NEAR EAST REPORT AIPAC'S BIWEEKLY ON AMERICAN MIDDLE EAST POLICY

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President Reagan and Prime Minister Begin formalize the U.S.-Israel economic partnership.
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Last year, more than $35 billion in goods and services were traded between the United States and Israel.
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Israeli innovation and the joint partnerships it has created have been a vital aspect of the U.S.-Israel relationship.

Twenty-Five Years:
The U.S.-Israel Free Trade Agreement

In 1985, the United States and Israel signed the historic Free Trade Agreement (FTA). Although only 20-pages-long, the accord would become the lynchpin of an expanding economic relationship. The agreement was the first of its kind between the United States and any other country. Its success led to similar agreements between the U.S. and other countries around the world.

The United States and Israel have enjoyed a spectacular economic partnership in the 25 years since the FTA was signed. It largely eliminated tariffs and quota limits on trade in goods. As a result trade has boomed—increasing by more than $45 billion since 1985.

The FTA proved to be a tipping point. Trade between the two allies had been minimal at the time of its signing, with Israel actually receiving more in U.S. aid than it exported to the United States. Last year, however, more than $35 billion in goods and services were traded between the United States and Israel, far outpacing the $3 billion Israel received in U.S. aid. .

The formalization of the economic ties between the two nations through the FTA has helped strengthen the entire relationship, leading to increased cooperation across a variety of industries. U.S. companies have actively sought to invest in what was a new and quickly developing market. Last year, U.S. firms invested more than $10 billion in Israel to tap its ingenuity, innovation and entrepreneurial spirit. Today, Israel is ranked among the world’s 20 most competitive economies and has recently joined the global community’s most exclusive economic forum, the Organization for Economic Cooperation and Development (OECD). Building on the FTA, Israel has gained international credibility, enabling it to accelerate its economic growth.

New Market Opportunities

Israel currently stands as the 22nd-largest export market for U.S. goods—a remarkable ranking given the relative size of Israel’s economy and a population that represents a mere 2 percent of the Middle East’s populace. The billions of dollars in U.S. sales to Israel help generate thousands of American jobs across a variety of sectors including technology, agriculture and finance.

American companies are also reaping the rewards of direct investment in Israel’s economy. Corporations such as Intel, Microsoft and Google have invested billions of dollars in the Jewish state, with some locating leading international research-and-development operations there.

Israeli Innovation

Israeli innovation and the joint partnerships it has created have been a vital aspect of the U.S.-Israel relationship. Technological advancements such as cell phones, voicemail and instant messaging were partly developed in the Jewish state.

Computer chip giant Intel, for instance, credits its Haifa plant with developing the “best microprocessors we’ve ever designed,” in the words of Intel CEO Paul Otellini. Referring to the Israeli-developed Core 2 Duo processor—the world’s fastest computer processor which helped the company maintain its market dominance—American Technology Research analyst Dough Freedman said "they saved the company. Without those new products, Intel would be in a lot more trouble."

Peace through Economics

Among the FTA’s crowning achievements has been its success in enhancing Israel’s relationship with its neighbors Jordan and Egypt. The agreement became the legal underpinning for what became known as the Israel-Jordan Qualifying Industrial Zone (QIZ) and the Israel-Egypt QIZ. Cooperation is incentivized, as goods produced in these zones are awarded duty free access to the U.S. market – provided they contain a certain amount of Israeli content. These QIZs employ 15,000 workers in Jordan and 100,000 in Egypt, helping strengthen their economies and deepen their connection to Israel.

AIPAC Diamond Summer Intern Alana Abramson contributed to this report. BACK TO TOP