Until the 1990s, high tariffs and strong non-tariff barriers characterized Israel's trade policy, and several barriers are still in place in particular with regard to processed food and agricultural products. Israel has free trade agreements with the European Union (since 1975), the United States (signed in 1985, fully effective since 1995), the European Free Trade Association (EFTA, effective since 1993), Canada (1997), and Turkey and has concluded bilateral agreements with a number of other states. Israel is the sole country in the world to have both European Union and U.S. free trade agreements. In June 2000 an association agreement between the EU and Israel came into force. In line with WTO regulations, Israel gradually began exposing the domestic market to foreign imports since September 1991. This process allowed administrative limitations on imports from third countries to be canceled, imposed higher rates of customs tariffs that since have been reduced, according to their degree of influence on local production, and allowed Israeli industry time to adjust to competition. The
|Trade (expressed in billions of US$): Israel|
|SOURCE: International Monetary Fund. International Financial Statistics Yearbook 1999.|
final stage of this process came to an end in September 2000, when tariff rates reached a maximum range of 8 percent to 12 percent.
Israel's main exports are manufactured goods and software, which accounted for 97 percent of total exports (excluding diamonds, ships and aircraft) in 2000. Agricultural exports accounted for 3 percent in 2000, compared to 16.5 percent in 1970, illustrating the depth of Israel's structural changes. The share of Israel's information communication technology exports as a percentage of exports of services is substantially high. In 1997, this share (20.1 percent) was second only to Japan (24 percent), and much higher than the OECD average, which was 12.5 percent. The United States alone absorbs more than a third (41.2 percent) of Israel's exports. Other important destinations include the European Union (27.3 percent), of which Belgium (6 percent), Germany (4.8 percent), and United Kingdom (4.3 percent) dominate; and Asia (18.5 percent), of which Japan (2.7 percent) dominates, according to Central Bureau of Statistics 2000 figures. The change in Israel's exports between 1999 and 2000 indicate that the growth rate of traditional manufacturing exports increased slightly, whereas it increased dramatically in the high-tech industries.
The geopolitical situation that has prevailed in the Middle East, since the inception of Israel, has prevented trade between Israel and its neighbors. Furthermore, the difference in the level of development and production structure between Israel and its neighbors made Europe and the United States her main trading partner. In 2000, the United States and the EU accounted for 32 percent and 30 percent, respectively, of Israel's exports and for 22 percent and 41 percent of its imports. In 2000, exports for the United States (excluding diamonds) totaled US$21.7 billion, constituting an increase of 23.3 percent in Israel's exports. Within the EU, Israel's largest export markets were Germany (21 percent), the United Kingdom (18 percent), The Netherlands and Italy (both 11 percent), and France (10 percent). Exports to Asia (excluding diamonds) increased from 12 percent in 1998 to 16 percent in 1999.
Israel has traditionally run a large external trade deficit , meaning that imports exceeded exports. Israel's imports have always exceeded its exports because of the Jewish state's dependence on raw materials. In addition, Israel imports military equipment, investment goods, rough diamonds, fuels, and consumer goods , mainly from the United States (18.6 percent), Belgium (9.9 percent), Germany (7.5 percent), the United Kingdom (7.6 percent), Italy (4.8 percent), and Japan (3.3 percent), according to 2000 figures. The cost of Israel's imports has largely been offset by cash grants from the U.S. government and charitable organizations and individuals abroad. The EU accounted for 67 percent of Israel's 2000 trade deficit, and Asia accounted for 15 percent. The trade balance with the United States was positive.