U.S. & Israel to Enact FTA

By Magda Abu Fadil

Unprecedented legislation to phase out all trade barriers between the United States and Israel is now in its final stages of approval. The Free Trade Area agreement (FTA) was signed by the two countries on April 22 and approved by the House May 7 in a one-sided vote of 422-0. The Senate is expected to approve the bill in early June, leaving only President Reagan's pro forma signature to put the agreement into effect.

The agreement comes at a time when the United States suffers from a serious trade deficit and a number of the hardest hit industries are calling for protectionist measures. However, the FTA would be a step in the opposite direction. Under it, the U.S. would drop immediately the duties it levies on about 80 percent of Israeli imports. Duties on the remaining 20 percent would be phased out completely by January 1, 1995, as would all duties on U.S. exports to Israel.

U.S. duty-free access to the $8 billion Israeli market is certainly no match for the benefit to Israel of unfettered access to the $3 trillion U.S. market. Announced measures of the Israeli Finance Ministry to address their balance of payments problem by increasing exports and reducing imports makes expectations of larger U.S. exports to Israel unrealistic at best.

Israel plans to promote heavily its exports of high technology products to the U.S. Many of these products soon will be losing their eligibility for preferential status under the General Agreement on Tariffs and Trade (GATT)—making a free trade area all the more attractive to Israel. In addition to competing against tariff-free imports, it will be difficult for American manufacturers to undercut the significantly lower prices of Israeli goods produced by government-subsidized industries.

The possibility of introducing such Israeli goods as textiles, fresh cut flowers, produce, jewelry and high technology items to a vulnerable U.S. market has met with concerted opposition from a diverse group of U.S. producers. In hours and reams of testimony before several congressional committees over the past year, representatives of the American Textile Manufacturers Institute, the Leather Products Coalition, Roses Incorporated, the California Avocado Commission, and Manufacturing Jewelers and Silversmiths of America, to name a few, failed to dissuade legislators from going ahead with the agreement.

Even the AFL-CIO, one of Israel's vociferous supporters in the U.S., went on record as opposing the agreemen. Testifying last year before the House Ways and Means Subcommittee on Trade, AFL-CIO spokesman Stephen Koplan said bluntly: "It is our firm belief that the Israeli free trade area proposal is not in the interest of the U.S. and can only contribute to the further decline of the U.S. industrial structure by increasing imports from Israel." In explaining his position, Koplan stated that at a time when the U. S. was experiencing a hugh merchandise deficit with a rapidly increasing volume of imports, additional reduction of U. S. tariffs and other protections "just does not make sense."

One-Way Increase in Exports?

The Administration itself also had been advised by some U.S. companies not to conclude the free trade agreement. Appearing before a gathering of farmers, Agriculture Secretary John Block got an earful from Elaine Abbott, an economist with Sunkist Growers in California, who said: "We are extremely concerned over the Administration's proposal for a U.S.-Israel Free Trade Area. Typically, the way such free trade areas have worked in the past does not result in two-way trade but one-way trade." She reasoned that it would be difficult for the U.S. to enact free trade with Israel "without providing further concessionary agreements of this nature to other countries including Egypt, Mexico and Brazil." These free trade arrangements, Ms. Abbott said, "could be devastating to California agriculture."

Speaking out in favor of the agreement was the American Israel Public Affairs Committee (AIPAC), which waged a major lobbying campaign to win congressional acceptance. AIPAC was supported by such groups as the Committee for Economic Growth of Israel, the Zionist Organization of America, and by a variety of Israeli companies and American companies doing business with Israel.

Magda Abu Fadil is editor of Middle East Affairs News Service in Washington, D.C.