ISRAEL-EUROPEAN UNION TRADE AGREEMENT TO BE SIGNED ON MONDAY, NOVEMBER 20, 1995

(Communicated by Foreign Ministry Spokesman)

On Monday, November 20, 1995, in the presence of EU foreign ministers and Israeli Acting Prime Minister and Foreign Minister Shimon Peres, a new trade treaty between Israel and the European Union will be signed. The agreement replaces the 1975 agreement, and includes a number of new components, which will strengthen ties between Israel and the European Union. The treaty’s purpose, as defined in its text, is to provide a framework for political dialogue, and to strengthen economic relations between the EU and Israel.

The agreement is defined as a "Treaty of Association," establishing an association between Israel and the EU. The agreement is based upon the principle of reciprocity, giving expression to the special relations prevailing between Israel and the EU.

Politically, the treaty calls for a regular dialogue at different levels

(ministerial, senior official, and diplomatic), towards the development of a durable partnership, and to strengthen mutual understanding and solidarity.

Economically, the accord expands the parameters of the existing free trade zone by updating rules of origin and making them more flexible, granting easier access to public and government procurement markets (in the telecommunications sector), and simplifying trade conditions.

Further, Israel has been accepted as a full member of the EU’s Fourth Framework Research and Development program. The R&D agreement, initialed on October 31, 1995, determines that Israel can participate in the EU’s R&D committees (without voting privileges). Israel is one of only two countries, the other being Switzerland, that are not EU members but have the right to take part in EU R&D projects. The agreement allows Israeli firms to participate in EU R&D tenders.

With regard to industrial products, the agreement forbids customs duties from being imposed on imports and exports between Israel and the EU. This applies also to customs duties of a fiscal nature.

As to agricultural products, the agreement calls for greater liberalization in agricultural trade with regard to products in which both sides have an interest. To this end, the necessary measures will be in place by January 1, 2001. It was also agreed that, within the framework of the Association Council, the parties will examine each item in an effort to further ease restrictions.

Beyond the sphere of general trade, the agreement includes possibilities for phased freedom of movement in financial services, and for cooperation in many other areas.

The agreement also includes a section concerning the right to establish and supply services, with both parties agreeing to broaden the scope of the agreement to allow the other party to establish firms in the other’s territory, as well as the further liberalization of the supply of services by one party’s firms to customers of the other party.

Concerning the movement of capital, payments, public procurements, competition, and scientific, industrial and commercial rights, it was decided that:

* There will be no restrictions between the parties on the movement of capital, nor will there be any discrimination on the basis of nationality, place of residence, or the place where the funds are to be invested. In addition, current payments relating to the movement of goods, people, services, or capital included in the agreement will be free of all restrictions.

* The parties will take steps to mutually open the government and public sector procurement markets beyond the scope of the WTO framework.

* With regard to competition, the two parties will forbid the creation of cartels and other associations that prevent competition. In addition, the parties will allow full accountability in all matters relating to public assistance, in order to ensure that the rules of fair competition are upheld.

* The parties have agreed on appropriate protections of scientific, industrial and commercial rights, and on the enforcement of these protections.

* Agreement was reached on scientific and technological cooperation. Separate agreements will set forth the details of arrangements in this sphere.

In the context of economic cooperation, the parties agreed that:

* Economic cooperation will take place in sectors related to the parties’ economies or which promote economic growth and/or employment.

* Cooperation will be attained through regular economic dialogue between the parties that will encompass all spheres of economic policy.

* The primary spheres of economic cooperation are:

1. Regional cooperation 2. Industrial cooperation 3. Agriculture 4. Standards 5. Financial services 6. Duties/Customs 7. Environment 8. Energy 9. Information infrastructure 10. Tourism 11. Correlation of laws 12. Transportation 13. War on drugs and money laundering 14. Immigration

On Israel’s request, the agreement also includes new areas of cooperation in the promotion of culture, education, and audio-visual production.

A full section of the agreement is devoted to social issues. It was decided to establish a dialogue in all spheres of mutual interest primarily in such social spheres as unemployment, the rehabilitation of the disabled, equality of the sexes, working relations, and professional training. In addition, agreement was reached on social rights for Israelis within the EU.

Within the framework of the fundamental and general instructions, the parties agreed to establish an Association Council. The Council will convene once a year at a ministerial level, as needed, in order to examine all important issues related to the agreement, as well as all bilateral and international issues of mutual interest. It was also agreed that an arbitration mechanism would be created to settle disputes between the parties.

_____________

Israel-EU Balance of Trade:

In 1994, Israel exports to the EU totalled $4.9 billion, while EU imports stood at $12.7 billion, creating an Israeli trade deficit with the EU of $7.8 billion. During the first nine months of 1995, Israeli exports to the EU amounted to $4.5 billion, with EU imports to Israel of $10.7 billion; thus bringing Israel’s trade deficit with the EU to $6.2 billion, as compared to a $5.5 billion trade deficit during the same period last year. Israel’s trade deficit with the EU is larger than its trade deficit with the rest of the world, which consisted of $7.6 billion in 1994.