Trade links between Israel and Arab Countries

Category: Africa, Egypt, Israel
Last Updated: 08 May 2020
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Introduction to the Arab Countries
The Arab countries often regarded as the Arab World comprise of Arabic-speaking countries stretching from the Atlantic Ocean in the West to the Arabian Sea in the East, and from the Mediterranean Sea in the north to the Horn of Africa and the Indian Ocean in the southeast. The Arab World comprises of 24 countries and the overall population sums up to 325 million people. A number of these Arab countries have huge reserves of petroleum. Among the countries with the most oil, reservoirs are the countries of the Persian Gulf States namely: Saudi Arabia, UAE, Kuwait, and Qatar. These countries are among the top ten oil exporters from around the world.

Moreover, apart from these countries, Algeria, Libya, Iraq, Bahrain, Morocco, Western Sahara, and Sudan also have significant oil reserves but they are smaller in quantity. This difference had significant impact on the politics and functioning of the states and this eventually leads to advent of financial differences among oil-rich and oil-poor countries. This has particularly been the case in thickly populated states of the Persian Gulf, which leads to the migration of labor.

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Geographical Significance of Arab Countries
The geography of the Arab countries stretches across more than 12.9 million square kilometers (5 million square miles) of North Africa and some part of the Arab world stretches towards North-East Africa and South-West Asia, which is commonly referred as the Middle East. The Arab countries lying in the Asian region is termed as ‘Mashriq.’ The Western part of the Arab world lying in the North African region, i.e. the west of Egypt and Sudan is termed as ‘Maghreb.’ The total size area wise of the Arab World is equal to the Spanish-speaking Western Hemisphere. The area that the Arab countries cover is larger than the total area covered by Europe (10.4 million km²), whereas that of Canada is (10 million km²). The area covered by Arab countries is greater than that of China (9.6 million km²), the United States (9.6 million km²), and Brazil (8.7 million km²) the only country greater than the Arab world is Russia with an area of 17 million km², and North America with eighteen million square kilometers.

Most people coincide the term ‘Arab’ synonymous to the Middle East, whereas North Africa comprises of the larger portion of the Arab World. Its total area is eight million square kilometers and it includes two largest countries of the African continent namely: Sudan (2.5 million km²) situated in the southeastern region and Algeria (2.4 million km²) is situated in the center. The largest country of the Arab world in the Middle-Eastern region is Saudi Arabia (2 million km²). The smallest autonomous country of the Arab country of North Africa and Middle East is Lebanon (10,452 km²), and the smallest island Arab country is Bahrain (665 km²). It is an interesting point that mostly all the Arab countries have sea or ocean as borders except the Arab region of northern Chad.

Economy of the Arab Countries
Almost all the Arab countries are developing economies. All the Arab economies depend on the revenue generated by the export of oil and gas. However, they also generate revenue by the selling of raw materials. Last few year have witnessed phenomenal growth in the economies of the Arab countries. One of the major reasons for this growth has been the increase in oil and gas prices due to the increase in demands. The oil and gas increased three times during 2001 and 2006. Another reason for the increase in demand of oil and gas is due to the efforts of some states for diversifying their economic characteristics. The amount of industrial production has increased substantially. A good example of this is the increase in steel production; the steel produced between 2004 and 2005 increased from 8.4 to 19 million tons.

The main organization of the Arab countries for economic cooperation is the Gulf Cooperation Council (GCC). The foundation of GCC took place in 1989. The council comprises of the countries lying in the Persian Gulf region, the North African states known as Union of the Arab Maghreb (UMA). The council gained some success in terms of its financial and monetary objectives such as the regulation of the common currency in the Persian Gulf region. However, the most significant accomplishment of the council remains the formation of the 7000 Km highway connecting North Africa from Mauritania to Libya's border with Egypt. The highway is going through an expansion plan that would complete in 2010. The expansion would result in connecting Morocco, Algeria and Tunisia. The last few years have seen another term becoming popular for the definition of a greater economic region due to the extensive support from the current US administration: MENA (Middle East and North Africa) is becoming increasingly popular, especially with support from the current US administration. If we list the economies of Arab countries according to GDP growth, Saudi Arabia tops the list. It is the eleventh largest economy of Asia. Egypt and Algeria follow Saudi Arabia in the list, which are the second and third largest economies of Africa. In terms of GDP per capita, Qatar is the richest developing country of the world (CIA World Factbook, 2006).

Introduction to Israel
Israel, officially known as the State of Israel is situated in Western Asia. It is located on the eastern edge of the Mediterranean Sea. The modern Israel finds its roots in the concept core to the religion of Judaism for over 3000 years. It was after World War I that the League of Nations agreed on the British stand of creating a national home for Jewish people. The United Nations partitioned Palestine in 1947 into two states, one Jewish and one Arab. The state of Israel declared its independence on May 14, 1948 and consequently, Israel declared war with the surrounding Arab states. The Israelis gained victory that confirmed their independence and broadened their borders beyond the state allotted by the UN partition plan. From that time to now, Israel has always remained in conflict with its Arab neighboring countries that resulted in huge wars and several decades of violence, that continues up until today. From the first day of the formation of Israel, its borders and the justification of its existence is disputed among the neighboring Arab countries. The country has tried several times to sign peace agreements with Egypt and Jordan and reach on a peace treaty with Palestinians.

Geographical Location of Israel
Israel is surrounded by Arab countries on all its borders. It has Lebanon on the north border, Syria in the northeast, Jordan on the eastern border and Egypt on the southwest. Considering the small area that the country has, it still has diverse features in the small area (Skolnik, 2007). The country has the West Bank and Gaza Strip adjacent to it. The population of the country is 7.28 million (Central Bureau of Statistics, 2008). Jews have the majority in the country and it is the only Jewish state in the world. However, people from other ethnic backgrounds also live in the country. Majority of the people are the Arab citizens of Israel and other religious groups such as Muslims, Christians, Druze, Samaritans and others. If we exclude the captured territories of Israel then its total area is approximately equal to 20,770 square kilometers (8,019 sq mi) out of which only 2 percent is water. However, if we consider the total area under Israeli control, we have to include part of Israeli held Palestine of the West Bank the area becomes 27,799 square kilometers (10,733 sq mi) (Country Studies, n.d.).

The small geographical area of Israel does not have limited characteristics and it consists of diverse features. The country has the Negev deserts in the south and mountain ranges of Galilee, Carmel, and Golan in the north. The Coastal region on the Mediterranean is where the seventy percent of the population resides. Israel varies not only geographically but also temperature wise. The country has varying temperatures especially in winter. Mountainous regions are windy, cold, and snowy. The cities on the coastal region have typical climate of the coastal region. The country takes full advantage of the considerable amount of sunlight available, which makes Israel the leading country using solar energy.

Economy of Israel
Israel has a diversified economy, it comprises of significant ownership by the government whereas the technology and industrial sector is gaining strength rapidly. The country is poor in natural resources. It does not have oil resources and depends on the import of petroleum, coal, food, diamonds, and other raw material for production and manufacturing of finished goods. It also imports military equipment. The country got an invitation to join OECD in May 2007. According to the International Monetary Fund, the purchasing power of the country reached $195 billion whereas according to the World Bank, it is $179 billion. In the year 2006, GDP per capital of the country is $31,767 according to the statistics of IMF, whereas according to the figures produced by World Bank, GDP per capita of Israel is $26,200. The economy of the country augmented by 8% in the year 2006, which was the speediest growth than any of the other nations of the West (Dateline World Jewry, 2007).

The industrial sector of the country is involved in the production of metal products, electronic and biomedical products and equipment, processed foods, chemicals, and transportation equipment. The country has a strong service sector and the diamond cutting and polishing industry of Israel is one the most important industry for diamond in the world. Israel is also a world leader in the development of soft wares. Vast amount of tourists route their tours towards Israel. Tel Aviv city of Israel has to make the list of Newsweek of the ten most technologically influential cities in the world (The Israeli Economy Achievements and Potential, 1998). The first research and development departments outside the United States, of companies like Microsoft and Intel were formed first in Israel. Another name of the country that became popular because of the above-mentioned characteristics is ‘Silicon Wadi.’ The country has signed free trade agreements with the following countries: the European Union, the United States, Turkey, Mexico, Canada, Jordan, and Egypt. It is also a member of the European Free Trade Association. In December 2007, the country became the first non-Latin American country to sign a free trade treaty with Mercosur.

History of economic ties between Arab and Israel economies and the Arab Boycott
Post World War I, Britain had taken control of Palestine and its Balfour declaration had called for a Jewish National Home in Palestine. British occupation of Palestine was legalized in 1920 when the country was provided with the mandate for Palestine by the League of Nations. The mandatory period ended in May 1948, during that time the social, political, and economic characteristics for the state of Israel were developed. The Palestinian government had a uniform economic policy. However, the Jewish and Arab economies developed differently and had no connection among them (Helpman, 1999).

Israeli economy had a number of factors that fuelled its growth during the initial years of development. However, the two most important factors were immigration and capital inflows. Immigration was responsible for the increase in the population of the Jews. The economic development of the Arab sector along with the formation of trade relations with Israel is a major challenge for both Israel and the Arab countries. The league of Arab countries officially declared the boycott on 2 December 1945. The statement was passed that “Jewish products and manufactured goods shall be considered undesirable to the Arab countries.” Later, all Arab institutions, business firms, merchants, commission agents, and other individuals were asked to refuse to deal, distribute, or use Zionist products or manufactured items. The declaration by the Arabs clearly quotes the terms ‘Zionists’ and ‘Jews’ as synonyms. The boycott shows that the Arab states had boycotted against Israel even before the formation of the state of Israel (Herman, 2005).

The Arabs divided the boycott into three components. The primary objective of the boycott targeted direct trade between Israel and Arab nations. The secondary objective of the boycott was directed towards those companies that were doing business with Israeli companies. The tertiary objective of the boycott tried to blacklist those firms that traded with companies that had continued trading with Israeli companies. The primary, secondary, and tertiary objectives of the boycott suggest that the main target of the Arab league was to cut all form of trade between Israel and any of the Arab country. The blacklisting process of companies is not clear and it is not mentioned anywhere whether boycott officials collect evidences before they place an individual or a company on the blacklist. Six Arab countries that are part of the Arab league do not enforce the secondary boycott.

Those countries are Algeria, Mauritania, Morocco, Somalia, the Sudan and Tunisia. The countries that are once on the list, it becomes difficult for them to get off the list. The formal boycott might require companies to provide proof that it is no longer doing any business with Israel and sometimes, the companies might be asked to make the same number of investment in Arab countries as those made in Israel. As the measures taken in the boycott suggest, the object is to isolate Israel from its neighbors and international audience. Moreover, it also tries to deprive Israel of trade links that the country might use for increasing it military capabilities and economic strength. The countries that cooperated with the Arab countries in the boycott were Britain, Japan, and other countries. The boycott has isolated Israel and deprived its economic factors of the most natural market. However, the impact of the boycott has not been able to reach its intended degree (Bard, 2007).

US measures against the boycott
In 1977, US decided to take some measures against the boycott. Consequently, Congress passed a law that prohibited US companies from participating in the Arab boycott. President Carter, while signing the law said, “issue goes to the very heart of free trade among nations” and that it was designed to “end the divisive effects on American life of foreign boycotts aimed at Jewish members of our society.” When the bill had passed, there were several claims that the boycott would drastically reduce the amount of trade between the Arabs and US. However, on the contrary, imports and exports increased. Diplomatic and cultural links flourished. However, certain companies came on the blacklist for maintain ties with Israel. Moreover, another interesting thing was that few companies promised not to participate in the boycott but they were complying with the boycott. The following tables include the number of request that various Arab countries made to US companies. US individuals reported 1,037 requests from 20 countries that included both member and non-member Arab countries (Weiss, 2006).

Table 1 – Boycott requests

Number of Requests to Comply with the Secondary and Tertiary Boycotts
United Arab Emirates (UAE)
Other (Algeria, India, Iran, Malaysia, Nigeria,

Oman, Pakistan, Tunisia, and Yemen)
Saudi Arabia
(Weiss, 2006)

Impact of the Boycott
The impact of the boycott is difficult to measure as it is forced informally and therefore, it is not possible to quote the impact on the Israeli companies adhering to the boycott according to capital or revenue. The effect seems limited since the intra-regional trade is small and therefore, the impact is not very drastic. However, there is limited amount of trade activities between Israel and Arab countries. The secondary and tertiary levels of the boycott have reduced with time. A research conducted at Tel Aviv University in 1996 studied the impact of the Arab boycott on the Israeli economy by studying the automobile market. The softening of the boycott during recent times, i.e. the late 80s and the early 90s, Asian countries started exporting cars to Israel. The study concluded that if the boycott had continue to be enforced then the cars would not have entered the Israeli market and there amount would have been 12% lesser leading to an increase by $790 in every car. The loss of welfare per annum would have been $89 million. Thus, we can say that due to the intra-regional trade being small and the enforcement of the boycotts is not strict that is why the boycotts do not have a sizable impact on the Israeli economy. Despite the impact of boycott on either of the economies, it remains extremely important for both the Israeli and the Arab countries. A number of Arab countries do not want have any link with Israel unless the resolution of the conflict of Palestinian territories.  Israel wants to be accepted in the neighborhood both in political as well trading terms and should be considered as a source of, and for foreign investment (Weiss, 2007).

Trade links of Israel with Arab countries
The Beginning of the Peace Process:
On November 19, 1977, American television screens showed the Egyptian airliner as it drew to a stop on the tarmac of Ben Gurion Airport in Israel. Egyptian President Anwar Sadat walked slowly along a line of waiting leaders of the Jewish state, shaking hands with each in turn. These were the modern stewards of four thousand years of Jewish history. They were men and women diverse in political orientation, personality, and views regarding the future of their state -- but they were one in yearning for peace and acceptance. Progress toward an Arab-Israeli peace depends first on convincing human beings -- individually and then collectively -- that peace is possible. The political leader's ability to change the political environment is a prerequisite. Only after political change has occurred do the diplomat, the mediator, and the negotiator stand a chance. The obstacles to peace lie in human minds and hearts. They are psychological, human, and political.

When President Sadat spoke on November 20 in Jerusalem before the parliament of the Israeli people and to a watching world, he presented a negotiating position about which the Israelis did not want to hear -- withdrawal to 1967 borders, a Palestinian state, an Arab role in east Jerusalem. At the same time, he carried another, more basic message to the people of Israel and delivered it to them face to face at the seat of their government: Egypt accepts Israel and is ready to make peace. This second message the Israelis did hear -- and wanted to hear. Sadat's visit became the act of a political leader changing the political environment and was not mainly the With U.S. help. Parties to the Arab-Israeli conflict concluded the Egyptian-Israeli detachment agreement of January 1974, the Israeli-Syrian disengagement agreement of May 1974, a second Egyptian-Israeli interim agreement in September 1975, the Camp David accords between Egypt and Israel in 1978, and the Egyptian-Israeli peace treaty in 1979. The president and secretary of state were extensively involved; Secretary Kissinger shuttled back and forth, and President Carter hosted unprecedented negotiations at Camp David and concluded them in his March 1979 trip to Egypt and Israel act of a negotiator.

There were three Arab-Israeli agreements in 1974-1975 but even more important than the negotiations were the profound political reorientations that changed the political environment so that it would support those negotiations. President Sadat tried through peace to free resources to improve life in Egypt. He turned from Soviet arms and centrally planned economic development to U.S. diplomacy and an open door to Western economies. In February 1974, by promising to try to mediate Israeli-Syrian disengagement, Kissinger elicited Saudi agreement to lift the oil embargo. Cooperative relationships between finance ministers in the key oil-producing states and Washington helped stabilize the impact on the global economy of rapidly accumulating oil revenues. Arab leaders began increasingly to accept Israel as a permanent presence and began to talk about peace. In those days, we probably hung too much on the commonplace statement that "the pursuit of an Arab Israeli settlement is the centerpiece of American strategy in the Middle East."

As time passed, people started to use the phrase less broadly. People referred less to our own regional strategy and more pointedly mentioned the politics and diplomacy involved in bringing the parties in the conflict to the peace table and to agreement once they had begun negotiating. The more the political situation settled down after the 1973 War and the oil embargo, the more we concentrated on ways of bringing about the next step in negotiation. During his first year in office, President Carter focused on arranging for resumption of the Middle East Peace Conference in Geneva to negotiate a comprehensive peace. In his second year, he focused on ways of translating Sadat's visit to Jerusalem into concrete agreements and practical progress toward peace. That year witnessed the unique negotiations at Camp David and the beginning of negotiations on the Egyptian-Israeli peace treaty. The third year saw ratification of the peace treaty and the beginning of negotiations on autonomy for the Palestinian people of the West Bank and Gaza. We understandably came to see the peace process in terms of the negotiations and the agreements they produced.

The more sharply we examine the process as it occurred back in the 1970s, however, the more acutely we become aware of the political character of the tools used to move that process forward. From our perspective in the mid-1980s, we can again sense the frustration we felt during those long periods when it seemed impossible to get negotiations started. We remember that the 1973 War and President Sadat's visit to Jerusalem -- both political acts -- largely created the environment for negotiation. We also recall that even the breakthroughs in negotiation resulted from political acts, that is, from Carter's unprecedented invitations to Camp David in 1978 and from his sudden trip to Egypt and Israel in 1979. These events set the stage for the diplomatic formulations that, in a supportive political environment, could break negotiating stalemates.

Any negotiating process encompasses two large periods -- one that precedes actual negotiation and one that starts when negotiators are gathered around the table. The theorists and the diplomats normally concentrate on identifying the formulas and techniques that are useful in the negotiating room. They have historically paid less attention to ways of persuading people to enter that room. This distinction to underscore the heavily political character of the job that must be done before negotiations can begin. Techniques that may prove effective when the parties are sitting at the table may not be adequate in the earlier period, when the main task is to create a positive political environment. It remains important to build political support even during negotiation, but we neglect the politics of getting to negotiation.

The first period is sometimes a long and complicated stage, when parties are deciding whether to commit themselves to a peaceful settlement -- or at least they are deciding that they will seriously explore the possibility of negotiating and will try to define what a negotiation would look like. Some leaders may explore out of conviction. Others may do so because they feel under pressure. In either case, one purpose will be to determine whether negotiation might produce a politically defensible agreement. The first period is mainly a time when political details for compromise are built.

The second period chiefly involves active negotiation. What goes on around the negotiating table has its own character and intricacy. Even at this point, sustaining serious negotiation and eventually winning support for its results may depend heavily on the political foundations laid earlier and on their reinforcement during the negotiation and afterward. The necessary foundations will be built outside the negotiating room.

By placing present diplomatic situations in such an analytical framework, we may be better able to identify the real obstacles to a negotiated peace and to concentrate our efforts on breaking them down. Revival of the peace process in the mid-1980s will require the United States to pay much more attention to laying the political foundations for negotiation than it has paid at any time in the past. The first years of the 1980s were a period of stagnation. After the Egyptian-Israeli treaty had been signed in March 1979, attention shifted to Israel's eastern frontiers with Jordan, to the Palestinians, and to Syria. On those frontiers, the foundations for cooperation had not been laid. Large political obstacles remained. The tools for overcoming them are more likely to involve building confidence than drafting the right formulas and texts. The other walls that block the way to peace are often barriers in human perception and feeling that are all too infrequently addressed by the diplomatic options papers.

Conceptually, we can consider the Arab-Israeli peace process a political and negotiating process among the parties to that conflict, but third parties have been intimately involved since the beginning. Outside powers have acted in shaping the Middle East's modern history and political map. The peoples and governments of the region -- from habit, from necessity, or to avoid responsibility for their own problems-still look to outsiders for solutions.

Third parties are familiar participants in many negotiating processes. Third parties in the Arab-Israeli peace process have played three roles:

First, they have been go-between, catalyst, facilitator, mediator, and full partner. In the period since the 1967 War, we have seen a continuing tension between two arguments. On the one hand, the Israelis have pressed, almost as a matter of doctrine, for direct, face-to-face negotiation. They have interpreted Arab readiness to meet and negotiate in the same room as a symbolic Arab act of recognition and acceptance. They have also argued, as has the United States, that the give-and-take of negotiation offers the most practical way of measuring each side's willingness to negotiate seriously and the best way of developing politically realistic trade-offs in reaching agreement. On the other hand, we have addressed Arab unreadiness to take the symbolic step of accepting Israel and both cultures' traditional reliance on the go-between as an essential actor in settling differences and shaping solutions. In addition, we have learned -- for instance, from the chemistry between Sadat and Begin at Camp David -- that, at some moments, negotiating face to face hardens positions instead of leading to creative solutions. In this situation, parties traditionally turn to a semi-outsider for help.

On the larger political stage, experience during and since the 1970s reveals the obvious struggle by each party in the peace process to shift the United States to its side of the balance. Arab parties try to enlist the United States to put pressure on Israel. Israel presses the United States, first, to maintain its position of allowing the weight of Israel's superior military power to be felt and, second, to demonstrate unequivocally that the United States will not allow Israel to be destroyed.

On the global stage, the states of the Middle East have consistently seen relationships with the big powers as a normal part of the regional political scene. They have turned to the big powers to strengthen their own military and economic as well as diplomatic positions. They have tried to exploit the rivalry between the superpowers to increase support for their own positions.

On the Arab side, there has been a predominant concern with building their own military strength to offset that of Israel. Some Arab governments have turned to the Soviet Union for arms. Others, in which traditional regimes govern, have recognized that the Soviet Union's long-term view of the development of the political map of the Middle East is not necessarily compatible with their survival. They also recognize that, in the Arab-Israeli context, even the limited U.S. ability to influence Israel is greater than the foreseeable influence of the Soviet Union.

On the Israeli side, the overriding concern has been to build Israel's strength to a level where Israel's security will not have to depend on any other nation, but there has also been a less willingly articulated recognition that Israel would not want to be without the ultimate security guarantee of the United States. In the early 1980s, much was made of the strategic alliance between Israel and the United States, in which Israel was painted by some as the defender of U.S. interests in the Middle East. The validity of that position is debatable, especially in view of the complexity of Israeli relationships with the superpowers whenever the Soviet Union offers to resume relations with Israel and in some informal way implies that the quality of Jewish life in the Soviet Union and opportunities for Jewish emigration could be discussed.

Third, the parties to the conflict look to some combination of third parties to fulfill functions that are normally the responsibilities of the international community. One such function is to provide an umbrella of legitimacy or even international pressure for their efforts to negotiate peace. Another is to uphold and apply principles judged essential in building a peaceful world.

The international community has been involved in the Palestine problem simply because no one party could resolve it. History early placed the Palestinian problem and then the Arab-Israeli conflict in the hands of the international community. The Palestine Mandate was formed under the League of Nations and becoming one of the early problems placed before the new United Nations Organization. Since that time, it has returned repeatedly to the Security Council because Arab Israeli tension posed a threat to world peace. The world community has faced a dilemma: it cannot impose a solution, but the parties to the conflict have not been able to find a solution for themselves. It is accepted that "the parties to the conflict must be parties to the peace," yet the parties to the conflict have been unable or unready to make peace and have consistently drawn outsiders into the efforts to achieve a settlement.

Political leaders trying to persuade constituents often find support in citing larger principles or pressures from the international community as the reasons why they must enter negotiation. It is easier for them when they can share the responsibility or lay blame on some other doorstep. The Middle East Peace Conference in Geneva, for instance, met only in December 1973 under the auspices of the secretary general of the United Nations and the cochairmanship of the Soviet Union and the United States. Two of the three interim agreements signed in 1974 and 1975, however, explicitly stated that they were negotiated "within the frame- work of the Geneva Conference." Two provided for talks on implementation in Geneva working groups.

Each side's judgment of its interests is most plainly evident in the political capital each is willing to spend to influence the political environment in which Arab and Israeli leaders will make the decision to negotiate. A sometimes-significant difference between the approaches of the two superpowers -- depending on how far the United States is willing to go in engaging itself at a given moment -- is the notion each has about how to move the peace process forward. The two attitudes may reflect different instincts about the use of power in the current world. Whereas the Soviets seem to rely mainly on a contest of power to produce a negotiation and a result, the United States tries in addition to build on the superior military power it has helped Israel develop by encouraging a political process that would evolve into a negotiation.

Trade Links between Israel and Egypt
Ties between Israel and Egypt softened comparatively to other Arab countries. Israel and Egypt signed a peace agreement in 1979, which marked the ending of agility and five expensive wars. The Egyptian President Anwar Sadat visited Jerusalem for the preceding of the treaty in 1979 on the invitation of Israeli Prime Minister Menachem Begin. He also signed the Camp David Accords in 1978, which included the agreement of peaceful relations between Egypt and Israel and between Israel and its other neighbors. The Accord also urged on the need for solving the Palestinians issue. It also suggested a five-year interim phases of self-governance for the Palestinians Arab residents of Judea and Samaria of the West Bank and the Gaza strip. As recognition of their efforts, President Sadat and Prime Minister Begin were given the Nobel Prize for Peace (Krugman, & Obstfeld, 1992).

The peace relations between Israel and Egypt had several traits including the ending of the state of war along with the acts of hostility and aggression, formation of diplomatic ties, economics, cultural and trade links. The treaty also emphasized on removing the barriers on trade relations between the two countries. Another clause was withdrawal by Israel from the Sinai Peninsula. Israel finished its withdrawal from Sinai Peninsula in 1982 as stated in the treaty leaving the strategic military bases and other assets in exchange for peace. The earlier phases of the peace ties between Egypt and Israel involved boycott of Egypt by the Arab states. However, the boycott softened and all the Arab countries reestablished relations and reopened their embassies Cairo. Following the signing and enforcement of the treaty, Israel and Egypt have managed to maintain strong diplomatic and trade relationships among each other. Trade links continue to flourish between Egypt and Israel.

Trade Links between Israel and Jordan
King Hussein and Prime Minister Yitzhak Rabin met in Washington and decided on ending the state of war between the two countries. Three months later, a peace treaty was signed between Jordan and Israel, which was signed at the Akaba-Eilat border crossing in October 1994. However, another thing to mention here is the de facto of the war between Israel and Jordan is 46 years, both the countries had maintained secret ties that emphasized on mutual beneficial contracts during that period as well.  The Conference held in Madrid in 1991 led to talks by both the countries, which eventually led to the formal treaty in 1994. The treaty asked the countries to refrain from acts of violence, and achievement of security and cooperation in the Middle East. Other regulations included allocation of water resources, freedom of travelling for the nationals of both the countries. Moreover, it also laid emphasis on reduction of the refugee problem and the development of the Jordan Rift Valley. The boundaries agreed in the treaty have replaced the boundaries agreed in the cease-fire in 1949. The signing of the agreement followed full diplomatic, trade relations between the two countries, and has been moving strong since then.  The main objective of the treaty was maintaining 12 bilateral agreements in economics, scientific, and cultural zones. The treaty serves as the core for the maintenance of peaceful and trade relations between Israel and Jordan (Kalayc?o?lu, 1996).

Trade Links between Israel and the Gulf States
The Oslo peace process in the Middle East fuelled the initiative by the Gulf States showing interest in having peaceful relations with Israel for the first time since its formation in 1948. Initial events triggered official visits of high-level officials. The events eventually led to the formation of the first trade representation offices in Oman and Qatar for the development of economic, scientific, and commercial links. The emphasis of the actions was on the adequate usage of water resources, tourism, agricultural cooperation, chemicals, and technology (Lowi, 2002).

Trade Links between Israel and the Maghreb countries
Three North African Arab states, Morocco, Mauritania, and Tunisia followed the path and decided on having peaceful diplomatic relationships with Israel in 1994. The cooperation was implemented at various levels in different ways. Links between Israel and Morocco formalized in November 1994, when Israel opened a liaison office in Rabat, the Moroccan capital. Four months after this initiative, Morocco opened office in Israel completing the loop of bilateral relations between the two countries.

The Islamic Republic of Mauritania and Israel reached on an agreement during the Barcelona Conference in November 1995. Following the Barcelona conference, Mauritania opened its diplomatic mission in Tel Aviv in May 1996 and hinted on the desire of having normal relations with Israel. However, it was in October 1999 that Mauritania became the third Arab country to have full diplomatic relations with Israel following the footsteps of Egypt and Morocco. Similar events took place in Tunisia as well. Israel opened an interest office in Tunisia in April 1996, and Tunisia opened an office in Israel in May 1996.

Having diplomatic relations with considerably moderate Maghreb countries of Arab is important because of their significance in the Arab world and because Israel has, a large population of North Africans who feel emotionally attached with these countries. This softening of relations among all sides is a good sign and it would be phenomenal in the overall peace process. However, after new events of terrorism in Palestine in 2000, Morocco and Tunisia broke diplomatic relations with Israel. Nevertheless, trade links still exist and some commercial and tourism relations continue along with links in other fields (Among the nations, n.d.).

Statistics of Trade links between Arabs and Israel
This section of the paper is devoted towards bringing the statistics of on-going export activities in the Arab countries and in Israel. Table 2 shows the exports of the countries among each other. If we look at the table, we would see that all the ratios of export are below 1%. Turkey is the only exception since its imports in the region are comparatively more than all the other countries of the region. Israel and Syria received the lowest ratios of export products in the region (Linnemann, 1966).

Table 2 - Exports of the region to the countries of the region

Source: Calculated from IMF, 2001

Table 3 – Inter-regional trade and trade potential (USD million)
Following Table 3 lists our results regarding inter-regional exports and imports potential among each other and compares them with the actual trade data obtained during 1995-2001. Each cell lists the trade potential of each country with all the other countries mentioned in the table. This trade potential is based on the regressive analysis and result for the discussed country. It includes the sum of trade flows. The table displays that the total inter-regional trade potential calculated was $5.0-$6.5 billion. However, the actual trade among the countries during 1995-2001 was not more than $2.3-$3.6 billion. The table shows that the trade potential is more than the actual trade. One exception in this table is turkey whose export potential is the same as its exports. Similar is the case with import potential, import potentials are more than the actual imports and again the exception is Turkey, whose actual imports are close to the import potential.

Exports Potential
Imports Potential
397.8-523.6 70
P. A.
Total region
(Source World Bank, 2003b).

TABLE 4: Table of the Export and Import Products in Israel and Arab Countries
Table 4 provides a list of items that the countries export and import. The first column provides lists of items that these countries trade. The letter ‘X’ in any cell shows that that the product listed is on of the main export items of the country while the letter ‘M’ shows that the product mentioned is one of the import items of the country. If a product is exported by one country and the same product is imported by another country then there is a possibility of inter-industry trade link. The table shows that the main export items for Jordan are frozen and fresh vegetables while it is one of the main import products for Lebanon. Textile yarn is one of the main trading products and a possibility of inter-trade between Israel and Egypt arises. Another product that enables trade relations between Israel and all the Arab countries is the industry of telecommunication. Aircraft is another industry in which trade links could be established between Israel and Egypt whereas iron is one area where Turkey can assist all the other countries of the region. Petroleum is one of the main export items for Syria and Egypt and there is a possibility of inter-trade among all the other countries of the region.

Frozen & fresh vegetables


Fruits and nuts


Petroleum oils
Medicinal & pharm. prod.



Textile yarn





Iron & Steel



TV receivers


Telecom. Equip. parts and acs.


Thermionic valves




Men’s clothing knitted

Printed material



Plastic articles




(Source: World Bank, 2003a).

Table 5 – Trade between Israel and Arab Countries


Services exports

($ Millions)
Exports of

goods ($



imports ($

Imports of

goods ($

Trade balance in


services ($ Millions)
. 715
. ***6207
(Source: World Bank, 2002, IMF, 2002)

Current Statistical Analysis of Trade links between Israel and the Arab World
The recent development in terms of Arab-Israel trade relations are moving towards solutions. The businesspersons of the Arab country look at the opportunity and they want to pursue it. The statistics from the Israeli Export Institute shows that during the first three months of 2008 displayed 45% increase in direct exports from Israel to Arab countries. They reached to $145 million whereas in 2007 the exports were approximately $410 million, which was 48% more than the previous year.

            Jordan is the most prominent trade partner of Israel in the Arab world. The exports from Israel to Jordan increased by 85% during the last year. In 2008, the first quarter of trade showed increase in exports by 40% reaching to $102 million. This amount is 62% more than last year in the same period. The least amount of exports of Israel to any Arab country was to Egypt. The reason is that Egypt maintains a non-war rather than a peace situation with Israel. The increase in exports of Israel towards Egypt was only by 10%, $140 million in 2007. The first quarter of 2008 showed an increase by 25% as compared to the same time last year, which is $40 million. Morocco doest not have full diplomatic links with Israel but it does maintain trade links like other Arab countries such as Qatar and Tunisia. The amount of exports was approximately $16.4 million in the year 2007, which has increased by 43% in 2006. From the year 2003, the amount of exports from Israel to Morocco has grown by 150%. Similar is the case with Tunisia, the amount of exports reached to $1.8 million. Another important point to mention here while considering trade relations of Israel with Morocco and Tunisia is that both the countries often communicate with the help of third parties, which are mostly the French and the Spanish companies that are co-owned by Israel and North African entrepreneurs. The result of this kind of dealing is that the number of exports is not included in the figures by Israeli Export Institute, which only accounts for direct exports. The same kind of phenomenon exists in the case of trade relations between Israel and the Gulf States. Trade links are handled with the help of the involvement of third parties and that is why official figures are difficult to mention.

            The substances exported to Arab countries from Israel are agricultural equipments and materials, other equipment, chemicals, wooden products, plastics, computer chips, print circuits, and jewelry. Estimated potential of exports from Israel to the Arab World, including the countries that Israel does not have diplomatic relations with are $1 billon per year. However, there lies a strong potential of increasing this but it all depends on the political events and circumstances in the region, and even in case of tensed relations it does prevents Israel from having smaller level of trade ties with some of the countries. These forms of relations are the most spread about secret in the Middle East.

Future Projects between Israel and Arab Countries
The following tables that we are mentioning in the paper have been taken from various reliable sources. They include future projects involving Israel and Arab countries so that they can assist one another in different industries. We are mentioning all projects according to their industrial distribution.

Table 5 – Projects for Agriculture

Transfer of Irrigation Technology, Animal


Vegetable Seed Production

Education and Training in irrigation and

Fertilizer use


Irrigation and Agro Production


Irrigation and Agro Production
Turkey- Israel: A few Israeli firms are currently active in irrigation projects in Turkey. They also got involved in irrigation equipment; production and irrigation systems,

agricultural and medical equipment production, and seed and fruit juice concentrate

production.30 (since 1995) Turkey – Jordan

Jordan -Israel
(Tovias et al., n.d.)

Table 6 – Projects for Transport and Telecommunication
The Horizon 2000 (an integrated sub-region

restructuring program)

The Haifa-Irbid-Dead Sea-Red Sea railway line, a freight transport facility is to connect the Mediterranean Sea to the Red Sea.

At the regional level, the Regional Economic Development Working Group (REDWG)

3 railway lines to connect Israel with the

Neighboring countries


objectives such as transport data collection,

Upgrading of road, railway and port systems and developing common transport language.

Reconstruction of the old Hijaz Railway Line

Installation of two submarine fiber optic cables one connecting Tartous in Syria with Tripoli, and Beirut and Saida in Lebanon with Alexandria in Egypt


Egypt, Jordan, Israel and

the Palestinian Authority


Syria, Palestine, Jordan and Egypt in the Eastern part to be extended to the Maghreb.

Syria-Jordan-Saudi Arabia

(Tovias et al., n.d.)

Prospects for future trade relations between Israel and Arab Countries
Fundamental to any definition of the problem in approaching the Arab Israeli-Palestinian conflict is the need for each of the parties to find and be secure in its own identity. Other than life itself, few possessions are more vital to individuals separately and collectively than their sense of identity. Before two peoples can begin to build a peaceful relationship, they will need to be confident of their own identity and to find ways of making clear that each recognizes and accepts the others. Steps that Israelis and Palestinians each take to recognize the pain and injustice that the other has suffered will be part of that recognition and acceptance. Such steps would enable Palestinians to recognize the enormity of the Jewish experience in the Holocaust. They would enable Israelis to recognize Palestinian people hood, the unique concession the Palestinians have been asked to make in accepting the Jewish state in Palestine, and the losses the Palestinians have suffered. Acknowledgment of each other's humanity and pain and acceptance of the other party in relation to one's own integrity would provide common ground on which to meet. Those of us who are neither Jews nor Palestinians cannot share equally in their experience, but as human beings, we can join in mourning their losses.

It is not possible to give the exact statistics of the prospects that future economic relations hold both for Israel and Arab countries. However, if the Arab countries do decide to lift the ban today then it would definitely have a positive impact in the near future. The schools of thought in Israel have different approaches towards the ban of Arab countries. Some find it disastrous while others feel that it does not have a sizable impact. A number of people of the Israeli business group are of the view that the Arab boycott has cost Israel more than $36 billion since 1948. However, Government officials believe that Arab ban did not have a considerable impact on the Israeli economy.

            We see a number of future prospects developing both for Israel and Arab countries. One such opportunity is the proposal by Egypt and Saudi Arabia that they would end the economic boycott if Israel stops the settlements in the West Bank. However, Israel did not agree to the proposal but negotiations did produce results with Syria and Jordan and there is considerable probability that same thing happens with other countries. If we look at the Arab boycott, it covers all kinds of direct trade relations with Israel, including those companies that do business with Israel. It also includes those firms that buy or sell to, or invest in companies that do business with Israel. Economists, investment experts, and people from the business group in Arab countries are of the view that if the Arab countries decide to lift the ban then it would be helpful in inducing confidence among foreign investors and this would bring in more ventures from various parts of the world. This would obviously improve the prospects for Palestinian exporters in the West Bank and in Gaza. However, another important point to mention here is that economists believe that Israeli exports, i.e. diamonds, electronics, pharmaceuticals, etc. target the market of Europe and United States and they are not directed towards the neighbors like Jordan or Syria. The reason behind this is that the living standards of those countries are approximately one-tenth of the living standards of Israel (Arnon, Spivak, & Weinblatt, 1996).

            We see several prospects emerging in terms of trade relations between Israel and Arab countries. Trade relation between Israel and Egypt are still negligible except for oil, even when Egypt broke out of the Arab league for the trade with Israel. Another positive aspect of trade relations between Arab and Israel is that buyers and sellers on either side are very eager to develop trade relations among each other. They are trying to find ways to work out agreements of worth of hundreds of millions of dollars in the future. A benefit for Israel that investors and economists believe the lifting of the ban would have on Israeli economy is that it would result in increased investor confidence and it would portray that Israel has re-entered in the economic industry. Moreover, it would also result in the lifting of the psychological barrier on the companies who want to work in both the Arab and the Israeli markets. Another aspect of the bans and hampered trade relations is that a number of multinational companies refrain from making investments in Israel, especially Japanese, Korean and French companies. Except few big companies, foreign investments are difficult to find. Therefore, the bans of Arab countries lifting from Israel would mean that they would be able to augment their credibility and it would become easier for them to be acquainted with foreign companies. If we look at trade relations among the Arab countries and Israel from the consumer perspective, consumers would not go after Israeli brands immediately for which they can find easy substitutes even if the ban has been lifted. However, Israeli services in other departments like computer programming, financials to medicine, and agriculture and tourism is likely to gain for acceptance.

            Economic forecasters and investors are of the view the total amount of exports and imports is likely to increase by $1 billion if the boycott ends. The total trade in 2007 was around $37 billion. Another interesting point to mention here is that those who have benefitted most from the economic war between Arab countries and Israel is Palestinians in the Gaza and West Bank. The small businesses and their products such as fruit, vegetables, olive oil, clothing, shoes, are affordable for the neighboring Arab countries. Therefore, boycott of Arab countries has hurt Palestine more than it had Israel. Palestinians are suffering because of the ban because they rely on Israeli ports. Moreover, they also use raw materials from Israel and they need the Israeli Government for selling products through Israeli cooperatives. It is expected that formation of trade links between Arab countries and Israel would give a lot of boost to the exports and the imports in the region (Mossawa Center Staff, 2006).

If my words sound too abstract, stop and realize that I am talking about nothing more or less, than how a political leader in his next speech will talk about the problem. A people's picture of a problem is shaped by how political and opinion leaders talk about it. Israelis' picture of their problem has been shaped over the decades by Arab leaders' threatening rhetoric. Arabs' picture of the peace process after Camp David was shaped by Begin's rhetoric. Is it too much to hope that leaders on each side will help their people find nobility in an identity that transcends narrow positions and particular borders? Sadat gave his people, the Arab World and the people of Israel hope in a future without war. Some Israelis describe the Jewish experience in a modern state without linking their vision to one border or another -- security, yes, but borders, no.

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