9 February 2022

How to get the best out of an updated trade deal with Israel

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Trade deals have the potential to impact all our lives, but people often feel that the deals are something imposed upon them without any real accountability. So it’s good news that the Government is consulting the public and businesses on updating Britain’s trade deal with Israel.

It’s also an opportunity to take stock and rethink the UK’s trade priorities. The deal with Australia was a momentous step as it was the first new free trade agreement signed with another country.

However, a fair criticism was that we weren’t exactly clear what we wanted and it was, in many ways, quite rushed. This is understandable as negotiating trade deals was a new experience for the UK, and there were political pressures to get something done. There were red lines of course, but not being clear of exactly what you want while the other side knows you’re facing tough time constraints means you probably won’t get the best trade deal for your country. This is not to detract from the hard work and achievements of the negotiators, civil servants, and politicians who worked hard to get a deal (while simultaneously engaging in other negotiations).

That’s why a consultation is so important. As in most things in life, individuals know their businesses far better than politicians and mandarins in Whitehall. We should listen to them to find out. 

I’m not a businessman, but as someone who has worked on trade deals, here is what I think the Government should do.

When it comes to goods, there is already a significant volume of trade between the UK and Israel. It’s often tempting to see FTAs in terms of tariff reduction, but as I’ve explained on this site before we need to look at non-tariff barriers to trade. These can include quotas, regulations, and rules of origin requirements. All of these increase friction to trade and impose burdens and costs to businesses, ultimately making them less competitive to consumers.

When it comes to trading with Israel, labelling is an issue. There are strict rules over what the labels must contain and there has recently been a new traffic light labelling system which requires products to show how healthy they are. This creates added costs for all businesses, including British ones, and so the UK should look to see how this can be resolved. Then there is the Standards Institute of Israel. Many of its requirements for imports are not in keeping with international best practice, which can lead to long waiting periods for imports checks and high costs for testing. 

Any updated deal should also make trading much easier for SMEs. Small businesses are the backbone of the UK economy and we have a thriving startup scene, but it’s these businesses who often find international trade the most challenging due to all the red tape. The Government should ensure there is an SME chapter in the FTA so that they get the support they need to start or increase their trade with Israel.

Our tech sector is something we should prioritise in any trade deal. Israel is also a tech superpower and so any trade deal should focus in on increasing trade and investment, leading to greater research and development in this area.

Getting digital trade right will be vitally important. As Sam Lowe recently pointed out, ensuring the free flow of data, the protection of encryption technologies, and the ban on data localisation are vitally important, not just for high tech companies but for manufacturing and agriculture as well. That’s why any updated deal should include a digital chapter.

We also need to focus on increasing services trade. Both the UK and Israel excel in providing services, and yet services trade between the two countries is relatively small. This should be the priority for any UK deal as it makes economic sense to double down on the things we’re good  at. 

This will mean taking steps to recognise each other’s professional qualifications in areas such as law and finance. It will also mean more liberal visa provisions, making it far easier for professionals to work in the other country. We should also look at the tender process for public procurement, making it much easier for UK firms to bid for government contracts.

Finally, we need to look at the diplomatic angle. Israel is an important ally and it’s right that the UK supports it and stands up to those who claim it does not have a right to exist. However, as I explained last week, trade is now an important tool in diplomacy and we should use it to ensure that Israel stands by its commitments to finding a peaceful solution and treats the Palestinian people with respect. For example, the UK rightly does not consider the Occupied Territories as part of Israel, so goods originating from there do not enjoy the benefits of the current trade agreement and this should remain the case.

Ultimately if the Government gets this right, the result should be a better deal for both Britain and Israel.

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Ben Ramanauskas is a Research Economist at Oxford University and a former adviser to a government minister.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.