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UK and Israel to begin new innovated-focused trade talks

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What happened: The UK has announced it will enter negotiations with Israel for a new, innovation-focused Free Trade Agreement (FTA).

  • A new FTA would expand the existing trading relationship worth £5bn a year, which consisted of £2.5bn of UK exports to Israel and £2.5bn of UK imports from Israel. Most of this trade (64 per cent) is trade in goods, with 36 per cent being in services trade.
  • International Trade Secretary, Anne-Marie Trevelyan said: “The UK and Israel are both modern, hi-tech services superpowers, but our current trading relationship is based on an agreement from 1995, before smartphones, the internet, and digitally delivered services transformed the global economy.
  • “We want a deal that will play to British strengths, while stimulating innovation and increasing opportunities for small and medium-sized enterprises across the UK. Combining the power of our economies in a revamped trade deal will boost trade, support jobs and help take our economic relationship to the next level.”

Context: The new FTA will complement the recently agreed UK-Israel Bilateral Roadmap, which aims to transform the bilateral relationship spanning many areas of mutual interest such as science, innovation, defence, health, development, and climate change.

  • Israel has one of the fastest growing economies in the world and their demand for digital products and services is expected to grow rapidly. The UK’s existing FTA with Israel, signed in 2019 and came into force in 2021, contains no specific provisions on services, creating a huge opportunity to enhance the agreement.
  • There is a disconnect between the service-led economies of Israel and the UK, with over three quarters of their value added coming from services, and the low percentage that services make of the total trade between the two countries (34 per cent).
  • The Department of International Trade believes that a new agreement on services between the UK and Israel could increase UK exports of services by around £78m (9 per cent).
  • This includes insurance to computer and technology services, supporting jobs and growing high-tech industries by reducing barriers to trade.
  • UK services and digital sectors in line to reap the rewards of a fresh, modern agreement. UK tech firms are also set to benefit from a new trade deal.
  • In early 2020 BICOM released an in-depth report on Britain-Israel relations covering the extent of bilateral trade and cooperation in defence, science, tech, business and cybersecurity in what amounts to a new strategic partnership between the two countries.

The current UK-Israel trading relationship: According to a new report released by the British Embassy in Israel and the British Council, a total of £1.2bn has been invested across 204 projects by 167 Israeli firms into the UK from 2014-2021.

  • Israeli investment has during those years generated more than £1bn to the British economy. 80 per cent of UK outward FDI projects in Israel were in financial services, professional services and ICT & electronics.
  • Over 15,368 jobs have been supported in the UK as a result of FDI from Israel. 5,721 jobs were supported because of the direct investment; 5,766 jobs have been generated in the supply chain of businesses where investments were spent, and 3,880 jobs were generated from the spending of labour income throughout the economy.
  • The British Embassy in Israel has also donated £16m of funding for science and academic partnerships and activities between UK and Israel researchers from 2012-2021. The multiplier effect in terms of benefits to the UK economy of funding these activities is an estimated 1.53x for grants provided to Israeli early career researchers to study in the UK, and an estimated 4.7x for joint UK-Israel medical research partnerships.
  • In 2020, around 325 Israeli-owned businesses operating in the UK employed more than 7,000 people across the country. Its services sector has grown by over 45 per cent in the last decade, and Israel’s total imports are expected to double by 2035.
  • Israel is also the global leader in R&D expenditure as a proportion of national income, spending almost 5 per cent of GDP on it. And more international money than ever is flowing into UK tech – £29 billion in 2021.
  • By the end of last year, the UK boasted no fewer than 115 tech unicorns, while Israel’s 53 tech unicorns and start-ups secured £18.5 billion of new funding in 2021. This has helped companies such as tech unicorn eToro to thrive in British markets.

Looking ahead: The Secretary of State will meet Israel’s Ambassador to the UK Tzipi Hotovely to launch the talks in London in the coming weeks.

  • According to the UK Government, a new FTA could benefit 6,600 UK businesses, including 5,600 small and medium-sized enterprises, employing over 1.7 million people in 2020, who are exporting their goods to Israel by reducing trade barriers.