Jerusalem, Seoul to Sign Free Trade Agreement This Week
Israel hopes South Korea trade pact will spur more Asian countries to follow
Israeli producers have long wanted to expand into the Asian market. They got their wish on Sunday when the Economy Ministry announced the first free trade agreement with an Asian country.
This will be one of two deals signed by Jerusalem and Seoul; the second significantly increases funding for the Korea-Israel Industrial R&D Foundation (KORIL-RDF), a binational initiative that supports joint technological work between private entities.
Economic experts with ties to the region believe these agreements, particularly the FTA, will spur other nations to join in.
Uri Gutman, a former ambassador to South Korea, now a professor at the Interdisciplinary Center Herzliya and a consultant on developing economic relations with East Asia, said the FTA with Seoul was a long time coming, with discussions on such a deal starting in the late 1990s and early 2000s. During his time as ambassador in 2013-2016, the nations held two rounds of negotiations regarding an FTA, which continued under his successor.
“During my time two things happened: Israel was at its peak of the ‘startup nation’ issue and Korea was looking for a growth engine and they understood innovation was a key factor,” he told The Media Line. “It took me a year and a half to convince the Korean government, to change the psyche toward the FTA with Israel from such a level that in the beginning I was chasing them and trying to convince them, to their eventual understanding it was a win-win situation.”
Bilateral annual trade is currently around $2 billion, and Gutman expects the FTA to double or triple that. He also expects growth in other Asian markets.
“Israel is like a hub for new ideas, but Korea is a manufacturing hub, and the FTA will allow for trilateral collaboration, work together in exporting to third countries around the world,” he said.
While Gutman argues that both sides will benefit from the FTA, he believes Korea will see the benefits of the deal faster.
“The immediate effect will be more on the Korean side because a great deal of the trade is Korean exports to Israel,” he said. “For us, it will take a little bit more time to develop.”
That said, Gutman contends that one immediate benefit for Israeli companies as a result of the FTA will be lowering the cost of some Israeli equipment exports, particularly in the medical and biotechnology fields, which have been higher than similar products produced in the US and the European Union, with which Seoul already has free trade agreements.
“That makes their prices cheaper by roughly 10% or so; now it’s an even playing field,” he said.
Israel is already in negotiation for FTAs with countries such as Vietnam and China, and Gutman believes the accord with Seoul will encourage other Asian countries to come to the table.
Dan Catarivas, director-general of foreign trade and international relations for the Manufacturers Association of Israel, agrees, and says that Israel and Korea’s FTA might put particular pressure on Japan.
“This will be a good signal for other countries in Asia to also advance in signing a free trade agreement with us … and might have a positive effect in speeding up an eventual free trade between Israel and Japan,” he told The Media Line.
“The cars we import from Korea will now be duty-free, so we won’t pay the 7% or 8% of duty [when we buy them], whereas the cars from Japan will continue to incur duty,” Catarivas continued. “Although the Israeli market is not a huge one, I’m sure the Japanese do not want to lose to Korean manufacturers.”
Asian markets present great opportunities for Israeli producers, he said.
“Israel is a very small internal market, and foreign trade and exports are major engines for growth, therefore any new market … is an engine of growth for the Israeli economy and those markets in Southeast Asia are probably the ones that have the most potential for growth and increasing exports,” he continued.
The Israel-Korea FTA will benefit both Israeli manufacturers and consumers, Catarivas argues.
“Their imports are basically capital goods, consumer goods and it will make those goods cheaper; it will be good for Israeli consumers and for the producer who is buying machinery and imports for its own production needs,” he said.
Catarivas does acknowledge that the FTA might hurt Israeli companies that make the same goods being imported from Korea.
“Now obviously there are some sensitivities when it comes to imports of products that also might be produced in Israel and this might create some competition,” he said. “But as a private sector, we are for competition as long as it is fair competition.”
He said the Manufacturers Association prefers free trade to a policy of “unilaterally reducing tariffs,” an idea pushed by the Finance Ministry to help bring down Israel’s extraordinarily high cost of living.
“We said to the government: Don’t unilaterally reduce tariffs; at least get something in return,” Catarivas said. “At the end of the day, we have to choose. … The alternative of having free trade agreements is definitely the preferred one.”
