Political and human rights pressures are mounting within the European Union towards suspending the Association Agreement with Israel, in light of the increasing accusations against Tel Aviv of violating human rights and international law in the Gaza Strip, the West Bank and Lebanon, but this path collides with economic and commercial entanglement that makes the decision more complex than a mere political or legal position.
In recent months, calls have increased from European countries, especially from Spain, Ireland and Slovenia, to reconsider or suspend the agreement due to the war on Gaza and Israeli violations in the occupied Palestinian territories, as when the French Parliament recently rejected a draft resolution calling for the suspension of the agreement, while countries such as Germany and Italy still oppose taking broad steps against Israel, which reflects a European division conflicting with human rights considerations and economic and political interests.
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The European dispute is not limited only to the content of Article Two of the agreement between Brussels and Tel Aviv, which links relations between the two sides to respect for human rights and democratic principles, but rather over the cost of suspending a trade, investment and technological relationship that has extended since the agreement entered into force in 2000, to become part of the structure of the Israeli economy and the European Union’s relations with the southern Mediterranean.
European Commission data show that Israel is the European Union’s 31st trading partner, representing only about 0.8% of the Union’s total trade in goods with the world during the year 2024, while the European Union represents Israel’s first trading partner, accounting for 32% of Israel’s total merchandise trade with the world, which reveals a clear gap in the degree of dependence between the two parties.
The total trade in goods between the two sides reached 42.6 billion euros (about 48.4 billion dollars) in 2024, and the European Union imported goods from Israel worth 15.9 billion euros (about 18.1 billion dollars), while exporting to it a value of 26.7 billion euros (about 30.3 billion dollars), achieving a trade surplus in its favor of about 10.7 billion euros (12.2 billion dollars).
The major axes of the agreement
The European-Israeli Association Agreement is the basic legal framework that regulates relations between the two parties. It was signed in Brussels in 1995, and entered into force in June 2000. It is based on the gradual establishment of a free trade area, the expansion of economic, commercial, scientific and technological cooperation, in addition to providing a framework for political dialogue.
The agreement gave Israel preferential access to the European market, reduced or eliminated customs restrictions on a large number of goods, and also opened the door to subsidiary agreements in more specialized areas, including agricultural products, medicine, aviation, and rules of origin in the euro area and the Mediterranean basin.
Rules of origin are the standards that determine in which country the good was manufactured, rather than from which country it was shipped. Based on the classification of goods, governments decide whether they deserve preferential treatment (such as customs exemption) or are subject to certain restrictions.
The European Commission notes that European-Israeli trade relations are governed by a free trade zone within the Association Agreement, and an additional agreement on agricultural products entered into force in 2010, and another agreement on mutual recognition in the pharmaceutical industrial products sector, as well as the “Open Skies” agreement, which enhanced air traffic between the two sides.
The Open Skies Agreement is an international treaty between two or more countries that aims to liberate air transport from the restrictions imposed between countries. It is an agreement that makes aviation between two countries more like an open market, as it opens the imposed barriers related to the number of flights operated, routes and also ticket prices.
What is the importance of the agreement for Israel?
The importance of the agreement for Israel stems from the fact that the European Union is not just a large market, but rather its first trading partner. According to European Commission data, 34.2% of Israel’s merchandise imports in 2024 came from the Union, while 28.8% of its exports went to it, while the volume of merchandise trade between the two sides reached about 45 billion euros (about 51 billion dollars), equivalent to 32% of Israel’s total trade with the world.
Secretary of the General Union of Palestinian Economists, Nasr Attiani, told Al Jazeera Net that these numbers give a clear indication of Israel’s heavy dependence on the trade relationship with the European Union, considering that the agreement represents for Tel Aviv a “strategic matter” that serves the Israeli economy, and not just a passing trade arrangement.
Israel’s exports to the European Union are concentrated in sectors with a qualitative weight within the Israeli economy, especially machinery and transportation equipment, chemicals, optical and scientific equipment, electronic circuits and technological components. European Commission data show that machinery and transportation equipment constituted 43.9% of the Union’s imports from Israel in 2024, followed by chemicals at 18%, and then other manufactured goods at 12.1%.
Atyani believes that the services, software and high-tech sectors are among the Israeli sectors that benefit most from the relationship with Europe, adding that scientific and technical cooperation in the fields of innovation, science, technology and water management represents one of the indirect pillars of this partnership.
What is the return to Europe from the agreement?
Although Israel depends on Europe more than Europe depends on Israel in terms of the relative weight of trade, the European Union achieves clear gains from the agreement, most notably the large trade surplus in goods, access to a high-income Israeli market, in addition to cooperation in the sectors of technology, cybersecurity, energy, medicine, and scientific research.
Commission data show that European Union exports to Israel amounted to 26.7 billion euros (about 30.3 billion dollars) in 2024, compared to imports worth 15.9 billion euros (about 18.1 billion dollars), which means that the trade balance is tilted in favor of Europe. The Union’s exports to Israel amounted to machinery and transport equipment worth 11.5 billion euros (about 13 billion dollars), then chemicals at about 4.8 billion euros (about 13 billion dollars). 5.4 billion dollars), then manufactured goods amounted to about 3.1 billion euros (about 3.5 billion dollars).
In this context, Attyani E. says:Some European countries, such as Spain, are exporters of cars to Israel, which means that any broad suspension of trade relations may affect European companies, especially those related to cars, equipment, medicines, and technology.
As for the Director of the Arab Economic Forum, Omar Fandi, in his interview with Al Jazeera Net, he believes that Europe will be harmed by any comment in specific areas such as cybersecurity, energy, and medicines, but he describes the extent of the European damage as moderate compared to the Israeli damage, because Europe has broader alternatives, larger markets, and a higher ability to redirect its trade.
Who benefits most?
In terms of absolute numbers in trade in goods, the European Union appears to be benefiting from the trade surplus, as it sells to Israel more than it buys from it, but in terms of relative weight and strategic impact, Israel appears more dependent on the Association Agreement.
Atyani believes that the Union benefits commercially, but is not structurally dependent on Israel, pointing to Israel’s need for Europe as an export market, a source of industrial and technological imports, and a channel of financing, investment and scientific cooperation, while the European Union can, in theory, compensate for a larger part of its trade relationship with Israel through other partners.
The Secretary of the General Union of Palestinian Economists points out that the economic agreements between the two parties are not limited to trade only, but also include aspects related to facilitating investment and business, including reducing double taxation, which gives Israeli companies and investors an easier environment in dealing with the European market, and enhances the attractiveness of economic activity between the two parties.
Fendi says that the impact on Israel if the agreement is canceled will be greater than the impact on Europe, because the European market for Tel Aviv is a close, easy and available market, unlike other markets that may require more complex commercial, political and logistical arrangements, indicating that the benefit is not measured only by the volume of trade, but rather by the location of the agreement within the Israeli economic model, especially in the sectors of high technology, fundraising, credit rating, and the attractiveness of Israeli companies to foreign investors.
What happens if I stop the agreement?
Atyani believes that any European decision to freeze or end the trade relationship will negatively affect the Israeli economy, especially if it comes within a cumulative process that includes decisions by European countries or investment funds and global financial institutions to reduce their exposure to Israel or its companies.
He pointed out that suspending the agreement partially or completely will have direct and indirect economic impacts, and the direct impact may appear in a decline in customs privileges, an increase in the cost of entry of some Israeli exports to the European market, the complexity of rules of origin, and a slowdown in the movement of some goods and services.
He added that the indirect impact may be deeper, as it affects Israel’s image as a natural economic partner for Europe, and may raise the risk premium on Israeli companies, and put pressure on their ability to attract financing and investment, especially in the technology, software, and scientific research sectors.
The director of the Arab Economic Forum believes that the suspension will have a major “psychological impact” on society and companies in Israel, beyond the trade numbers themselves, because it will send a message to investors and markets that Israel’s relationship with its largest trading partners is no longer stable, and this may be reflected, according to his estimate, on fundraising, the credit rating, and the ability of the Israeli economy to grow.
