Open Europe’s economic model relies on the phenomenon of gravity in trade. The theory, which is developed from observing the patterns of global trade, is that a country trades more with a bigger country than a smaller country, and that closer countries trade more with each other. Using these facts – relative economic size and distance - it’s possible to predict expected levels of trade. The accuracy of these data is improved when you factor in other elements, particularly so-called commonalities: shared language, history or legal system, economic freedom, diplomatic relations and so on.
Our findings were somewhat surprising. The model showed that Britain should prioritise three countries above all: Canada, India, and Israel. In 2030, our analysis suggests, that we will have around £27 billion of untapped export trade potential in goods and services with these three economies. For Israel alone, the UK will have over £2 billion of potential for goods exports and nearly £3 billion for services exports. To be clear: these figures do not represent a ceiling for trade levels with Israel– this is simply where, according our model, our trade ought to be. It is perfectly possible to do even better, and ‘over’ trade.
It won’t surprise readers of the JC to hear that Israel is a dynamic and booming economy. We’ve read Start Up Nation. We’ve downloaded Waze to help cut through the traffic. We’ve heard the great success stories of Israeli innovation in hi-tec, digital technology, pharmaceuticals and so on.
Given that Israel shares so much with the UK, our mutual trade ought to be much stronger. English is widely spoken in Israel. The country (mostly) shares our common law legal system. And, this year’s centenary of the Balfour Declaration is a poignant reminder of Britain’s role in the creation of Israel. There are thousands of dual-nationals, and communities across Britain who travel regularly backwards and forwards. Despite the country’s small size, Israel’s population – which is projected to reach about 10 million by 2030 – is highly-educated and relatively wealthy.
So why is mutual trade not what it ought to be? There are many potential reasons. One is the barriers to trade on the Israeli side: a sclerotic bureaucracy; restricted rights to foreign acquisition and procurement; strict residency tests for the temporary provision of services; and a requirement for the chair of a board of directors to be Israeli. The UK should work with Israel to encourage greater openness.
Then there is of course the political and security risk – from fears of all-out conflict to terrorism or intifada. It’s easy for business to feel intimidated, particularly when so much of the mainstream coverage of Israel is framed through the conflict and security situation. And business has seen too often how companies doing perfectly legitimate trade with Israel have been hounded and harassed with protests, endless legal challenges and negative publicity. Many businesses will look at all this and decide it’s just not worth the bother. That’s why the Government needs to do even more to clamp down on the discriminatory BDS campaign, and protect companies trading with Israel in the same they would with any other country. There can be no doubt that the intimidation tactics of the BDS campaign and anti-Israel vitriol has an effect on decisions to invest and to trade. The UK is poorer as a result.
A further problem is the risk that visits by Israeli ministers and officials are still being threatened and disrupted with spurious legal challenges. The government needs to look again at the relevant legal landscape and ensure that it’s working appropriately. Ministers and senior government officials need to be able to maintain close contacts and visit each other.
Another barrier, even if it is primarily a perceived one, is the experience of arriving into Israel at Ben Gurion. Nobody can sensibly argue that Israel ought to lessen its security checks at its main international hub. But equally treating a businessman or woman, arriving on a trade trip, with Israeli ‘directness’ can sometimes backfire. Overall that experience has improved, but might it not be possible to do even more of the security clearance and background checks in advance? Perhaps something like the US’s Global Entry system should be considered by the Israeli authorities. Or even for some of those immigration officials, doing such sterling work to keep us safe, to provide their service with a smile?
It’s also largely fair to say that for decades the UK Embassy in Tel Aviv focused on the Peace Process at the exclusion of almost any other aspect of our bilateral relations. That changed with Ambassador Matthew Gould whose passion and energy helped to focus minds on mutual trade. Gould established the UK-Israel Tech Hub to promote links between British and Israeli start-up companies. It’s still going strong. And in February, during Prime Minister Netanyahu’s visit to London, the Government launched a new UK-Israel Trade Working group, designed to smooth any potential issues related to Brexit. That’s exactly the right approach but it needs to also focus on addressing existing barriers to trade.
The UK and Israel should deepen their cooperation on a host of issues, not directly related to trade: security, intelligence, defence, digital government, higher education and so on. From these joint projects, will over time come even deeper bilateral relations and ultimately deeper trade. How about establishing this year the Balfour Memorial Scholarship to fund a dozen places for bright young Israelis at our world-class universities?
It won’t be possible to do all of this overnight. Many of the barriers will prove pretty intractable. But the point is to focus minds in government and in business on the size of the prize with Israel. For many outside of the Jewish community not familiar with the country’s successes and achievements, Israel may be a surprising choice to focus on. But it is the right one.
Henry Newman is director of Open Europe
