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French Version

Israeli Cabinet clears Egypt free-trade deal

Deal pushed through ahead of sharm el-sheikh summit
Firms from seven designated zones can export to U.S. without duty or quota restrictions if goods contain 11.7 percent input from Jewish state


Israel's Cabinet approved on Sunday a partial free-trade deal with Egypt, hailed as a major step to improved economic and political ties between the two countries.

The Cabinet's nod came ahead of the first summit between Israeli Prime Minister Ariel Sharon and newly elected Palestinian President Mahmoud Abbas this week in the Egyptian resort of Sharm el-Sheikh.

Israel and Egypt in December signed the trade deal to set up Qualified Industrial Zones (QIZ), which opens up the U.S. market to goods produced in Egypt with Israeli inputs, promises jobs for Egyptians and offers Israel cheap labor.

Israel and Jordan signed a similar deal a few months earlier.

"The QIZ agreement between Israel, Egypt and the United States, like the one set up with Jordan, will make an important contribution to strengthening political and commercial ties between Israel, Egypt and the United States," Ehud Olmert, industry and trade minister, said in a statement.

Olmert said he expected the deal to produce partnerships between Israeli and Egyptian companies in areas of textiles, leather, shoes, food and household products.

Under the agreement, companies in seven designated zones can export to the United States without duty or quota restrictions if the goods contain at least 11.7 percent Israeli input.

The seven zones include four in the Greater Cairo area, two near the Mediterranean port of Alexandria and one in an industrial area of the Suez Canal city of Port Said.

Trade between Israel and Egypt is about $60 million a year, 40 percent of which is Israeli exports to Egypt, the ministry said.

QIZs must include parts of Egypt and Israel, although they need not be contiguous.

The U.S. Congress in 1996 allowed imports from Egypt and Jordan to enter the U.S. duty-free if the products contain inputs from Israel.

The United States hopes that the agreements will foster regional economic integration and thus further the Middle East peace process.

The U.S. law requires that the duty-free exports to the U.S. have at least 35 percent value added by companies within the QIZ.

The 35 percent minimum can include costs in Egypt, Israel, or the U.S.

Israel and Egypt agreed that each country must contribute at least a third, or 11.7 percent, to the 35 percent minimum-cost requirement.

The U.S. trade representative must approve all QIZs.

The first QIZs were established in Jordan and led to sharp increases in exports to the U.S.

Thirteen QIZs have been established in Jordan since 1999 and exports to the United States have grown from $31 million in 1999 to $674 million in 2003, according to the U.S. trade representative.

Jordan also estimates that QIZs have created 35,000 jobs. Investment in Jordan's QIZs is between $85 million to $100 million and is expected to grow between $180 million to $200 million.

Beirut,02 14 2005
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