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WHY ISRAEL SHOULD JOIN A CUSTOMS UNION WITH THE EU

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by Gabrielle F on 13 November 2012

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Transcript of WHY ISRAEL SHOULD JOIN A CUSTOMS UNION WITH THE EU

KEEP THE FTA ? Israel and the EU have an FTA since 1975
The FTA was unfavorable to Israel
A new agreement was signed in 1995...

But still the FTA doesn't seem to be the right framework for EU Israel's relations EEA ARRANGEMENT European Economic Area
= EFTA+EU countries
= FTA + 4 Freedoms of Common Market Customs unions = FTA+common external tariff GO FOR
CUSTOMS UNION FULL MEMBERSHIP? HERE ARE THE 4 ALTERNATIVES EUROPE IS ISRAEL'S NUMBER ONE TRADE PARTNER, NUMBER ONE IMPORT PARTNER AND NUMBER TWO EXPORTS PARTNER, AFTER THE US. REMEMBER:
WE WANT TO OFFER ISRAEL THE BEST POSITION POSSIBLE VIS A VIS THE EU THERE ARE 4 DIFFERENT ALTERNATIVES OF INSTITUTIONAL FRAMEWORK FOR THESE RELATIONS OUR GOAL IS TO DETERMINE WHICH ALTERNATIVE IS THE MOST APPROPRIATE HERE WE LOOK AT THE FTA MAJOR PROBLEMATIC ASPECT THE RULES OF ORIGIN Due to its size, Israel's industry is not very diversified. Israel thus relies on foreign subcontractors
and because of that a large share of Israeli exports doesn't comply with the rules of origins. = Because of the ROO, a share of Israeli exports don't benefit from the exemption of tariffs!
It is impossible to know what share of products who actually enjoys the FTA.
But it is a fact that the EU benefits from the FTA more than Israel does. In a Customs Union, the ROO won't apply because all the products entering the CU will charged the same tariff.
This would set up a new deal for Israel. Indeed, ALL Israeli products will benefit from the absence of tariff and therefore will be cheaper on the EU market. This will result in an increase in Israeli exports to the EU. CUSTOMS UNION FTA Not even a question: Both sides are against EEA arrangement FULL MEMBERSHIP 1) NO MORE
RULES OF ORIGIN MAJOR OBJECTIONS
TO ISRAEL'S ENTRY IN A CUSTOMS UNION
AND
WHY THEIR ARE NOT VALID OBJECTION #1
Israel will have to drop its FTA with Israel and it would have negative economic and political consequences 1) The political consequences are not predictable. The US may want to have an ally joining the EU Customs Union. They were already in favor of Turkey joining it. 2) From an economical standpoint, there are reasons to believe that the US wouldn't mind Israel leaving the FTA. a) Israel is a small market and doesn't weight so much in US economy
b) The trade balance between US and Israel is disfavorable to the US therefore the US might drop the FTA before us OBJECTION #2: CUSTOMS REVENUE ISSUE 3) Israel's export will decrease but only the goods that were conform to the rules of origin BENEFITS OF THE CUSTOMS UNION FOR ISRAEL OBJECTION #1
Israel will have to leave the FTA with the USA which will lead in a decrease in Israeli exports ANSWER:
- The decrease in exports will only affect products which were conform to the Rules of Origin, which share is not defined. Bibliography - Sources
Hirsch, M., Inbar, E. and Sadeh, T., 1996: “The Future Relations between Israel and the European Communities – Some Alternatives”

Malkoc, S., 2002. The effects of the custom union on Turkish foreign trade and industry. Retrieved from:http://www.ekonomi.gov.tr/upload/BF09AE98-D8D3-8566-4520B0D124E5614D/savas-malkoc.pdf

Morelli, V. 2011. European Union Enlargment, a status report on Turkey's accession negotiations http://www.fas.org/sgp/crs/row/RS22517.pdf

Sadeh,T. 2011, retrieved from http://people.socsci.tau.ac.il/mu/talsadeh/files/2011/12/Sadeh98.pdf

Trade numbers: http://trade.ec.europa.eu/doclib/docs/2006/september/tradoc_113402.pdf
and :http://www.ustr.gov/countries-regions/europe-middle-east/middle-east/north-africa/israel

Interim report: http://trade.ec.europa.eu/doclib/docs/2012/june/tradoc_149557.pdf
and:
http://www.europeaninstitute.org/July-2012/eu-us-free-trade-agreement-gets-boost-from-interim-report-720.html

Institute for Research Middle-East policy, 2008, US-Israel FTA, due for cancellation? http://irmep.org/US-Israel_Trade.htm FINALLY,
The US and the EU had preparatory talks about signing an FTA which if they would agree would allow Israel to keep its FTA with the US. The U.S. goods and services trade deficit with Israel was $10 billion in 2010. 2) RESULTS OF THE VINERIAN ANALYSIS OBJECTION #2: ENTERING A CUSTOMS UNION WILL CREATE TRADE DIVERSION THE TURKISH EXAMPLE Interim Report to Leaders from the Co-Chairs
EU-U.S. High Level Working Group on Jobs and Growth
19 June 2012 "The High Level Working Group has made significant progress in analysing jointly a wide range of potential options for expanding transatlantic trade and investment. These include, but are not limited to, the following:
Elimination or reduction of conventional barriers to trade in goods, such as tariffs and
tariff-rate quotas.
Elimination, reduction, or prevention of barriers to trade in goods, services, and
investment.
Opportunities for enhancing the compatibility of regulations and standards. [...]" ANSWER:
As it was said before, it is more likely that there will be trade creation as a result of the CU. 1) Loss of sovereignty:
The Jewish people achieved self determination in 1948 with the establishment of the state. As a Jewish and Democratic state, Israel needs to keep its sovereignty. Joining Europe would mean relinquish part of this hardly won political sovereignty and would go against the Zionist ideal.

2) Jewish character of the state:
There is a legal status quo in Israel. Family laws in Israel are under religious authority. Even if this is status-quo arrangement is criticized inside Israel, it is a national issue that should be resolved by Israel, not by European institutions. WHAT JOINING A CU WOULD MEAN
IN PRACTICE 1) Need to determine which products will benefit from the CU
2) Israel will have to adopt the same:
tariff rates (Common External Tariff) that are applied to countries not in the CU.
Customs classification : classification of new products which for example belong to hybrid categories (music and video).
Customs valuation > determine the value of a product
Rules of origin
Safeguard measures
International treaties All the technical and legal questions have already been solved with accession of Turkey to the CU. If Israel enters the CU, it will be under the same type of agreement.

The result of this Customs Union on Turkey was an increase in exports to the EU and had overall positive results (Malkoc, 2002)

If the EU included the PA and Jordan in the Customs Union, the commercial treaties with Israel could be left intact. Considering that the PA was already welcomed at the UNESCO and that Europeans are so eager to bring peace in Middle East, this would probably be the case. CUSTOMS UNION = FTA+CTE (Common External Tariff) WHY ISRAEL IS AGAINST 3)Israel would have to align it's foreign policy with the EU's one. Example: Europeans would want Israel to return to the 1967's line. Moreover European politicians are known to often adopt anti-Israel's positions... ADDITIONALLY,
-The US have a growing trade deficit with Israel and might end up dropping the FTA before Israel does.
Some groups are pressuring the US to cancel
the FTA OBJECTION #3: Leaving the FTA with the US would have heavy political consequences ANSWER: On the contrary, the US might see Israel entering the CU with EU as an opportunity to strengthen its links with the EU. Today virtually all developing countries enjoy preferential access to the EU market. But some enjoy better access than others, resulting in what is called a "pyramid of trade preferences". Israel will have to adopt EU's pyramid of trade preference which goes as follow: - Lome 4 Convention with the African Caribbean Pacific (ACP) countries
- General System of Preferences (GSP) with other developing countries.
- Europe agreements with Eastern European Countries
-Israel will also have to adopt the EC Mediterranean trade policy In the EEA, countries have free movement of goods, persons, services and capital.

1)One argument against the EEA is that free movement of persons could result in a brain drain, meaning that highly qualified Israelis would leave the country. Viner developed a model to assess the economic desirability of the CU. The creation of a CU is economically justified only if it leads to trade creation. Trade creation is when imports become less expensive as a result of the custom union. 2) Furthermore, to enter the EEA means to accept most EU laws as well as contributing to the EU budget without any access to the decision making process.

> Countries which are part of the EEA without being part of the EU made this choice for very specific reasons that have to do with their history/economy. These countries are economically strong enough to afford to join the EEA. (Example: Norway, didn't join the EU because of protectionism - fisheries, oil). This isn't the case of Israel.
Therefore there is no point for Israel to join the EEA. WHY THE EU IS AGAINST 1) Some might argue that the Copenhagen criteria are not fulfilled in Israel.
Ex: protection of minorities, human rights due to religious character of the state 2) There is no separation of the church and the state in Israel

3) Heterogeneity poses an institutional problem in the EU: each enlargement adds difficulties to make an implement decisions 4) No common grounds on foreign policy Hirsch, Inbar and Sadeh conducted an Vinerian analysis. The conclusion of their research is that: "positive effect for Israel as a whole may concentrate around less than one fifth of the industry, will negative effects be minor" (p.154) 3) RESULTS OF THE REGRESSION ANALYSIS Conclusion of this Analysis:
Israel's trade balance is likely to improve after joining the CU
The balance of creation and trade diversion tends to be positive (meaning more trade creation). OBJECTION #4 : ISRAEL WOULD HAVE TO ABANDON ITS CUSTOM UNION WITH THE PALESTINIAN AUTHORITY AND ITS FTA WITH JORDAN ANSWER: Ex: The US supported the integration of UK to the EU, and support Turkey's membership aspirations
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