Israel and the United Arab Emirates have signed a free trade agreement that has been described as ‘historic’ by trade analysts across the globe.
The deal was announced by Israel’s Ministry of Economy and Industry and the UAE’s foreign trade minister at the start of this month, marking the first of its kind that Israel has ever reached with an Arab nation.
Few agreements like this also exist between the UAE and other countries, except other Gulf states and some countries in Europe, and the change in relations has largely been attributed to the establishment of the Abraham Accords brokered by the US in 2020.
Background to the FTA
The Abraham Accords were aimed at normalizing diplomatic bonds between the UAE and Israel, which for some time had seemed like a pipedream given the frosty relationship between them over many decades.
However, things had begun to change, particularly from the perspective of the UAE. Despite a long history of war and a 70-year Arab trade boycott, Israel remained a state recognized by more than 150 other countries that only looked set to grow.
Furthermore, the UAE could appreciate that a more open relationship with Israel would benefit its own interests in terms of investment opportunities. Furthering a feud was unsustainable and so negotiations began to take place with a view to ending it instead.
With the adoption of the Abraham Accords, these opinions were cemented and Arab countries had the push they needed to more openly include Israel politically.
“Those are what they call the dividends of peace,” co-founder of the UAE-Israel Business Council Dorian Barak told Global Trade Review, adding that the accords “made it more palatable for Israeli companies to operate in the Arab world” too.
Now, talks have concluded after four separate rounds, including one attended in Egypt by the Abu Dhabi Crown Prince Mohammed bin Zayed Al Nahyan. The resulting FTA will come into effect as soon as it has been officially ratified by economy ministers, although no official timeline has been given.
Benefits for both sides
The FTA includes a significant 95 per cent of traded products such as cosmetics, medicine and food, which will all be duty-free either immediately or through phased introduction.
Speaking on Twitter, UAE minister of state for foreign trade Thani Al Zeyoudi said this will “cement one of the world’s most important and promising emerging trading relationships”.
Its economy minister Abdulla Bin Touq Al Marri also suggested the removal of customs levies would be helpful for small to medium-sized enterprises thanks to better market access for services and investment flows.
For Israel, the UAE represents an important international trade center for not only the Gulf, but also central Asia and the Far East too, so signing a deal with it is a savvy move in terms of creating a free trade bridge with other parts of the globe.
This means its key exports such as dates, pomegranates and cosmetics made from Dead Sea minerals can be exposed to customers further afield than it has been used to, while it should also find it easier to import plastics from the Gulf that can be used as raw materials for industry.
Meanwhile, the UAE is sure to be looking forward to capitalizing on the recent developments in science and technology Israel has been making, something that could be beneficial as the Emirates seek to move away from such a heavy reliance on the oil industry.
And of course, another ally against Iran will be viewed as a plus point when it comes to developing stronger trade ties.
According to Israel’s Central Bureau of Statistics, trade between Israel and the UAE could grow by $1 billion (€927 million) per year over the next two years alone as a direct result of the FTA.
Warming relations elsewhere?
This extension of an olive branch towards Israel may also be having a positive impact elsewhere. Egypt now also seems to be warming to the prospect of economic negotiations, for example, having hosted its first summit meeting with the nation alongside the UAE this month.
However, Saudi Arabia remains aloof, while Oman has also said it is happy with the current relationship and has no plans to sign a formal deal with Israel.
Nonetheless, this new agreement between Israel and the UAE is certainly a significant step and deserves the ‘milestone’ status it has been given by analysts. It will be interesting to see the impact it has on world trade after it officially comes into effect.