Enlargement Opportunities and Challenges for Israel
Dear Friends,
The countdown has ended and an enlarged European Union is born. On 1 May, ten new countries joined the European Union. The accession of the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia has increased the number of Member States from 15 to 25 and the size of the EU’s population from 375 million to 450 million. The biggest EU enlargement ever is going to have a considerable effect on all aspects of the EU’s activities. It also has important implications for the many states conducting close relations with the EU. Israel is certainly one of them. After all, the EU is Israel’s biggest trade partner (about a third of its exports go to the EU and some 40 percent of its imports come from it) and the nearest EU country, Cyprus, is now only 300 kilometres away. If it wants to fully exploit the opportunities and contend with the challenges of this significant development, Israel will have to align its political and economic policies accordingly.
First and foremost, EU enlargement will have a major strategic impact on our bilateral relationship. This huge body of 25 integrated countries will border the Middle East. It is unthinkable that the enlarged EU will not take an increased interest in contributing to the stability of its own backyard. Fundamental European security and economic interests are at stake and there is no doubt that the EU will promote them. The work that is going on to define an EU Strategic Partnership with the Mediterranean and the Middle East due to be approved at the June European Council is just one expression of this.
Frankly, Israel has so far shown considerable reservations regarding European involvement in the management of the Israeli-Palestinian conflict. It tends to keep Europe at arm’s length and prefers to place all its eggs in the American basket. One illustration of this one-way approach was the request for exclusive American assurances on the disengagement plan. Both alone and in the framework of the Quartet, the EU has welcomed and encouraged the prospect of Israel’s withdrawal from Gaza. It has stated that such a withdrawal could represent a significant step forward towards the implementation of the Road Map, provided some conditions are met. This is an opportunity which the international community should seize. In this spirit the EU has expressed its readiness to consider how it might contribute to the implementation of such a plan. The enlarged EU is an immediate neighbour. It is Israel’s more important economic and civilian partner. Despite the tragic heritage of the European past, we are linked by a dense web of shared interests. The EU therefore believes that our relationship should be seen as a whole and should include both economic and diplomatic aspects.
The fact that EU enlargement will enhance its geo-political interest in this region does not mean that it will object to the US leading the search for a comprehensive settlement. Nevertheless, Israel would do well to note the EU’s strong and growing capabilities to deliver. First of all, our relationship with the Palestinians gives us a potentially strong leverage over them to take the steps laid down by the Road Map, provided we can demonstrate a similar leverage on Israel. Second, the EU’s political power of attraction is also influencing Israel’s regional neighbours. Our relationship with Egypt and Jordan is becoming increasingly intense, while we are exerting a growing moderating influence on countries like Syria, Iran and Libya. Last but not least, enlargement comes in parallel with the Union’s reinforcement. The EU’s first ever constitution could be signed in June. Its institutions will be strengthened and its competences enlarged. For the first time the EU will have its own foreign and security minister, supported by an administrative staff of thousands in Brussels and over 130 embassies around the world. The Union’s strong track record of conflict management will be complemented by significant military rapid reaction forces. In short, in the next few years, the EU will become a major international player. And, after the Balkans, where will this EU external action be focused? The answer given by our heads of government is clear: the Middle East. Is it not in Israel’s interests to take advantage of the opportunity of the Union’s clear commitment to this region by entering a new phase of diplomatic partnership?
Next, let’s examine the opportunities and challenges in the economic and business spheres. Israel will obviously face a larger single market. On the one hand, the export potential to the EU will grow since the new Member States have adopted European legislation removing barriers to the free movement of goods, services, capital and workers between the EU’s member states. They are also adopting the Association Agreement between Israel and the EU which is largely a free trade area agreement. The Israeli exporter will be facing a market 20% larger in terms of potential, although not yet affluent, consumers. However, Israeli exporters will have to engage in heightened competition for the pocket of the European consumer, essentially because the new Member States with their relatively lower production costs will compete with Israeli exports in the European market. In addition, it should be remembered that the opening of the Israeli market to the new Member States as mandated by the Association Agreement (in particular the Baltic States which do not have free trade agreements with Israel) will increase the competitiveness of imports as opposed to locally made products. Overall, I share the confidence of most of the Israeli business community that the advantages will largely prevail. This proved to be the case with previous EU enlargements to less developed countries like Spain, Portugal and Greece, where the acceleration of economic growth proved highly beneficial for Israel.
The new Member States constitute a broad base for investors who want to enjoy the benefits of low production costs and the removal of all barriers between the new and ‘old’ Member States. True, the attractiveness of the new Member States is liable to divert investments from Israel, but it should be borne in mind that many foreign investments have already been carried out in these countries and their joining the EU will not place Israel in a new competitive situation. Moreover, Israeli investors have also exploited the opportunity to invest in these countries. It is important to remember that the accession of Cyprus places the EU only 30 minutes flying time from Israel, and this is certainly a plus for Israeli investors who want to open or to develop a ‘European’ business close to home.
The states now joining the EU will not, at this stage, be part of monetary union and are not yet adopting the euro. On the other hand, since they will become part of the EU’s internal market, it can be assumed that increasing numbers of companies from these countries will use the euro in their external trading and this will make life easier for Israeli exporters.
The new members will also benefit from huge financial assistance from the EU to promote rapid growth. Israeli investors incorporated into the enlarged EU could benefit from this aid. Israeli companies in the high-tech, telecom, construction and environment sectors, for instance, could use their capabilities together with local or other European enterprises.
On the individual level, hundreds of thousands of Israelis eligible for and interested in citizenship of the new Member States of central and eastern Europe will be directly affected by enlargement since they will also gain European citizenship. Within a few years, the limitations presently placed on the rights of full residency or freedom to work throughout the EU will be removed from the citizens of these states and Israelis sharing the same citizenship will enjoy the same benefits.
The present process of enlargement is coming to an end but in the coming years the EU is expected to again expand its boundaries. In 2007 Bulgaria and Romania are slated to join. At the end of this year the EU will decide on whether to open negotiations with Turkey. The Balkan states also regard themselves as candidates and Croatia has presented its candidacy which is currently being considered by the Council after receiving a positive opinion from the EC.
However, the challenges facing both the EU and Israel extend beyond enlargement. The European Neighbourhood Policy addresses the special relations that the EU wishes to forge with those countries along its new borders which will apparently not be joining the Union. These countries are: Russia, the Ukraine, Moldova and Belarus to the east and the Mediterranean countries including Israel, to the south. It wants to extend the benefits of enlargement to these countries which have been termed by President Prodi as “a ring of friends.” The EU is prepared, in principle, to offer these countries a deep economic partnership. Commissioner G?nter Verheugen, who is responsible for European Neighbourhood Policy, has said, “This policy aims to develop new, sophisticated ways to share with our neighbours the stability, security and prosperity we have created within the enlarged EU.”
Under the European Neighbourhood Policy the Union is offering to open up significant sections of its policies (for example: its internal market; transport, energy, communications and environmental networks) in return for adherence to EU norms and values inspired by the criteria for acceding to the EU: respect for rule of law, democracy and human rights, a free market economy, harmonisation of legislation and the peaceful resolution of conflicts. From an economic and business viewpoint, Israel’s integration in this initiative could constitute significant leverage for growth since in many respects, at the end of the process, Israeli companies would be regarded as European companies for the purposes of production, trade and participation in tenders and projects.
The EU and Israel are now engaged in contacts aimed at reaching an agreed Action Plan under the European Neighbourhood Policy in the near future. The EU has thrown down a significant challenge to Israel, which carries the potential to move from developed cooperation and interaction with the EU to a full strategic partnership.
Ambassador Giancarlo Chevallard
Head of Delegationhttp://www.eu-del.org.il/newsletter/english/default.asp?edt_id=13