Congress Gets 1st U.S. Free Trade Accord, With Israel

The Reagan Administration sent to Congress on Tuesday a trade agreement with Israel that would eliminate all tariffs between the two countries by 1995--the first such pact the United States has negotiated with any nation.

The agreement was sent to Congress so that it could begin considering the pact even though a final document has not yet been initialed by the two nations. Israeli Trade Minister Yitzhak Modai and U.S. trade representative William E. Brock are expected to initial the agreement later this week. The pact was worked out during the last 13 months and was agreed to in principle in November, 1983, when then-Prime Minister Yitzhak Shamir visited Washington.

The House and Senate last year approved the concept of a U.S.-Israel free trade area as part of the trade legislation passed in the closing hours before adjournment, but the measure stipulated that Congress must approve the final agreement on an up-or-down vote with no amendments.

When the final, initialed document is formally presented to Congress--probably early next month, according to Kathleen Keim, a Commerce Department official--the lawmakers must act within 60 days.

Congressional approval is expected, and the pact then would go into effect by next fall. The House Ways and Means Committee has already scheduled a hearing for today on the agreement, which had been sought by Israel as a means of stimulating development and aiding its troubled economy.

Under the terms of the pact, tariffs would be lifted immediately on 52.5% of U.S. exports to Israel and on 80% of Israeli exports to the United States, then gradually lifted for remaining goods in stages until Jan. 1, 1995, when all duties would be removed.

Certain goods that each country denominates as “sensitive” would be frozen at present tariff levels for five years but would be subject to later negotiation to free them from tariffs by 1995.

There are also a few loopholes, allowing each side some agricultural import restrictions. Israel would be allowed to exclude some items to support its laws maintaining kosher dietary prohibitions and also would be allowed to protect new industries through limited import restrictions before 1995.

Trade between the United States and Israel amounted to $3.95 billion last year, with the United States enjoying a $450-million surplus. Under the General System of Preferences that governs U.S. trade with the rest of the world, about 90% of Israeli goods entering the United States come in duty-free, but only temporarily and subject to review.

The free trade area agreement will allow Israeli manufacturers longer-term planning to develop a U.S. market for the high-technology medical and military equipment Israel sees as its trading future, explained Dan Halpern, economic affairs minister at the Israeli Embassy here.

On the other side, the agreement will eliminate certain benefits currently enjoyed by Israeli exporters to the United States and it will lift duties now imposed on 50% of U.S. goods entering Israel.

“Since 1975, Israel has had an agreement with the European Community that allows European products in duty free,” said Keim, who is in charge of Israeli affairs at the Commerce Department. “We have had increasing complaints from American companies saying they were no longer competitive with Europe (in the Israeli market) because of that agreement,” Keim said, citing copper wire and zippers as examples.

She said she did not expect the agreement, which has been avidly sought by Israel as its domestic economy has weakened, to work to the disadvantage of the United States. “I see both sides gaining,”she said.