Prospects on Israeli - Turkish Trade Ties in the Aftermath of the Reconciliation

Considering the recent political normalization between Jerusalem and Ankara, economic ties are central to bilateral relations. Therefore, careful analysis of economic developments, business ecosystems, and sectoral priorities remains essential to strengthening economic cooperation between the two states.

During the nineties and the first decade of the twenty-first century, bilateral treaties improved economic ties between Turkey and Israel. The Civil Aviation Agreement, signed in 1951 and amended in 2009, paved the way for an unprecedented number of flights between Tel-Aviv and Istanbul. The Free Trade Zone Agreement, signed in 1996 and implemented in 1997, contributed to increased trade between Turkey and Israel and the establishment of solid commercial networks in many sectors.

Recent Trade Developments[1]
Between 2015 and 2016, as between 2014 and 2015, exports from Israel to Turkey dramatically declined, while exports from Turkey to Israel proved less volatile. Israeli exports to Turkey dropped from $2.7 billion in 2014, to $1.7 billion in 2015, then to $1.1 billion in 2016.[2] Even taking currency fluctuations into account, this represented a significant decline.

A glance at the breakdown of exports by sector reveals that the decline in Israel's exports is a result of the fact that these exports emanated almost entirely from the petrochemical industry. In the past decade, oil prices have dropped, global commerce has contracted, demand for petrochemicals has been more competitive, and currency value has declined.[3] As Israeli exports to Turkey are not diverse, these global declines have taken their toll.  When petrochemicals are ignored, we see more consistency in trade trends. Therefore, diversifying Israeli exports to Turkey should involve small and medium size companies and would serve to cushion fluctuation in petrochemical exports.[4]

In contrast, Turkish exports to Israel have been more variegated, resulting in a less acute decline. These exports include raw minerals, equipment for construction, machinery and electric equipment (white goods), vehicles, textiles, and food, among others.[5] Turkish exports to Israel also tend to be more end consumer oriented. In 2016, Turkey exported $2.6 billion to Israel - 6 percent more than the previous year.

It should be noted that civil aviation is the primary service shared between the countries, with two regular carriers and occasional chartered flights. The scheduled carriers operate eleven to fourteen daily flights between Tel Aviv's Ben Gurion Airport and Istanbul's Atatürk Airport or Sabiha Gökçen Airport. Close to 90 percent of the current traffic is transit, with most passengers continuing on to other destinations. Turkish Airlines is the second largest traffic carrier at Ben Gurion Airport, with El-Al remaining ensconced as the largest carrier. Outside Turkey, Ben Gurion Airport is the most frequent single destination airport for Turkish Airlines. These regular flights facilitate economic cooperation from the perspective of geographical proximity. The fact that a business person, a researcher, or a civil servant can travel to any of the two countries in the morning and return home by evening has significant effect.

Challenges for the Future
This geographical proximity presents a unique opportunity for the creation of new business partnerships. The development of Israeli-Turkish partnerships will allow for diversification of goods traded, expanding beyond the parameters of the extant export industry. Business circles in both countries exhibit an entrepreneurial spirit that can be harnessed to engender growth. Partnerships in the private, government, and public sectors are significant. Business circles will have to create new ties on a sectoral basis. However, the contact points between sectors and umbrella organizations are still in their early stages. 

Developments in global and regional markets may constitute new opportunities.  As both Turkey and Israel prioritize technological innovation, the countries should also explore ways to ensure cooperation in this sector. One possible opening for cooperation is the expansion of the Israeli technology parks in Turkey such as the GOSB technopark in Gebze that was inaugurated in 2005.[6]

Developments of the goods and services track, changing economic ecosystems, regulatory standards, and industry-oriented scientific and technological innovation must be systematically studied, in order to identify areas for possible cooperation. Government, public, and private sectors can contribute to this task, through seminars, meetings, and visits to both destinations. Additionally, feasibility studies will assist in the prioritization of investment. 

Trade has functioned as a bridge between the two countries. Existing institutional frameworks, geographical proximity, and congruent business cultures have kept trade exchange on track. This positive development has proved sustainable despite a challenging political climate and decline caused by the global economic crisis. Joining forces in the search for innovative projects will continue to be the key to enhancing further economic ties between the two peoples. Government agencies, including the division of Economic Affairs within the Israeli Ministry of Foreign Affairs, will contribute to bilateral trade, as they have in the past.

Ambassador Moshe Kamhi began in the Israeli Diplomatic Service in 1979 and currently works in the Economic Affairs Division of the Ministry of Foreign Affairs of the State of Israel. He has held the posts of Deputy Chief of Mission at the Israeli Embassy in Ankara (1999-2002) and Consul General in Istanbul (2009-2014). He can be reached at moshe02[at]hotmail.com.