In a landmark move, Israel recently signed its first free trade agreement (FTA) with an Arab country, the United Arab Emirates (UAE), creating a ripple effect in the dynamics of Middle East economies and diplomacy. This builds on the normalization of Israel-UAE relations established through the US-brokered Abraham Accord in 2020, an event that saw the UAE become the third Arab nation to normalize ties with Israel after Egypt and Jordan.
Key Highlights
Trade between the Two Countries
Israel’s Central Bureau of Statistics has found a significant trade growth between the two nations since 2020, recording a 30% increase in the import and export of goods, excluding diamonds, to and from the UAE. Trade in 2021 totaled approximately USD 900 million, while non-oil trade skyrocketed to USD 1.06 billion within the first three months of 2022 – a fivefold increase from the same period in the preceding year.
Significance of the Free Trade Deal
This spiraling trade journey can be appreciated from various aspects. The deal is seen as a testament to the durability of the Abraham Accords, a diplomatic breakthrough that normalized relations between Israel and four Muslim countries—the U.A.E., Bahrain, Morocco, and Sudan.
Economic Opportunities
The relationship between Israel and the UAE holds enormous economic potential due to the geographic and cultural proximity of the residents, along with the distinctive features of the UAE. As the second-largest economy in the Arab world (after Saudi Arabia) with heavy emphasis placed on technology products and advanced solutions, the UAE makes an ideal trade partner for Israel.
Benefits for Businesses
The trade pact clears the path for businesses in both countries to enjoy faster access to markets and lower tariffs, significantly contributing to trade growth, job creation, skill promotion, and enhanced cooperation. The deal abolishes customs duties on 96% of products exchanged between the nations and covers a wide spectrum of areas including regulatory and standardization issues, customs, collaboration, government procurement, e-commerce, and intellectual property rights.
Trade Growth with UAE
The agreement is expected to accelerate the value of non-oil bilateral trade between Israel and the UAE beyond $10 billion, with predictions stating that UAE-Israel trade will exceed $2 billion in 2022, rising to approximately $5 billion in five years.
Israel’s Access to International Market
The long-term prospects envision Israeli companies establishing manufacturing units in the U.A.E., which serves as a Middle East, Asia, and Africa hub—regions where Israel has traditionally struggled to gain ground.
Implications for India
This agreement, along with the Comprehensive Economic Partnership Agreement (CEPA) signed between India and the UAE, carries the potential for broad trilateral cooperation and business partnerships. It also opens doors for collaborations in various fields with the US, thanks to the Abraham Accords. The formation of the West Asian Quad, consisting of Israel, India, the UAE, and the US, emphasizes an economic cooperation agenda with a focus especially on infrastructure projects.
A Quick Look at Free Trade Agreements
FTAs are arrangements between two or more countries or trading blocs that primarily agree to reduce or eliminate customs tariff and non-tariff barriers on substantial trade between them. They generally cover trade in goods such as agricultural or industrial products, or trade in services like banking, construction, and trading. Additional coverage could include intellectual property rights (IPRs), investment, government procurement, and competition policy, etc. India, for instance, has negotiated FTAs with many countries and trading blocs.
The Way Forward
This trade agreement between Israel and the UAE ushers in a novel paradigm for the West Asian region and underscores the necessity of forging significant partnerships. It promises future diplomatic ties that will ease long-standing Middle East conflicts. The Abraham Accords have generated a pivotal momentum toward peace and prosperity in the region.
Insights from Previous Examinations
A past question from the UPSC Civil Services Examination (2018) explored the ‘free-trade partners’ of the Association of Southeast Asian Nations (ASEAN). It turns out; ASEAN has free trade agreements with six partners including the People’s Republic of China, Republic of Korea, Japan, India, Australia and New Zealand.
