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U.S.-Israel Free Trade Area Agreement:
Background & Overview

by Mitchell Bard


FTA Agreement: Table of Contents | Text of Agreement | Bush Extends FTA


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The Free Trade Agreement (FTA) signed by the United States and Israel in 1985 affords American products the opportunity to compete on an equal basis with European goods, which all have free access to Israel's domestic markets. Israel was the first country to conclude a free trade area agreement with the United States and the FTA served as a model for later agreements signed between the United States and Canada, Jordan, and Mexico.

The FTA eliminated all duties and virtually all other restrictions on trade in goods between the two countries. The FTA was signed April 22, 1985, by the United States Trade Representative (USTR) and the Israeli Minister of Industry and Trade and was officially entered into force in September of that year after it was approved by the U.S. House of Representaives in a 422-0 vote and a voice vote in the U.S. Senate. The final phase of the agreement was fully implemented on January 1, 1995 when the two countries completely eliminated all duties and tariffs on manufacted goods.

The FTA also includes a Declaration on Trade in Services, a non-binding statement of intent to eliminate barriers to trade in services such as tourism, communications, banking, insurance, management consulting, accounting, law, computer services, and advertising. The U.S. and Israel also signed an Agricultural Agreement, to reduce trade barriers on agricultural products and boost agricultural trade between the two countries. Finally, the FTA includes provisions to protect American industry. For example, certain non-tariff import restrictions on agricultural products are allowed.

Both the United States and Israel have benefitted immensely from the FTA as can be evidenced in the exponential growth of their bilateral trade over the past 25 years. Between 1986 and 1996, the first decade of the FTA's implementation, bilateral trade in goods more than tripled, from $3.9 billion to $12.4 billion, with U.S. exports to Israel totaling $6 billion. In the following fourteen years, from 1996 to 2010, the bilateral trade nearly tripled again, rising to an estimated total of $32 billion. Over this time, U.S. imports from Israel have jumped from less than $2.2 billion in 1984 to more than $21 billion in 2010, an increase of 954 percent. Meanwhile, Israeli imports from the U.S. have risen from around $1.8 billion to more than $11 billion.

Due to the success of the FTA, Israel is now among America's 12 largest export markets per capita. Despite having a population under 8 million, ranking just 96th highest in the world, Israel is still among the U.S.'s 25 largest export markets by value, ahead of much largers countries such as Russia, Spain and Argentina.

The FTA gives American companies exporting to Israel an advantage over competitors by virtue of the elimination of all tariffs on American exports to Israel. In addition, as one of only three countries (Jordan and Mexico are the others) with free trade agreements with both the United States and the European Community, Israel can act as a bridge for international trade between America and Europe.


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