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Israel Signs Free-Trade Agreement With U.A.E. in First of Its Kind Deal With Arab State

May 31, 2022

By Dov Lieber

Deal is one of the most tangible signs of Israel’s growing ties with Arab countries

TEL AVIV—Israel and the United Arab Emirates signed a first-of-its-kind comprehensive free-trade agreement between Israel and an Arab country, boosting business ties less than two years after they established formal diplomatic relations in a U.S.-brokered deal.

The agreement, signed Tuesday in Dubai by the Israeli economy minister and the Emirati minister of state for foreign trade, will cover 96% of bilateral trade, which amounts to about $1 billion. Officials said the agreement would help trade grow to more than $10 billion within five years.

The deal shows the durability of a series of diplomatic deals in 2020 known as the Abraham Accords, which normalized relations between Israel and four Muslim countries—the U.A.E., Bahrain, Morocco and Sudan. The accords marked the biggest diplomatic breakthrough in relations between Israel and its neighbors in decades, and the Israel-Emirati trade deal is among the accords’ most tangible achievements.

The U.A.E. struck the free-trade deal during a period of fraught relations between Israel and the Palestinians, with a series of terrorist attacks in Israel, tensions over Jerusalem’s holy sites and deadly Israeli military operations in the West Bank. The Palestinian conflict has divided Israel from much of the Arab and Muslim world, but ties with the U.A.E. have remained strong throughout the recent turbulence.

“Our agreement will accelerate growth, create jobs and lead to a new era of peace, stability, and prosperity across the region,” the U.A.E.’s Minister of Trade Thani al-Zeyoudi said in a tweet.

Israeli Prime Minister Naftali Bennett said in a tweet Monday that this was the largest free-trade agreement between Israel and any Arab state, and the fastest to be signed in Israel’s history. Negotiations began in November and concluded in April, Israel’s economy ministry said.

Though official relations between Israel and the U.A.E. are still new, commercial ties between the two have quickly overtaken those between countries Israel has had peace with for decades—Egypt and Jordan.

In 2021, official bilateral trade between Israel and Jordan was $358 million, and $189 million between Israel and Egypt.

Israel and Jordan have a preferential trade agreement that is limited to removing tariffs on selected items

Tuesday’s deal builds on the exponential growth in trade and investment the U.A.E. and Israel have enjoyed since the signing of the Abraham Accords. From September 2020 to March 2022, non-oil trade surpassed $2.5 billion, while it reached $1.06 billion in the first three months of 2022—five times the total from the same period in 2021.

Ohad Cohen, an Israeli trade official who led negotiations for Tuesday’s deal, said the agreement would help extend U.A.E.-Israeli business ties beyond the diamond business, which makes up more than half of the two countries’ official bilateral trade. The new agreement covers a range of trade, including food products, technology, cosmetics and chemicals.

A long-term hope for both countries is that Israeli companies will set up manufacturing in the U.A.E., which serves as a hub for the Middle East, Asia and Africa—markets where Israel has struggled to gain a foothold.

In recent months, a handful of Israeli companies have begun investing in new offices in Dubai and Abu Dhabi and moving staff from Tel Aviv. Mr. Cohen said he expected the agreement to boost this trend.

There are dozens of Israeli companies currently doing studies to scale up in the U.A.E., said Jon Medved, CEO of Ourcrowd, Israel’s most-active venture capital fund and the first Israeli company to open up offices in the U.A.E. for direct investment in Emirati companies.

“A free-trade agreement, especially of this nature, is really important. I would call it a scaffolding for this incredible building of cooperation we’re putting together with our partners in the U.A.E.,” he said.

Capital has also been flowing from the U.A.E. to Israel.

Abu Dhabi’s Mubadala Investment Co., which manages $284 billion in assets, has invested roughly $100 million in venture-capital firms in Israel’s technology sector.

The largest business deal between the U.A.E. and Israel was in the energy sector and isn’t tallied in the official trade numbers.

Last year, Mubadala Petroleum, the fund’s oil and gas arm, bought a roughly $1.1 billion stake in an offshore natural-gas field from one of Israel’s largest energy companies.

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