UK-Israel Trade Negotiations

This week the UK government formally launched negotiations with Israel on upgrading its free trade agreement (FTA). The existing FTA is based on an agreement negotiated by the EU in 1995 which was “rolled-over” into UK law as part of the Brexit process. 

Of course, a lot has changed since 1995 – a time before smartphones and widespread access to the internet. Global trade in services was a fraction of current values and services couldn’t be delivered digitally. 

It makes sense therefore that the terms of trade between the two economies need modernising to reflect an international economic environment that has been transformed over the last three decades.  This is particularly true of the UK and Israel, where services provide over 70% of total economic output in both countries but only currently account for just 36% of bilateral trade. 

The UK-Israel trade corridor already has a strong foundation, worth around £5 billion annually and estimated to support over 6,000 British businesses. The existing trade agreement provides excellent coverage for goods trade, with around 99% of goods traded tariff-free. 

The priorities for UK negotiators are likely to be securing ambitious rules for cross-border trade in services, to minimise trade barriers behind the border - including limits on the number of service suppliers that can operate in-country, economic needs tests and requirements on establishing local subsidiaries. 

A modernised agreement would also include rules which enable the free flow of data, provisions to support digital trade, more generous terms for business travel and a new framework for qualifications to be recognised in each country’s territory.  Together these aspects will help to underpin the UK’s status as a global leader in financial and professional services, law and technology. 

Most of the services trade conducted between the UK and Israel is digitally delivered. A comprehensive agreement would likely contain a standalone digital chapter (the aim being to secure provisions comparable to those in the UK’s other recent bilateral FTAs). 

We would expect to see commitments on removing unjustified data localisation and other barriers to the free flow of data, guarantees on the protection of source codes and algorithms and enhanced regulatory cooperation. An ambitious agreement could also see the removal of Israel’s requirement for trade documentation to be handled only in paper form, with commitments to move towards recognising electronic contracts and e-signatures.

Israel is the world leader in research and development expenditure, which accounts for almost 5% of GDP and helps to power Israel’s pre-eminent tech industry. We anticipate specific and substantial commitments on establishing new frameworks for closer cooperation on emerging and priority sectors such as cybersecurity, telecommunications and artificial intelligence. 

As a comprehensive trade agreement, the final deal is expected to include dedicated chapters in a wide range of other areas, including customs facilitation, investment, government procurement, agriculture, intellectual property and sustainability. These are expected to be largely in line with the UK’s other recent FTAs. 

The government is aiming to hold the first round of negotiations in September. There is no formal end date, but we understand the government is seeking to conclude substantive negotiations within a year. Businesses can therefore anticipate implementation from mid-late 2023. The negotiation will take place in parallel with several others, including those with India, Canada, Mexico, the GCC and CPTPP. 

What should I be doing now? 

The UK-Israel trade and investment corridor is already strong but is set to widen significantly in the years ahead due to the high growth of the Israeli economy, an increased demand for goods and the combined focus on driving technological innovation. 

Whatever your size and sector – but particularly if you are services supplier – you should evaluate your operations, supply chain and investment decisions to find out where the opportunities might lie for you.  

For support in assessing your priorities, Deloitte’s specialists are on hand to help.