Country Project - Israel

Group Members

Mayand Kumar - 1302-083 Mayank Kumar - 1302-084 Rahul Gupta - 1302-113 Rahul Panthri - 1302-114 Rajeev Tibarewal - 1302-116 Ravi Kumar - 1302-120

Overview

Introduction History

Geography

Economic Analysis International Trade Agreements Major Exports and Imports Gravity Model Factors affecting Trade Trade Barriers and its Impact

Introduction

Created on 14 May 1948 after expiration of British Mandate

1948 Arab-Israel war commenced on next day

Joined UN as a member on 11 May 1949

Geography:

• Lebanon (north)

• Syria (north-east)

• Jordan and West Bank (east)

• Mediterranean Sea and Gaza Strip (west)

• Egypt (south-west)

• Red Sea (south)

Introduction

Important cities: Jerusalem (capital) and Tel Aviv (financial center) Latitude: 31° 30’ north Longitude: 34° 45’ east Stretch: 424 km from north to south and 114 km from west to east

Economic Analysis

Fiscal Consolidation Strategy

Impact

Economic overview

• Major industries include• High technology products

• Metal products

• Electronics and biomedical equipment

• Agricultural products

• Transport equipment

• Telecommunication and semi-conductor

• Diamond industry is known for world’s center for diamond cutting and polishing

Gross Domestic Product

Soviet union crash create massive influx(.71 million) of Russian Jews to Israel with 60% of new arrival with college education.

Promoting venture capitalism with Yozma program a $100 million venture capital fund. Program convinced foreign venture capitalist backing hundred of startups a year by 2000.

Foreign Direct Investment

Establishing the image of High-Tech industry Berkshire Hathaway making its first ever acquisition

purchasing 80% of Israel company Iscar Eric Schmidt, Google’s Executive Chairman, has been a

frequent investor in Israel’s high-tech via his own private venture capital fund and has established a large engineering and sales operation in Israel

Intel has led the pack of some 400 global high tech giants which operate in Israel. Intel features, in Israel, four research and development centers, two manufacturing plants and investments in 64 Israeli start ups

Cisco just made its 11th Israeli acquisition, acquiring IntuCell for $475MN; IBM acquired WorkLight for $60MN, its 11th Israeli acquisition

Inflation

Spending huge amount on security; financing the expenditures and spending on settlements in the West Bank and on welfare payments to the ultra-Orthodox community

Persistent problem with balance of payment

International Trade Agreements

Israel has free trade agreements with Canada, Mexico, USA, European Union (EU), European Free Trade Association (EFTA) and MERCOSUR

Qualified Industrial Zone (QIZ) agreement with Egypt and Jordan

Protection of investment agreements with multiple nations like Argentina, China, Germany, India, Poland and South Africa

Avoidance of double taxation agreements with nearly 50 countries like Austria, Brazil, Canada, Denmark, France, India, Japan, Singapore etc.

Research and development agreements with India, Canada, US, UK, Belgium, China, France, Spain, Portugal etc.

Israel also has MFN (most favored nation) agreements with non-WTO members like Kazakhstan, Ukraine, Russian Federation and Uzbekistan

Major Exports and Imports

Major Exports and Imports

Major exported products:

• Cut diamonds

• Packaged and unpackaged medicaments

• Refined petroleum

• Software

• Chemicals

• Agricultural products

• Machinery and equipment

• Textiles and apparel

Major Exports and Imports

Major imported products:

• Rough diamonds

• Crude petroleum

• Military equipment

• Grains

• Consumer goods

Gravity Model

Regression Equation: yi=βo + βixi+εi Where i=1 to n

Dependent variable is Exports

Independent variables are FTA with countries, GDP, Population, Export and Human Development Index (HDI)

Regression Analysis

Countries Export(billion dollars) FTA GDP(billion USD)(Israel) GDP POPULATION(in Millions)(Israel) POPULATION( millions) Distance(km) HDI(Israel)United States 17.33 1 243.93 14991.3 7.91 315.085 10872.21 0.9

Turkey 1.71 1 243.93 774.8 7.91 75.620 882.11 0.9Canada 1.14 1 243.93 1777.8 7.91 35.060 9660.7 0.9

United Kingdom 3.55 1 243.93 2431.59 7.91 63.260 4035.02 0.9Russ ia 1.3 0 243.93 1899.1 7.91 143.700 5,994 0.9India 2.57 0 243.93 1872.9 7.91 1,217.000 4539.2 0.9Japan 1.4 0 243.93 5900 7.91 127.515 9094.53 0.9

Switzerland 0.56 1 243.93 659.3 7.91 7.950 2874.02 0.9Netherlands 2.3 1 243.93 836.1 7.91 16.730 4099.75 0.9

China 2.68 1 243.93 7,320 7.91 1,354.040 6326.75 0.9United States 22.6 1 217.334 14419.4 7.76 312.810 10872.21 0.899

Turkey 2.04 1 217.334 731.1 7.76 74.700 882.11 0.899Canada 1.1 1 217.334 1577 7.76 34.480 9660.7 0.899

United Kingdom 3.73 1 217.334 2260 7.76 62.510 4035.02 0.899Russ ia 1.13 0 217.334 1524.9 7.76 141.930 5,994 0.899India 2.66 0 217.334 1710.9 7.76 1,202.000 4539.2 0.899Japan 1.08 0 217.334 5500 7.76 127.799 9094.53 0.899

Switzerland 0.96 1 217.334 552.2 7.76 7.870 2874.02 0.899Netherlands 2.6 1 217.334 774.7 7.76 16.650 4099.75 0.899

China 3.51 1 217.334 5,930 7.76 1,347.350 6326.75 0.899United States 21.1 1 195.39 13898.3 7.62 310.540 10872.21 0.896

Turkey 1.49 1 195.39 614.6 7.62 72.750 882.11 0.896Canada 0.99 1 195.39 1337.6 7.62 34.120 9660.7 0.896

United Kingdom 2.23 1 195.39 2173.154 7.62 62.030 4035.02 0.896Russ ia 0.85 0 195.39 1222.7 7.62 141.920 5,994 0.896India 2.06 0 195.39 1365.4 7.62 1,186.000 4539.2 0.896Japan 0.87 0 195.39 5040 7.62 128.058 9094.53 0.896

Switzerland 0.72 1 195.39 509.5 7.62 7.780 2874.02 0.896Netherlands 2.1 1 195.39 796.3 7.62 16.570 4099.75 0.896

Regression Analysis

Regression Analysis

Free Trade agreements between countries are positively correlated

Population of Israel is positively correlated

Population of traded countries are negatively correlated

Geographic distance is negatively correlated

Human Development Index of other countries is negatively correlated

Factors affecting Trade

2004 – US-Israel Free Trade Agreement 2006 – Blockade Of Gaza Strip 2008 – Global Recession 2010 – EU-Israel Association Agreement includes agricultural trade 2010 – Israel reclassified as a developed market from emerging market 2011 – Foreign investors exited the stock exchange 2013 – Iran’s hampered trade with US and EU redirects trade towards Israel

Exchange Rate

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

Exchange Rate

Average Rate

Exports

Imports

Balance of Trade

Capital Account

Current Account

Trade Barriers and its Impact

Quotas Israel has eliminated most of its tariff quotas except for 12 agricultural product

groups.

Tariffs Bound Tariffs on 75% of total

High Tariffs on agricultural products – average 73.3%

MFN tariffs average 7%(on agriculture goods – 24.5%)

Other duties and charges bound to zero on all products covered by tariff bindings

Trade Restrictions and its Impact

Import Taxes VAT – 16%(no VAT on fruits and vegetables)

Excise tax on fuel and cigarettes

TAMA for purchase tax

Licensing 203 items subject to licensing mainly for food and security concerns

Imports from 17 countries require special licensing

Agriculture and Chemical exports require licensing

Trade Restrictions and its Impact

Custom Duties Import declaration

Commercial Invoice

Bill of Lading

Certificate of Origin

Packing List

Import License

Permit or Certificates

Trade Restrictions and its Impact

High Tariffs lead to low domestic competition especially in the agriculture sector

Free Trade agreements help in enhancing competition – No tax policy have led to developments in service sector

FDI investments due to export incentives

Good relationships with EU and US

Struggles in regional trade due to geopolitical situation in the Middle-East

THANK YOU