TradeVistas | the potential economic impact of Abraham Accords

Abraham Accords Expected to Yield Immediate Middle East Trade Dividends

More United Under Abraham

On September 15 at the White House, the United Arab Emirates (UAE), Bahrain and Israel signed the Abraham Accords to normalize relations. It had been more than 25 years since Israel signed a peace deal with a major Arab country, the previous being Jordan in 1994 and Egypt before that back in 1979. One diplomatic breakthrough can beget others. Sudan followed on October 23. Oman and Qatar are reportedly in discussions.

These agreements – and those that may follow – could portend a significant turning point for the Middle East and North Africa region. Greater regional economic integration would be a stabilizing force for peaceful relations. It would enable broader-based prosperity for struggling economies in the region and could become a key ingredient of post-COVID growth that is less dependent on oil as a driver for Gulf state economies (and for Israel to rely less on oil that transits Turkey from Iraq). As European and American companies offer a natural bridge to commercial ties with Israel, Gulf states could reduce their reliance on China.

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Through the Abraham Accords, commercial, cultural and personal relationships can take root and blossom. In anticipation of its signing, delegations from the UAE and Israel were deployed to establish direct flights and sign bilateral deals to promote infrastructure and technology investments, tourism, educational and scientific exchange, and to collaborate in advanced healthcare focused most immediately on coronavirus treatments and vaccination.

The UAE, with its concentration of logistics infrastructure, financial expertise and venture capital, is a good match with Israel, renowned for technological invention and entrepreneurship. Their economies have complementary economic strengths. Speaking at a September 16 Atlantic Council event, UAE Minister of Economy Abdulla bin Touq Al Mari said the agreement could lead to as much as $500 million in new bilateral trade and investment, growing to $4 billion a year.

Science Nerds, Students and Traders as Peacemakers

Scientific inquiry is a common human denominator. The Middle East Desalination Research Center based in Oman was an outgrowth of the 1996 Middle East Peace Process and continues today as a model of cooperation in shared research and capacity-building on transboundary water projects between Israel and Arab states.

The Abraham Accords are likely to yield a more significant surge in joint research in areas such as space exploration, technologies to address common food security challenges in the region, renewable energy, and advances in computing. The Accord opens the door to freer travel by scientists and exchanges of scientific samples and research equipment. Already, the Mohamed bin Zayed University of Artificial Intelligence and the Weizmann Institute of Science signed an agreement to create a joint institute for artificial intelligence.

After prohibitions on travel, the UAE could become an attractive destination for Israelis to experience Arabian culture in a Persian Gulf country. UAE airlines Emirates and Etihad will begin flights to Tel Aviv. Observers think these airlines’ existing connections to global destinations through Dubai and Abu Dhabi could be enticing to Israeli tourists but also for business travelers to deliver professional services.

Another important way to foment integration and understanding is through student exchange. Arab students accounted for 16.1% of undergraduate students in Israeli universities in 2018. The Abraham Accord and diplomatic efforts to implement them will focus on greater student exchange.

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Set for Takeoff from Free Zones

Intraregional trade throughout the Middle East – North Africa (MENA) region is today fairly insignificant. The U.S. Chamber of Commerce estimates just 5 percent of exports from MENA countries go to regional neighbors, the lowest rate in the world. It’s difficult to know exactly how much of Israel’s trade is intertwined with Gulf states since trade is transacted through subsidies outside the Middle East. The Tony Blair Institute for Global Change calculates it may be only about $1 billion.

One of the important and relatively quiet ways that more direct trade relations have been established is through free trade zones. As Arab Gulf States Institute scholar Robert Mogielnicki has put it, special economic zones in the Middle East have served as “politically neutral commercial gateways,” a way of dipping a toe in diplomatic relations.

In 1996, the U.S. Congress authorized a Qualifying Industrial Zone (QIZ) program to extend the benefits of the U.S.-Israel Free Trade Agreement. Firms operating in QIZs located in Egypt and Jordan could export to the United States duty-free if the exported products contained inputs from Israel. The opportunity to do so created foundational commercial partnerships among Israeli firms and those in neighboring Arab countries with which Israel had signed peace agreements and provided the basis for extending benefits for those countries to the U.S. market.

As the ink dried on the Abraham Accords, Dubai-based logistics firm, DP World, entered into a partnership with a major Israeli port operator to assess free zone opportunities in Israel and possible direct shipping routes between Eilat and Jebel Ali ports. The Federation of Israeli Chambers of Commerce is also moving quickly to work with major free zone operators in Dubai.

Mogielnicki says the QIZs not only became commercial incubators, they “started to act as bellwethers for the geopolitical and economic reconfigurations underway across the broader Middle East”. Perhaps the flurry of new zones under the Abraham Accord will send similar signals across the region.

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And What of Palestine?

Critics of the Abraham Accords cite concerns that Palestine is left out in the cold. Supporters believe the Abraham Accords are a road that leads back to Palestine in a more constructive way.

As the White House recognizes in its seminal proposal from January 2020, Peace to Prosperity: A Vision to Improve the Lives of the Palestinian and Israeli People, “the conflict between the State of Israel and the Palestinians has kept other Arab countries from normalizing their relationships and jointly pursuing a stable, secure, and prosperous region.”

A deeply complex set of issues to resolve, the Trump administration writes that durable solutions must combine political agreements with an “economic vision for investments and government reforms” to create jobs, reduce poverty and create conditions for growth of the Palestinian economy. The administration’s proposal offers support to Palestine to develop property and contract rights (fundamental growth drivers), to put in place anti-corruption measures and infrastructure for capital markets, and to implement a low-tariff scheme for Palestine to make it more attractive to traders.

The plan proposes coupling policy reforms with strategic infrastructure investments to help hospitals, schools, homes and businesses secure reliable access to affordable electricity, clean water, and digital services. Businesses in the West Bank and Gaza should be better connected with key trading partners in Egypt, Israel, Jordan, and Lebanon – including through free zone arrangements. The plan even proposes a U.S. free trade agreement with Palestine to solidify the continuation of duty-free treatment but also undergird economic reforms; it encourages countries in Europe, the Middle East and elsewhere to pursue its own free trade agreements with Palestine.

There’s a lot to be worked out. For example, Palestine doesn’t have direct access to key ports and must enter into more expansive arrangements with Israel regarding use of port facilities. A focus on these kinds of economic details is a good way to keep the conversation going.

A Strategic Agenda

As part of the Abraham Accords, the Parties agreed “to join with the United States to develop and launch a ‘Strategic Agenda for the Middle East’ in order to expand regional diplomatic, trade, stability and other cooperation.” The language is vague but future looking. It’s broad but opens the door to more specific initiatives. Following the October 23 joint statement, Sudan and Israel plan to exchange delegations to negotiate cooperative agreements in agriculture technology and aviation.

Even Saudi Arabia, which is not ready to sign the Abraham Accord, was supportive of the UAE and Bahrain in their decisions to do so and will directly support commercial relations by allowing Israel commercial flights to UAE to cross Saudi airspace. It becomes harder to turn back on peace when relationships begin to proliferate among individuals, companies, universities, institutes, and other entities outside of governments. Economic insecurity is destabilizing. Stronger economic ties induce cooperation. The Abraham Accords will be much more than symbolic if they produce a swell of private commercial activity and stronger trade relations.

Feature image credit: Official White House Photo by Shealah Craighead of President Donald J. Trump, Minister of Foreign Affairs of Bahrain Dr. Abdullatif bin Rashid Al-Zayani, Israeli Prime Minister Benjamin Netanyahu and Minister of Foreign Affairs for the United Arab Emirates Abdullah bin Zayed Al Nahyan participating in the signing of the Abraham Accords Tuesday, Sept. 15, 2020, on the South Lawn of the White House. Accessed at state.gov/the-abraham-accords/