Israel's trade relations with the European Union: The case for diversification

Since the introduction of the European Neighbourhood Policy (ENP) in March 2003, Israel, like the other Mediterranean partners, appears to be facing a real policy choice regarding further economic and political integration into the European Union. The purpose of this article is to provide a qualitative policy perspective regarding some of the trade-offs of enhanced economic relations with the EU. It argues that for Israel the potential benefits are questionable, while the potential costs are high, including an increase in Israel's already high level of what is referred to in the article as 'trade exposure risk'. As an alternative to deepening its trade relationship with the EU, the article proposes that Israel manage its trade exposure risk through diversification, that is, expand its geographical trade and investment base to faster growing economies such the 'BRIC' countries (Brazil, Russia, India, China). It then outlines possible criteria for assessing the BRIC countries as potential FTA partners.