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  • 1. A COUNTRY STUDY AND REPORT ONOverview of Business & Trade of Israel at International Level & Overview of India-Israel Bilateral Trade and Economic Relations Since 1991 Submitted to G.H.PATEL POST GRADUATE INSTITUTE OF BUSINESS MANAMENT Faculty Guide Prof. Dr.Y.C.Joshi Submitted by Dhaval Adesra - 11013 Jayesh Sonagara - 11018 Prakash suthar - 11028 1
  • 2. INTRODUCTION Overview of Business & Trade of Israel at International Level The economy of Israel is a technologically advanced marketeconomy, including a rapidly-developing high-tech and service sectors. Asof 2010, Israel has the 24th largest economy in the world, and ranks 15thamong 169 world nations on the UNs Human Development Index, whichplaces it in the category of "Very Highly Developed". The major industrial sectors include metal products, electronic andbiomedical equipment, processed foods, chemicals, and transportequipment. Israel diamond industry is one of the worlds centers fordiamond cutting and polishing. Relatively poor in natural resources, Israeldepends on imports of petroleum, coal, food, uncut diamonds andproduction inputs, though the countrys nearly total reliance on energyimports may change with recent discoveries of large natural gas reservesoff its coast. Israel is a world leader in software, telecommunication andsemiconductors development. The high concentration of high-techindustries in Israel, which are backed by a strong venture capital industry,gave it the nickname "Silicon Wadi", which is considered second inimportance only to its Californian counterpart. The country was thedestination for Berkshire Hathaways first investment outside the US whenit purchased ISCAR Metalworking, and the first research and developmentcenters outside the USA for companies including Intel and Microsoft. Israel 2
  • 3. is also a major tourist destination, with 3.45 million foreign tourists visitingin 2010. In September 2010, Israel was invited to join the OECD. Israel hasalso signed free trade agreements with the European Union, the UnitedStates, the European Free Trade Association, Turkey, Mexico, Canada,Jordan, Egypt, and on 18 December 2007, became the first non-Latin-American country to sign a free trade agreement with the Marcos tradebloc. For 2006, Israeli exports grew by 11%, to just over $29 billion; the hi-tech sector accounted for $14 billion, a 20% increase from the previousyear. The United States is Israels largest trading partner; two-way tradetotaled some $24.5 billion in 2010, up from $12.7 billion in 1997. Theprincipal U.S. exports to Israel include computers, integrated circuits,aircraft parts and other defense equipment, wheat, and automobiles.Israels chief exports to the U.S. include cut diamonds, printing machinery,and telecommunications equipment. The two countries signed a free tradeagreement (FTA) in 1985 that progressively eliminated tariffs on mostgoods traded between the two countries over the following ten years. Anagricultural trade accord was signed in November 1996, which addressedthe remaining goods not covered in the FTA. Some non-tariff barriers andtariffs on goods remain, however. Israel also has trade and cooperationagreements in place with the European Union and Canada, and is seeking 3
  • 4. to conclude such agreements with a number of other countries, includingTurkey, Jordan and several countries in Eastern Europe. Until 1995, Israels trade with the Arab world was minimal due to theArab League boycott. Beginning in 1945, Arab nations not only refused tohave direct trade with Israel (the primary boycott), but they also refused todo business with any corporation that operated in Israel (secondaryboycott), or any corporation that did business with a corporation that didbusiness with Israel (tertiary boycott). Israel is one of the worlds major exporters of military equipment,accounting for 10% of the world total in 2007. FDI in Figures The investment system in Israel is liberal and most of the activitiesare open to private national and foreign investors. According to a report ofthe Bank of Israel, the flow of foreign direct investment (FDI) into Israeltotaled USD 3.7 billion in 2009, which means a decrease of more than50% compared to 2007, and they have remained weak in 2010. This strongdecline can be explained by the context of the global economy and most ofall, the American economy because Israeli start-ups depend very much onthe situation of the other side of the Atlantic. Nevertheless, Israel benefitsfrom these assets: a strong R&D activity and a high-skilled and multilingualworkforce. However, the country suffers from a particularly unstablegeopolitical environment. 4
  • 5. Foreign Trade Overview The Israeli economy is extremely open. Israels exports representaround 24% of the GNP. They are the backbone of the countrys growth. In 2009, Israels trade balance, which was previously in deficit,recorded a historical surplus due to a strong drop on imports. The situationwas again reversed in 2010, a trend that should continue in 2011. The main customers and suppliers of Israel are the European Union,the United States, Turkey, Japan, India and China. The main goods importedby the Israeli state are raw materials and half-finished products,hydrocarbons, consumption goods (food products and drinks, electricalequipment, transport equipment, etc.) and investment products. The mainnational exports are manufactured goods which are often high technologyproducts (computer equipment, electronic components, aeronautics,electronic communication equipment, verification products andpharmaceutical products) Trade Barriers in Israel In general, Israel offers a good commercial environment for U.S.companies. The United States-Israel Free Trade Agreement (FTA) haseliminated almost all tariffs, leaving Israels agricultural sector as the onlyone with substantial barriers. The FTA also provides for a joint committeecomprised of representatives from both countries to review the functioning 5
  • 6. of the agreement (the committee last met in October 2007). Israel is amember of the World Trade Organization (WTO). A 1996 Agreement on Trade in Agricultural Products (ATAP) with theUnited States permits Israel to maintain non-tariff protection for certainagricultural products. This framework expired at the end of 2001 but thesigned agreement was extended until the end of 2009. Under theagreement, Israel permits free access to a long list of food products andduty-free access for certain quantities of a list of U.S. products under tariffrate quotas (TRQ). American exporters and Israeli importers, however,complain that these TRQs provide an insufficient duty-free quota for manyfruits and other products, and very high fees on additional quantities(above quota). Israel excludes some U.S. fruits, including, citrus, peaches,and nectarines, on phytosanitary grounds. Israel is revising its phytosanitaryrestrictions making them consistent with WTO requirements. The U.S. Embassy in Tel Aviv is very actively pursuing much-neededimprovements in the export and investment climate for U.S. firms in Israel.The efforts are focused in three specific areas: incorporating technicalstandards in Israel that do not discriminate against U.S. products,protecting intellectual property rights, and establishing greatertransparency in Israel’s public procurement process. For furtherinformation about how these issues may affect your export prospects inIsrael, please contact the Commercial Service in Israel. 6
  • 7. Regarding intellectual Property Rights, while there has beenimprovement in the level of illegal production, importation, and sale ofcopyrighted and trademarked goods, serious problems still exist. Overview of India-Israel Bilateral Trade and Economic Relations Since establishment of diplomatic relations in 1992, bilateral tradeand economic relations have progressed rapidly. From a base of US$ 200million in 1992 (comprising primarily of diamonds), merchandise trade hasdiversified and reached US$ 5.15 billion in 2011. In 2011, India was the 8th largest trade partner of Israel in the world, and3rd largest trade partner in Asia following China and Hong Kong (trade dataincludes diamonds). Although bilateral trade increased in 2011, ascompared to 2010, India’s position among Israel’s trading partners fell fromsixth to eighth. India is the 11th largest import source of Israel includingdiamonds, and 16th largest import source excluding diamonds (in Jan-Dec2011). India is the 5th largest export destination of Israel (includingdiamonds) and 7th largest excluding diamonds (Jan-Dec 2011). While Indiasexports to Israel in areas other than diamonds have increased over theyears, Diamonds still constituted around 49% of the bilateral trade in theyear 2010. India-Israel two-way trade in 2011 increased by 8.8% from US$ 4.73billion in January-December 2010 to US$5.15 billion in January-December2011. However balance of trade was in Israel’s favor by US$844 million.Although India’s exports to Israel in areas other than diamonds increasedover the years, diamonds continue to be an important segment at 56.4% oftotal bilateral trade in 2011 (US$ 2.91 billion out of US$ 5.153 billion). Major exports from India to Israel include precious stones and metals,chemical products, textile and textile articles, plants and vegetableproducts, mineral products, rubber and plastic products, base metals andmachinery. Major exports from Israel to India include precious stones andmetals, chemical and mineral products, base metals, machinery, andtransport equipment. 7
  • 8. While the traditional business thrust in diamonds, agriculture,chemicals, information & communication technology and pharmaceuticalsremained strong, there is a growing interest from Israeli companies in cleanenergy, water technologies, biotech, nanotech, homeland security, realestate, infrastructure and financial services. Salient points of the bilateral trade figures during January–December2010 (Central Bureau of Statistics of Israel) are as follows:  India-Israel two-way trade during Jan-Dec 2010 increased by 59.92% from US$ 2968.3 million in Jan-Dec 2009 to US$ 4747.1 million in Jan-Dec 2010.  Indian exports to Israel during January-December of 2010 increased by 59.45% (from US$ 1157.4 million in Jan-Dec 2009 to US$ 1845.5 million in Jan-Dec 2010). Indian exports to Israel excluding diamonds increased by 37.68% (from US$ 518.2 million in Jan-Dec 2009 to US$ 713.5 million in Jan-Dec 2010).  Israel exports to India during January-December of 2010 increased by 60.22% (from US$ 1810.9 million in Jan-Dec 2009 to US$ 2901.6 million in Jan-Dec 2010). Israeli exports to India excluding diamonds for this period increased by 41.05% (from US$ 1198.5 millions in Jan-Dec 2009 to US$ 1690.6 millions in Jan-Dec 2010).  There was an increase of 87.2% in diamonds traded between the two countries during January-December of 2010 (from US$ 1251 millions in Jan-Dec 2009 to US$ 2343 millions in Jan-Dec 2010). Exports of diamonds from India to Israel during this period increased by 77.09% (from US$ 639.2 million in Jan-Dec 2009 to US$ 1132 million in Jan-Dec 2010) while imports into India increased by 97.74% (from US$ 612.4 million in Jan-Dec 2009 to US$ 1211 million in Jan-Dec 2010).  Balance of trade during January-December of 2010 is in Israel’s favor by US$ 1056.1 million.  Israel’s two-way global trade during January-December of 2010 increased by 23.34% (from US$ 95,303.7 million in Jan-Dec 2009 to US$ 117,553.0 million in Jan-Dec 2010). India’s share in Israel’s two way global trade in this period increased from 3.11% (in Jan-Dec 2009) to 4.03% (in Jan-Dec 2010). 8
  • 9.  Share of India’s exports in Israel’s global imports (including diamonds) for this period, increased from 2.44% (in Jan-Dec 2009) to 3.12% (in Jan-Dec 2010). Share of India’s exports in Israel’s global imports (excluding diamonds) for this period increased from 1.23% (in Jan-Dec 2009) to 1.4% (in Jan-Dec 2010). India is ranked 9th largest import source of Israel including diamonds, and 14th largest import source excluding diamonds (in Jan-Dec 2010). Share of Israel’s exports to India in Israel’s global exports (including diamonds) for this period, increased from 3.77% (in Jan-Dec 2009) to 4.96% (in Jan-Dec 2010). Share of Israel’s exports to India in Israel’s global exports (excluding diamonds) for this period increased from 3.29% (in Jan-Dec 2009) to 4.02% (in Jan-Dec 2010). India is ranked 4th largest export destination of Israel (including diamonds) and 5th when excluding diamonds (in Jan-Dec 2010). 9
  • 10. List of signed Bilateral Agreements 10
  • 11. Objectives of the study 1) To measure trade and business relationship of Israel with rest of the world. 2) To measure bilateral trade and economic relations of India-Israel. 3) To identify international trade barriers in Israel. 4) To measure foreign direct investment in Israel. Research Methodology In this report we use exploratory research method to understandtrade and business relationship of Israel with rest of the World and withIndia. We use secondary data for research. 11
  • 12. Bibliographywww.state.govwww.israelimporter.comwww.indexmundi.comwww.finmin.nic.inwww.oecd.orgwww.indembassy.co.in 12