Israeli Breakthrough

Compounding the political isolation that has beset Israel in recent months has been longstanding if less severe economic isolation; the Jewish state belongs to no trade bloc in which it can sell its products under low tariffs, a fact that aggravated a $3.5 billion trade deficit that last year forced a 43% devaluation of the Israeli pound. But in Brussels last week Israel achieved a significant breakout from its loneliness. The nine-nation European Economic Community signed an agreement that greatly reduces tariff barriers on sales of Israeli goods to the Common Market and assures Israel there will be no arbitrary cutoff of supplies of such essential items as chemicals and metals in time of crisis.

Politically, the agreement is a sign that Europe has not abandoned Israel, despite its 70% dependence on oil from Arab lands and many indications that it was caving in (in 1973, for example, the Common Market drafted a strongly pro-Arab resolution embracing Cairo's arguments in cease-fire negotiations). Economically, the pact should help Israeli exports of oranges, chemicals and electronic products. As of July 1, Common Market tariffs on those and other Israeli goods will be lowered 40% to 80%; by mid-1977, there will be no tariffs on Israeli industrial exports to the EEC.

Israel, however, will be permitted to retain full tariffs on many industrial imports from the Common Market until 1977. After that, tariffs will be gradually reduced, but some duties may last until 1989, by which time the Israeli economy will supposedly be able to withstand the full rigors of international competition--a sort of commercial bar mitzvah. Israel has been allowed favorable treatment in the early stages of the pact because it now imports far more from the EEC than it exports. In 1974 it bought $2 billion worth of Common Market goods, such as automobiles and heavy machinery, nearly three times as much as it sold to the EEC.

Perhaps even more significant, the pact may well provide a commercial link of sorts between Israel and the Arab states--at least in the sense that they will both be privileged trading partners of the EEC. The agreement with Israel is only an initial step in an ambitious Common Market plan to tie the whole Mediterranean basin into a free-trade area linked to the EEC. The Europeans are now negotiating similar agreements with the nations of the Maghreb (Algeria, Tunisia and Morocco), to be followed eventually by pacts with Egypt, Jordan, Lebanon and Syria.

Predictably, Arab countries protested the agreement with Israel; Algeria requested cancellation of an Arab-Common Market parley that was in the last stages of preparation. The Arabs' pique seemed to be directed not so much at the EEC-Israeli accord, but at the fact that it was signed before any Arab state was brought into the EEC's scheme for a Mediterranean free-trade area.

The Israelis also scored with an economic accord signed in Washington last week by Finance Minister Yehoshua Rabinowitz. Unlike the EEC pact, it touches only lightly on trade matters, but provides for joint financing of a $20 million desalination plant, the supply of raw materials by the U.S. and, most important, the encouragement of private U.S. investment in Israel--which was down 50% in the recession year 1974.

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