 25% in 2017 to a record £6.9 billion. Speaking at the UK Israel Business Awards dinner, Regev called the rise from £5.5 billion in 2016 to £6.9 billion 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.

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 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 (EIS) and its Seed Enterprise Investment Scheme (SEIS) 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 this 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-Israeli trade relationship will flourish as never before.  Floreat Brexit!

Published in the Jerusalem Post on-line, 9 May 2018:
https://www.jpost.com/Blogs/A-Mid-East-Journal/Post-Brexit-Israel-555944

Published in the Eurasia Review, 6 May 2018:
https://www.eurasiareview.com/06052018-post-brexit-israel-oped/