Prepare for BritishIsraeli trade bonanza
THIS WEEK, Open Europe published its Global Britain report, which argues that deepening the UK’s trade exports with Israel in both goods and services should be a top priority. As a member of the EU, the UK’s trade and commercial policy has been made in Brussels for over four decades. In two years’ time we will be able to shape our own future. Where should the focus be?
Some suggest we should look to the USA or Japan — major, developed economies with which the EU has failed to sign a Free Trade Agreement. Others argue that it is all about the emerging economies in Latin America or south-east Asia. Or that we must concentrate on what some have (offensively) termed Empire 2.0.
We thought it would be useful to model the UK’s trade and project how it’s likely to look by 2030. The government needs to plan today for the world of tomorrow.
Our economic model relies on “gravity” in trade. The theory, which is developed from observing the patterns of global trade, is that a country trades more with a bigger country than a smaller country, and that closer countries trade more with each other. Using these facts it’s possible to predict expected levels of trade. The accuracy of these data is improved when you factor in other elements, particularly so-called commonalities: shared language, history or legal system, economic freedom, diplomatic relations and so on.
Our findings were surprising. The model showed that Britain should prioritise three countries above all: Canada, India, and Israel.
In 2030, our analysis suggests that we will have around £27 billion of untapped export trade potential in goods and services with these three economies. For Israel alone, the UK will have over £2 billion of potential for goods exports and nearly £3 billion for services exports. These figures do not represent a ceiling for trade levels with Israel. This is simply where our trade ought to be.
Given that Israel shares so much with the UK, our mutual trade ought to be much stronger. English is widely spoken. The country (mostly) shares our common law legal system. And this year’s centenary of the Balfour Declaration is a poignant reminder of Britain’s role in the creation of Israel. There are thousands of dualnationals and people who travel regularly backwards and forwards. Israel’s population is highly-educated and relatively wealthy.
So why is trade not where it ought to be? There are many potential reasons. One is the barriers on the Israeli side: a sclerotic bureaucracy; restricted rights to foreign acquisition and procurement; strict residency tests for the temporary provision of services; and a requirement for the chair of a board of directors to be Israeli.
The UK should work with Israel to encourage greater openness. Then there is of course the political and security risk, from fears of all-out conflict to terrorism or intifada. It’s easy for business to feel intimidated, particularly when so much of the mainstream coverage of Israel is framed through the conflict and security situation. And business has seen too often how companies doing perfectly legitimate trade with Israel have been hounded and harassed with protests, endless legal challenges and negative publicity. Many will look at all this and decide it’s just not worth the bother.
That’s why the government needs to do even more to clamp down on the discriminatory BDS campaign, and protect companies trading with Israel in the same way they would with any other country.
A further problem is the risk that visits by Israeli ministers and officials are still being threatened and disrupted with spurious legal challenges. The government needs to look again at the relevant legal landscape and ensure that it’s working appropriately.
For decades the UK Embassy in Tel Aviv focused on the peace process to the exclusion of almost any other aspect of our bilateral relations. That changed with Ambassador Matthew Gould, whose passion and energy helped focus minds on mutual trade. Gould established the UK-Israel Tech Hub. It’s still going strong. And in February, during Prime Minister Netanyahu’s visit to London, the government launched a new UK-Israel Trade Working group to smooth any potential issues related to Brexit. It needs to also focus on addressing existing barriers to trade.
It won’t be possible to do all of this overnight. But the point is to focus minds on the size of the prize. For many outside the Jewish community not familiar with the country’s successes and achievements, Israel may be a surprising choice to focus on. But it is the right one.
Henry Newman is director of Open Europe http://openeurope.org.uk
Port of Ashdod, Israel