In 1995, the United States trade deficit with Israel was $130 million, $87 million less than in 1994. U.S. merchandise exports to Israel were $5.6 billion, up $587 million from those in 1994. Israel was the United States' twenty-first largest export market in 1995. U.S. imports from Israel totaled $5.7 billion in 1995, 9.6 percent less than those in 1994.

The stock of U.S. foreign direct investment in Israel was $1.4 billion in 1994, 15.8 percent less than in 1993. U.S. direct investment in Israel is concentrated largely in manufacturing and services.

The United States-Israel Free Trade Area Agreement

The United States-Israel FTAA was implemented on September 1,1985, with a phase-in of tariff reductions, which culminated in complete elimination of all duties on non-agricultural products on January 1, 1995. The agreement eliminates many trade barriers between the United States and Israel. The sensitive agricultural sector is the only area where substantial non tariff barriers and levies remain. The United States is working to complete negotiations with Israel on market opening measures in agriculture in 1996.

The FTAA also provides for a consultative mechanism between the parties. The Joint Economic Committee (JEC) created to supervise implementation of the agreement has proven to be a useful tool for addressing bilateral trade issues.

Overall, the FTAA has had the effect of substantially liberalizing trade between the United States and Israel. Problems which remain are pursued in the bilateral FTAA framework, particularly through the JEC.

IMPORT POLICIES

Agriculture

Israel maintained extensive restrictions on agricultural imports in 1995. These included quotas, licensing restrictions, levies, and outright prohibitions on a range of agricultural goods. Agricultural non-tariff measures (such as quotas and bans) are permitted under the FTAA, although the WTO, of which Israel is a member, prohibits the maintenance of non-tariff barriers to agriculture. The official Israeli standards on weights and measures, which, inter alia, exclude packages of sizes in multiples of half pounds, also remain a major barrier to expansion of U.S. food exports. The United States consulted with Israel in October 1995 on implementation of the WTO agreement consistent with the FTAA requirement that all tariffs between the United States and Israel be reduced to zero. As a result of these consultations, Israel and the United States entered into a framework agreement whereby Israel agreed to gradual and steady improvement in access for U.S. agricultural products in the Israeli market. The U.S. expects to complete in 1996 negotiations for terms and conditions for market access for U.S. produce and processed foods under the framework agreement.

Israel has agreed to improve transparency in the calculation of levies, but with mixed progress to date. The principal transparency problem lies in the calculation of domestic costs of production in Israel as the basis for high import levies imposed on U.S. goods. Lack of consistency in the treatment of imports remains a serious impediment to expansion of agricultural trade. For example, Israel imposes levies on a number of products such as pasta, pastry, baked goods, and salt water fish.

U.S. meat exports face an especially difficult environment due to the legislative enactment of a complete ban on imports of all non-kosher meat and meat products in December 1994. The ban is administered in a discriminatory manner, as non-kosher meat is produced and sold locally. In addition, the ban undermines a previous Israeli government commitment to allow limited imports of U.S. non-kosher beef. Following petition to the Israeli High Court of Justice, an unprecedented panel of 13 justices has been convened to examine the constitutionality of the legislative ban. A decision is expected in 1996.

U.S. exports of kosher high quality U.S. beef have also been restricted due to the lack of national treatment with respect to kosher certification. Price controls on frozen beef, an important barrier to U.S. kosher beef imports, have been abolished by the Government of Israel (GOI), effective March 1, 1996. The lifting of price controls should open an important market for U.S. kosher beef once the kosher certification problem is solved.

TAMA

In 1991, at United States urging, the Government of Israel amended its practice of using a system known as "TAMA" to approximate the wholesale price by adding estimated profits, insurance, and inland freight to the declared value of an import for purposes of calculating purchase taxes. The TAMA system causes higher taxes on imports than are applied to domestic products. Most registered importers now have the option of declaring the actual wholesale value of their products. Although the new arrangement has been in force for over four years, to date not a single importer has opted for the new system. Israeli officials attribute this reluctance to estimation by importers that the former TAMA rates are more advantageous to them, while importers cite a variety of problems with the optional system, including the inability to modify prices once they have been declared. As the new "optional TAMA" has not operated as anticipated, the United States will continue to seek to eliminate the discriminatory effect of TAMA on U.S. exports.

The United States Government continues to raise concerns with Israel that different and non-transparent methods are used for evaluation of imports and domestic goods, particularly for TAMA-based taxes that distributed directly by retailers, importers, residents, or wholesalers.

Customs Procedures

In addition to the TAMA system, Israel maintains a customs practice known as "harama", meaning "uplift". For purposes of computing customs duties, Israeli customs service uplifts the value of virtually all products which exclusive agents import into Israel by some two to eight percent and the value of other products up to ten percent. This has the effect of increasing the rate of indirect taxes which must be paid by U.S. importers, thereby making U.S. products more expensive in the Israeli market.

In addition, despite the elimination of all duties under the FTAA, U.S. exporters face other taxes which may make imports less competitive with local products. An example is premium ice cream. In FTAA JEC consultations, the United States Government will continue to pursue the issue of taxes which undercut thebenefits of zero duty rates.

Wharfage and Port Fees

In 1995, the Customs authorities charged importers 1.5 percent of C.I.F. cost of imports into Israel for use of the ports and stevedores, whereas exporters face no charges. In effect, imports were subsidizing exports. The United States has pressed Israel for several years to eliminate this GATT-inconsistent discrimination, and in 1995 received a commitment from the government of Israel to equalize port fees for exporters and importers at 0.6 percent in 1996. As a first step, the government in 1995 reduced the import fee to 1.3 percent and an export fee was inaugurated at 0.2 percent. The GOI has indicated it wants to achieve complete equalization of port fees by the end of 1996.

Tariffs

As noted above, all remaining duties on U.S. non-agricultural products were eliminated on January 1, 1995.

Kosher Certification

The United States-Israel FTAA permits measures relating to prohibitions on religious grounds, "provided that they are applied in accordance with the principle of national treatment." In certain cases, U.S. businesses have complained that the process for granting kosher certificates in Israel is discriminatory, and serves to protect domestic products. Although some U.S. wine and beef importers have received kosher certification, others have not. Significant problems remain in these sensitive sectors. The United States is pursuing these complaints in the FTAA Joint Committee and directly with the Ministry of Industry and Trade.

STANDARDS, TESTING, LABELING, AND CERTIFICATION

Israel requires that many household products be sold in fixed package sizes (e.g., 200, 400, or 500 grams) using metric weights and measures. This requirement effectively precludes exports of many U.S. products. The United States has protested against these standards, which tend to favor European products. At the end of 1995, the Government of Israel committed to abolishing outdated standards and adopting a more liberalized regime to limit restrictions limited to legitimate health, safety, environment, and consumer protection concerns. To date, however, restrictions remain in effect for a large number of products, and new labeling requirements were proposed in January 1996.

Until 1990 many Israeli standards were voluntary for domestic products but mandatory for imports. After intensive negotiations, Israel agreed to harmonize requirements and make remaining standards mandatory for all products sold in Israel. However, enforcement of mandatory standards on domestic producers is spotty, allowing them to avoid the costly regulations. Israel's Ministry of Industry and Trade states that it is working to strengthen the enforcement system and to eliminate those standards considered technical barriers to trade under the WTO.

Standards-related problems continue on refrigerators, carpets, and plywood. Israel's restrictive standard on plywood, which is not performance-based and requires a certain number of plies common in European but

not U.S. plywood, has virtually eliminated U.S. plywood exports to Israel. Israel has committed to reexamine this standard in 1997.

Additionally, the United States has complained to Israel about its lack of notification of new standards and revisions to existing ones, as required by the WTO Agreement on Technical Barriers to Trade.

GOVERNMENT PROCUREMENT

In 1995, the United States noted improvement in the timely availability of Israeli Government tenders. Under Israeli Government procurement law, all tenders are published in the local press. Although the United States remains concerned that some high value government purchases are made in a non-transparent manner through the tender process, progress has been made in this area. Even where there is a disposition to cooperate in providing information concerning tenders, as in the Israeli Ministry of Defense, U.S. agricultural exporters have found the technical aspects of Israel Defense Forces food tenders to be insurmountable. The United States Government also believes that government companies, such as the Israeli Electric Corporation and the telecommunications company, Bezeq, make extensive use of non-transparent selective and single tender procedures not open to U.S. firms. In addition, where open tender procedures are used, specifications may be drawn in a manner that tends to disadvantage U.S. firms. Finally, despite coverage under the WTO Government Procurement Agreement, the United States continues to have difficulty obtaining timely information concerning government tenders in the rail subsectors of the transport sector and post-award information in open, selective, and single tenders.

U.S. companies have found that, in addition to broken-up tenders, non-transparency in tender procedures, and the use of specifications as a non-tariff barrier, the demand to enter into an agreement with the Israeli Industrial Cooperation Authority, which requires companies to make an obligation for 35 percent of the f.o.b. value of the contract, remains a serious obstacle to selling to the GOI.