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Rewriting Trade Playbook for Tech Age Takes Priority for Israel

Rebooting Trade Deals for Tech Economy Takes Priority for Israel

(Bloomberg) --

Once famed for its oranges and now a tech powerhouse better known for its startups, Israel thinks it’s time for a trade reboot.

The Israeli government is in preliminary talks with officials in the U.S. and Europe to lower trade barriers around services such as cyber security and banking, according to Marc Luban, head of international affairs in the Ministry of Finance’s chief economist office.

Rewriting Trade Playbook for Tech Age Takes Priority for Israel

Transformed over years into a tech hub, Israel is taking a page from countries like the U.S. to rework major trade agreements to better serve their interests. The drive reflects the ascending importance of Israel’s service industry, whose fintech, cyber security and so-called digital health startups have been flooded with private funding in recent years. Israeli exports of services rose to a record $50 billion last year.

And while global trade disputes have slowed Israel’s total exports, the effect has been muted on service providers, whose exports are expected to surpass that of goods next year, Luban said.

“We worried very much about goods and agriculture,” but not enough about Israel’s service industry, Luban said in an interview in Jerusalem. “From 2020, Israel will upgrade its trade agreements” with the major trading blocs, he said.

Services account for 70% of gross domestic product, and the country is negotiating trade deals to help local businesses better compete globally, according to a spokeswoman for Israel’s Ministry of Economy, which houses the Foreign Trade Administration.

Finance, Investment

American officials are coming to Israel in the next few weeks to negotiate new trade agreements, including financial services and investment, according to Luban. That could remove red tape for U.S. banks interested in the Israeli market and facilitate visas for skilled workers, he said.

Global corporate giants have tended to overlook Israel as a target for international expansion, partly due to the relatively small size of the market and its reputation of being overly regulated. Many of the world’s biggest banks have offices in Israel, though mainly to serve large companies rather than offer retail services.

Luban wants these new trade deals to push regulators to synchronize local rules with global standards, which would then open Israel up to international competition.

“It’s a kind of pressure on the Israeli regulators,” Luban said.

Political Gridlock

Progress on new deals has been held up by Israel’s current political paralysis. Earlier this year, American negotiators tried to upgrade their agricultural trade pact with Israel, but those talks had been put on ice until Israel has a new government.

Israel has made some headway with Europe, starting with a new trade pact with the U.K. signed in February, and it has held initial discussions with Swiss officials about similarly upgrading ties with the European Free Trade Association, a regional trade group of three other nations including Iceland and Norway.

Talks with the European Union, Israel’s largest trading partner with $38 billion of commerce last year, haven’t yet started, and will be difficult to navigate because various EU bodies will need to sign off on the negotiations, Luban said.

The U.S. Trade Representative didn’t reply to a Bloomberg request for comment. A spokesperson for the European Commission said that despite a “continuous dialogue on economic and trade matters” between the EU and Israel, “there is currently no ongoing bilateral discussion, be it on bilateral trade in services in general or the financial services sector in particular.”

EU, Switzerland

Switzerland is “prepared to discuss whether a modernization of the already existing agreement between EFTA and Israel in the area of services and other areas would be of common interest,” said Irene Harnischberg, spokeswoman for Switzerland’s economy ministry.

European countries are interested in partnering on topics ranging from water management to cyber security and artificial intelligence, according to David Siegel, a former Israeli diplomat who heads ELNET-Israel, a non-profit organization that focuses on relations with Europe.

“Most, if not all, of our delegations want to have exposure to Israel’s high-tech market,” he said.

--With assistance from Catherine Bosley.

To contact the reporter on this story: Ivan Levingston in Tel Aviv at ilevingston@bloomberg.net

To contact the editors responsible for this story: Lin Noueihed at lnoueihed@bloomberg.net, Yaacov Benmeleh, Paul Abelsky

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