BICOM

This paper is a detailed sector by sector analysis of Brexit’s potential impact on bilateral trade. It draws on in-depth interviews with officials, diplomats, lawyers and business leaders in Britain and Israel.

The report is the first in a series of studies assessing the impact of Brexit on Britain-Israel trade and the wider implications for British trade with countries around the world.

Key points

• A UK government issued White Paper identified Israel as a trade priority for post-Brexit Britain because of the potential synergies between Israel’s high levels of innovation and British strengths in design, business growth and finance, as well as the UK’s own high-technology and scientific strengths. However, realising the opportunity requires being ready with new bilateral agreements or transitional arrangements.

• Areas in which Israel excels, especially in high-tech fields such as cyber security, Research and Development (R & D) and fin-tech, are largely not under the purview of EU-Israel agreements, easing the challenges post-Brexit.

• The number of Israeli companies setting up in the UK in the year after the referendum has increased by 28 per cent – with a 33.5 per cent increase in the level of investment and a 12.8 per cent increase in jobs created in the UK. These figures indicate that Israeli businesses see a moment of opportunity, and reflecting the underlying attractiveness of the UK for Israelis, based on language, culture and access to financing. However, there remains large untapped potential in the form of British investment in R & D in Israel itself, with only five British companies having opened innovation centres or acquired Israeli companies since 2014.

• At the same time, the overall attractiveness for Israeli businesses of operating in the UK will depend on whether London maintains its status as a global centre for capital. A prolonged period of uncertainty and concerns as to the future of regulatory and other requirements may lead some companies to reconsider operating out of Britain. Those Israeli and international companies attracted by the UK seek continued smooth access to the EU market for goods and services as well as a solution that allows for continued regulatory alignment with the EU in a Brexit deal.

• There is exceptional potential for growth in bilateral trade and investment, including UK exports to the expanding Israeli market, but this will be harmed if there is no arrangement to ensure the continuation of trade terms currently covered by the EU-Israel Association Agreement. “Grandfathering” existing arrangements currently covered by the EU-Israel agreements will thus be necessary in some important sectors including agriculture, pharmaceuticals and aviation. A UK-Israel working group is focussed on this, though there is a risk of the UK being overwhelmed by the challenge of simultaneously establishing new trade agreements around the world.

• In agriculture, there is an opportunity to go beyond current Israel-EU terms by establishing different quotas which could allow Israeli fruit and vegetables to access a larger share of the UK market, and lower prices for UK consumers by increasing competition with southern Europe.

• In foreign policy and defence outlook, the UK and Israel will continue to share a broad strategic foreign policy and defence outlook, and will have even more in common post Brexit, as two important powers on the periphery of the EU and highly integrated with it, but with no aspiration to membership. Israel may, however, miss the UK’s voice in the EU council on deliberations on the Israeli-Palestinian arena.

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