Israel-Egypt trade links may help limit any rupture in ties

Israel and Egypt have cooperated on a natural gas pipeline and Israeli-owned textile factories that employ thousands of Egyptians. Such links could be key to preserving a cold peace.

Even as most of Israel frets about the possibility that a new Egyptian government might downgrade the bilateral relationship, one group remains upbeat.

Israeli businessmen with activities in Egypt still believe that the economic foundation of the peace between the two countries will help stave off a rupture in ties.

Though trade remains minimal because of the cold peace, the two countries have cooperated on a natural gas pipeline and Israel-owned textile factories that employ thousands of Egyptians to manufacturer clothing for export. The US has also added incentives for Egyptian businesses that use Israeli raw materials. The economic benefits of such links may deter any future government that emerges from Egypt's unrest from breaking off ties with Israel.

"Economics wins everywhere in the world. The peace with Israel means money,'' says Oded Beit Halachmy, who established an Egyptian factory owned by Israeli textile company Delta Galil Industries, which once employed 5,000 workers plus another several thousand in related businesses. "The $2 billion in aid comes from the US as a result of the peace process. Even if the Muslim brotherhood will be in the government, they will talk against Israel, but they will accept Israeli factories.''

Business affected by unrest in Cairo

With most of Egypt paralyzed by the massive antigovernment protests of the past two weeks, the few economic links with Israel were also affected: Textile factories were closed because workers couldn't commute. And a natural gas pipeline was shut down after a militant attack on Saturday.

"It is important to have trade to cement the peace,'' said Dan Catarivas, who heads the international relations department at the Israel Manufacturers association. "We are trying to separate politics from business, but there is no question it isn't always possible.''

Israel is still waiting for Egypt to fix its natural gas infrastructure so gas flow can be renewed in the wake of the attack. The pipeline represents a major link between the neighbors, giving Cairo foreign revenue and Israel cheap energy.

Egypt exported some $300 million of natural gas to Israel last year, and the revenues are expected to triple to $1 billion by 2015. "Egypt is an important natural gas supplier, and prospectively will continue to be for decades to come," says Amit Mor, the chief of Eco Energy, a consultancy in Herzliya Pituach, Israel. "It's a beneficial project for both Eygpt's and Israel's consumers and industry.''

Making up for lost time

Egyptian workers have slowly returned to factories that are now trying to make up for lost time. Textile companies and other Egyptian exporters sell more than $1 billion worth or merchandise in the US free of customs under the "Qualified Industrial Zone'' program – which gives Egyptian manufacturers incentives for using Israeli raw materials.

Even so, the extent of the economic ties between the neighbors should not be overstated. Even if Israel and Egypt were to fully normalize relations, trade ties would still be limited because Israel focuses on exporting technology products to advanced economies.

"Israel's economy exports mainly to Southeast Asia, Europe, and the US," says Yoav Stern, a former Arab affairs reporter for the liberal newspaper Ha'aretz. "Egypt isn't in such a status."

The main economic benefit Israel gets from peace with Egypt is lower military spending and a more stable environment for business investment.

Is all that enough to stave off a deterioration in ties? Some believe that Israel needs to be more aggressive in building up businesses in Egypt if it wants to reduce the risk of a drop off.

"The key to normal relations is economic and financial ties,'' says Ruth Linde, a former adviser to Israeli President Shimon Peres who says Israel should focus on expanding the number of businesses in the program. "If there are only two businesses, it is easier for Egypt to anul them. If there is a critical mass it is less easy to let go."