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8/11/2008
IRmep Opportunity Cost Analysis
The US-Israel Free Trade Agreement: Due for Cancellation?

(See Also USTR Petition to Suspend the US-Israel FTA and a video update on the agreement at Rochester University)

Signed by President Ronald Reagan in 1985, the U.S.-Israel Free Trade Agreement (FTA) was our very first FTA.  Nearly a quarter century of trade flowing under the agreement reveals a number of negative, yet entirely predictable outcomes.

Adjusted for inflation the agreement has delivered a $62.65 billion dollar cumulative American trade deficit with Israel.  Trade, roughly at parity before the agreement was penned, shifted in favor of Israeli exports to the US by the early 1990s.  This imbalance accelerated after the post 9/11 economic downturn. It is likely to be permanent.  Net losses follow unfavorable terms embedded in the treaty at the insistence of the American Israel Public Affairs Committee (AIPAC), the lead organization of Israel's lobby in the United States. 

The selection of Israel for the first agreement made little sense outside of AIPAC—important trading partners such as Canada, Mexico and even Colombia had much more to offer the US in terms of comparative advantage. However, AIPAC successfully pushed Israel to the front of the line.   It also worked to ban US agricultural exports, a key component of subsequent FTAs, from the agreement.  US manufacturing industries suffered similar strictures. 

Footwear Industry Association executive vice president Fawn Evenson characterized AIPAC's lobbying as "heavy handed".  Footwear wasn't the only manufacturing industry disadvantaged.  Provisions within the agreement immediately lowered all US tariffs on Israeli manufactured goods.  However Israel was allowed to protect its own domestic industries through a floating 20% customs duty on any US import of its choosing.  While in hindsight these provisions appear to be the result of savvy negotiating by Israel and its US lobby, an incident investigated by the Federal Bureau of Investigation suggests covert factors at work.

Israel negotiated with illegally obtained material inside information about US industries.  The FBI found AIPAC in possession of classified documents outlining the entire US negotiating position.  The document in question, a report from the International Trade Commission to US Trade Representative William E. Brock contained proprietary data provided by US corporations under conditions of strict confidentiality.  The trade document also outlined how far the US was willing to go in concessions and demands.  Its possession by Israel and AIPAC provided an unfair advantage that was subsequently embedded in the FTA.

No charges were filed against AIPAC which confirmed possession and return of the classified documents—AIPAC divulged no details about how they were stolen.  AIPAC then released a statement to Footwear Industry News that "American companies should benefit more than Israeli companies from the increased exports that would result from a US-Israel free-trade zone." 

US footwear exports to Israel did experience 13.9% average annual growth from 1989-2007.  However, Israel's grew 16.2% over the same period, producing a US deficit in the footwear category in seven of the last eight years.  A 25 year review about how the agreement was crafted, its parameters and results should lead to the cancellation of this treaty.

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