|
Israel
FOREIGN TRADE
In 1988 Israel had a quasi-open economy. Its chronic trade imbalance
reflected the country's military burden, its need to import capital
and raw materials, and its excess civilian consumption. This trade
deficit had long been covered by transfers and loans of various
sorts. Despite drops in the prices of oil and other commodities
(the effects of which were felt mainly in 1986) and improvement
in Israel's terms of trade because of the fall in value of the
United States dollar and the parallel strengthening of European
currencies, the balance of trade worsened in 1986. The drop reflected
a surge in inventory rebuilding after the 1984-85 recession.
Despite their high level, Israeli tariffs were not the major
trade barrier. In addition to the standard specific and ad valorem
tariffs, Israel also imposed a purchase tax, compulsory surcharges,
unlinked deposits, excise duties, stamp duties, and a value-added
tax on all imported products. These taxes were designed to regulate
domestic demand and to raise revenue. Lacking a mechanism by which
to deal with dumping and other unfair trade practices, the government
historically used the unilaterally imposed compulsory surcharge
as a convenient measure by which to protect domestic products
from foreign competition. Most of these charges, however, were
rebatable to exporters as part of the export subsidy program.
The brunt of these taxes, therefore, was borne by the nonexport
sector.
One potentially discriminatory nontariff barrier arose from the
administration of the purchasing tax. For purposes of the purchasing
tax, the taxable value of an imported product must reflect its
domestic wholesale price. The percentage difference between the
imputed wholesale price and the tariff-included import price represents
the markup, known by the Hebrew acronym Tama. As long as the Tama
reflects the true wholesale markup, there is no increased protectionism.
Only to the extent that the true markup is less than the Tama,
is there an implicit hidden tariff in Israel.
From 1970 to 1986, Israel's primary exports consisted of basic
manufactures, machines, and transportation equipment, chemicals,
and miscellaneous manufactures. Primary imports were basic manufactures,
machines, and transportation equipment. The United States has
been Israel's single largest trading partner, providing a market
for approximately 25 percent of Israel's exports and supplying
about 20 percent of its nonmilitary imports (see table 10, Appendix
A).
Although as of 1988 the United States was Israel's largest individual
trading partner, the majority of trade has been with the European
Economic Community (EEC). Since 1975 Israel-EEC trade has been
governed by the Israel-EEC Preferential Agreement. This agreement
eliminated tariff barriers on trade in manufactured goods between
the two entities. Under its terms, imports of Israeli manufactured
products were granted duty-free entry to the EEC in July 1977,
except for certain products (considered to be importsensitive
by the EEC) on which full duty elimination was delayed until December
1979. Because the EEC offered trade preferences to other developing
countries and because Greece, Spain, and Portugal entered the
EEC, Israel did not receive significant preferential benefits
from the EEC. Israel eliminated duties on about 60 percent of
its manufactured imports from the EEC in January 1980, and complete
duty-free treatment was to be phased in by January 1989.
The Israel-EEC Preferential Agreement also attempted to provide
for a substantial reduction in trade barriers for agricultural
products. Although the EEC agreed to make tariff reductions on
about 80 percent of its agricultural imports from Israel, Israeli
exporters still had to comply with the EEC's Common Agricultural
Policy nontariff requirements and often were faced with quotas
and voluntary export restraint agreements. As a result, reciprocal
Israeli agricultural tariff concessions to the EEC have been very
limited.
Israel-United States trade was far less distorted by tariff and
nontariff barriers, at least from the United States' side. The
overwhelming majority of Israeli exports entered the United States
market duty free. By contrast, a large share of United States
exports to Israel not only were subject to substantially higher
tariffs, but also were subject to a variety of nontariff barriers,
including a substantial "hidden tariff."
Total Israeli exports to the United States were about US$2.3
billion in 1986. Of this amount, only 2.4 percent (US$57.6 million)
was subject to duty. Duties collected on these products were US$5.4
million, an average rate of 9.6 percent. Because the ad valorem
equivalent tariff rate is calculated as the ratio of duties collected
to dutiable value, this figure overstates the average tariff rate
on Israeli exports to the United States.
The leading General System of Preferences (GSP) exports to the
United States from 1978 through 1986 consisted of jewelry, X-ray
equipment, gold necklaces, telephone equipment and parts, electro-medical
equipment and parts, office machines, and radiation equipment.
Apart from jewelry, all the other major GSP exports were high-technology
goods.
The product composition of dutiable exports helped explain the
low overall duty paid. The primary reason for the low duties paid
was that, between 1978 and 1980, the United States subjected diamond
imports (Israel's principal export), to a 1 to 2 percent duty.
As of 1981, these items entered at a zero most favored nation
(MFN) rate. The other major export items that entered the United
States at a zero MFN duty rate included potassium chloride, airplanes,
emeralds, aircraft parts, potassium nitrate, and antiques. Major
exports that remained dutiable in 1986 included agricultural products,
footwear, textiles, and apparel.
Informed sources claimed that an elimination of United States
duties under the United States-Israel Free Trade Area (FTA) Agreement
on these products would lead to an estimated increase of approximately
1 percent of total Israeli exports to the United States. The major
categories affected will be agricultural products such as cheeses,
olives, and processed tomato products, and textile and apparel
items such as swimsuits, knitwear, undergarments, and thread.
Very few high-technology products will be affected by the FTA
agreement.
Data as of December 1988
|
