Loan guarantees help spell opportunity for business - Israel - 1993 World Trade Outlook

Business America, April 19, 1993 by Kate FitzGerald-Wilks

U.S. business will benefit from the economic growth Israel derives from the five-year, $10 billion U.S. loan guarantee program, signed in 1992. The program was designed to assist Israel's absorption of the recent influx of immigrants. U.S. aid to Israel is not directly tied to U.S. exports. However, U.S. business can benefit from the loan guarantees by competing directly for Israeli projects which they fund.

Over the next five years, Israel will use the majority of the funds to make additional foreign exchange available to the commercial banking system to support increased business sector activity. The government will also use the funds for infrastructure projects that will support economic growth and job development in the business sector.

On March 15, 1993, following a meeting with Israeli Prime Minister Rabin, President Clinton announced the establishment of the U.S.-Israel Science and Technology Commission. Secretary of Commerce Ronald H. Brown will chair the U.S. delegation to the Commission, which will promote cooperation to create technology-based jobs for the 21st century in the United States and Israel.

Israel's demand for the highest technology and highest quality goods has secured a position for such U.S. products in the Israeli market. Total trade between the United States and Israel in 1992 increased 8 percent over 1991. U.S. exports rose 4.6 percent and imports from Israel rose 11.5 percent. Currently, the United States has a 17 percent share of the Israel market. The United States is Israel's largest foreign supplier of computers, peripherals, software, telecommunications equipment, and electronic components, and should continue to lead the market in the future. Other high-technology product categories that will continue to offer best prospects for U.S. exporters include: aircraft, aircraft parts and technologies; medical and dental instruments; electrical equipment; electronic components; petrochemicals; metalworkings; machine tools; and pollution control equipment. U.S. consumer goods, including textiles and apparel, have become more attractive to the Israelis with the elimination or reduction of most tariffs under the U.S.-Israel Free Trade Agreement (FTA). A recent change in Israel's purchase tax system makes automobiles and trucks the sector with the largest potential for U.S. market share growth.

Under the U.S.-Israel FTA, which became effective in September 1985, more than 80 percent of U.S. exports to Israel are duty-free; the remainder will become duty-free by Jan. 1, 1995. Recent discussions with Israel under the U.S.-Israel FTA have also resulted in measures to eliminate non-tariff barriers and make U.S. products more competitive with Israeli products, especially in the area of standards.

Last September, Israel signed a Free Trade Agreement with the European Free Trade Area (EFTA) countries--Austria, Norway, Finland, Sweden, Switzerland, Iceland, and Liechtenstein. The agreement called for the elimination of duties on most industrial goods on Jan. 1, 1993. This is the third FTA Israel has signed and it is similar to Israel's FTA with the European Community. The EC signed a free trade agreement with Israel in 1975, which covers all products except agricultural goods and was fully implemented on Jan. 1, 1989.

The business confidence level in Israel continues to be favorable, despite a lack of progress in implementing the government's privatization program. Israel provides generous incentives to both domestic and foreign investors. Several U.S. companies have recently started or expanded operations in Israel to take advantage of these incentives and of Israel's participation in the three FTAs.

Israel's economy has also expanded. Israeli estimates put gross domestic product growth in 1992 at 6.2 percent, slightly above the 1991 level of 5.9 percent. However, this growth can be attributed primarily to a substantial increase in Israel's population and consequent increases in demand, especially for housing, rather than to the growth in production capacity needed to sustain the employment needs of the country. Unemployment levels in 1992 stayed at a record level of 11 percent and will remain the major economic problem in 1993. Efforts to control inflation have paid off (last year Israeli inflation--at 9.4 percent--was in single digits for the first time in 23 years), but the decline is partially attributed to the surplus of housing in Israel.

For further information on doing business in Israel, call the ANESA Flash Facts system by dialing (202) 482-1064. This system operates 24 hours per day.