Muslim Countries' Trade With Israel 4.1.2006

Jakarta Post, Indonesia, 4.1.2006

Ever since Israel signed the Oslo agreements with the Palestinians 1993, most Muslim countries have overcome their traditional reluctance to trade with Israel despite the ongoing conflict. It stands to reason that to no small degree, the commercial relations that have been established contribute to improving relations between Israel and the Muslim world and thus will also help, in the final analysis, resolve the issue of Palestine.

 If it is with Saudi Arabia, Syria, Bahrain, Qatar, the UAE, Kuwait, Tunisia, Morocco, Mauritania or Lebanon, if it is US$18,000 with Syria, or $2 billion with Turkey, trade between Muslim countries and Israel is increasing every year. Following is a list of the bigger partners, in addition to the Palestinians themselves who did almost $2 billion worth of business with Israel in 2004.

 The most formidable example of flourishing trade between Israel and a Muslim country is that of Turkey. It is probably no coincidence that commercial relations with the first Muslim country to recognize Israel (in 1949) are the best and most highly developed of all the relationships with the Muslim world.

The relationship has reached a degree of maturity and mutual understanding that permits each country to voice its views and criticisms without stepping over the lines.

 It is clear that the successful and mutually beneficial relations between Israel and Turkey have encouraged some other Muslim countries in the neighborhood, notably Egypt and Jordan, to take note and follow the same track.

 Meanwhile, the economies of Egypt and Jordan, two other Muslim countries with an embassy in Tel-Aviv, have abundant and low cost manpower and make an excellent match to Israel's manufacturing industries which seek to increase production and expand their markets. International encouragement, notably strong U.S. engagement, has helped establish joint Israeli-Jordanian and Israeli-Egyptian Qualified Industrial Zones (QIZs) whose products have tax-free status in the U.S.

 The QIZ idea is simple: As a long as Jordanian QIZ products have at least 8 percent Israeli content (for Egyptian QIZ products it has to be at least 11.7 percent ), the products can be exported tax and customs free to the U.S. With Jordan, the QIZ agreement was signed in 1997 and the 11 QIZs that have been established since then have helped catapult Jordanian exports to the U.S. from a measly $15 million in 1997 to $1 billion (!) in 2004.

 The agreement with Egypt was signed only in 2004 but the 10 QIZs that were established there have already increased their exports to the U.S. between 1st and 2nd quarter 2005 by 50 percent (QIZ exports by now amount to about half of Egypt's exports to the U.S.) and the trend continues. Not only have the QIZs hugely increased exports to the U.S. but they have also increased Jordan's and Egypt's bilateral trade with Israel to reasonable numbers — around $250 million with the former and close to $200 million with the latter for 2005.

 The success of the QIZ concept in fostering bilateral trade and exports to the U.S. has encouraged Israel and Jordan to approach Canada and the European Union for similar arrangements that are likely to be approved in the near future.

Maintaining a cold shoulder in its foreign policy (no diplomatic relations), Malaysia nevertheless decided a long time ago that it is in its best interest to let businessmen do what they do best — business.

 Malaysian exports to Israel increased by almost 40 percent between 2003 and 2004 and 3rd quarter 2005 results show another 25 percent improvement over last year's results so that by years end they will top $200 million. Imports from Israel will remain close to last year's $203 million. More than $400 million in combined direct trade isn't bad when considering Malaysia's frosty disposition towards the Jewish state.

 Despite an avowed policy of diplomatic abstinence, Indonesia has a long history of doing business with Israel while not owning up to it publicly to prevent flak from Arab countries (who meanwhile do thriving business with Israel themselves) and, off course, to avoid trouble with it's own Islamist opposition movements.

 Many legal impediments to direct bilateral trade with Israel were removed by the Abdurrahman Wahid administration in 2001 and not surprisingly, exports to Israel have increased substantially, by almost 60 percent between 2003 and 2004 and by another 25 percent by end of 3rd quarter 2005. The 2005 sum total of exports to Israel will come to around $170 million while imports from Israel, which increased by 12 percent between 2003 and 2004 and have since then already increased by more than 25 percent (correct to end 3rd quarter 2005), will nevertheless be only a very modest $13 million, indicative of the considerable difficulties Israeli exporters continue to face in Indonesia.

 Again, the indirect trade via Singapore or via U.S. subsidiaries of Israeli companies probably adds some tens of millions dollar to the tally but the numbers are low, much too low when considering the enormous potential.

 Indonesia has expressed its desire to help mediate the conflict between Israel and the Palestinians — opening up the economy is the least problematic and most beneficial way to do that.

 A sustained boost to Indonesia's economy will permit this nation to present an assertive and independent stance at international conventions, more positive towards Israel and creative ME conflict resolution, as it befits a nation of 240 million inhabitants who wants to mediate. It will give added legitimacy to Indonesia's inclusive, moderate Islam, help spread it's special kind of civil society in other Muslim countries.

 There is absolutely no doubt that good economic relations are the ultimate key to a better understanding between people.

The writer is a retired (Israeli) diplomat who served in South East Asia from 2000-2003.

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