By Doug Palmer
WASHINGTON (Reuters) - The United States and Israel should start talks to upgrade and expand a 25-year-old free trade agreement that has become out of date, two U.S. Democratic lawmakers said on Thursday.
"Times have changed. It's right that we take a look at how we can modernize the free trade agreement," said Senator Ben Cardin, reacting to a new Democratic Leadership Council study that found only about 14 percent of U.S. imports from Israel are now covered by the pact.
Representative Gregory Meeks, a New York Democrat whose district includes the John F. Kennedy International Airport, said he'd like to see a stronger chapter in the agreement on banking and other international services trade.
"It's critical we never stop reviewing where we are with our trade agreements," Meeks said.
An updated agreement could boost U.S.-Israeli trade by covering increasingly important areas such as services, and help regional economic integration through expanded co-production projects in Egypt, Jordan and possibly Turkey, the report said.
Ohad Cohen, commercial attache at the Israeli Embassy in Washington, agreed there was "definitely some room for improvement" in the pact and his country was open to exploring that with the United States.
The proposal comes at a time of friction over Israeli settlement construction on occupied land, but Cohen said he did not believe that would be an obstacle to talks on expanding the free trade pact.
"This is a win-win" because it would help companies in both countries, Cohen said. "Why should anyone oppose that?"
OLDEST FREE TRADE AGREEMENT
The 1985 deal with Israel is the United States' oldest free trade agreement, predating even the North American Free Trade Agreement with Canada and Mexico.
When it was signed, Israel exported about $2.7 billion worth of goods and services to the United States and received about $3.7 billion in annual economic and military aid.
Under the pact, Israel's exports to the United States have grown to around $25 billion annually, or about seven times combined U.S. military and economic aid, the DLC report said.
"At 25, the agreement is a success, but a fading success," said Edward Gresser, director of the DLC's trade and global markets project and author of the report.
One reason is the 1985 pact mainly eliminated tariffs on goods between the two countries, and many of those concessions were overtaken in the mid-1990s by an international agreement under the World Trade Organization.
That includes the $2 billion in diamonds that New York jewelry firms imported from Israel in 2008 and billions more in airplanes and airplane parts, semi-conductors, communication satellites, medical devices and other goods.
The pact includes only a rudimentary chapter on services trade, which is an increasingly important part of the U.S.-Israel commercial relationship, Gresser said.
A spokeswoman for the U.S. Trade Representative's said they would have to consult closely with Congress and others before making any decision on expanding the agreement.
Gresser said the two countries should also expand "Qualifying Industrial Zones" programs in Egypt and Jordan, which waives U.S. duties on clothing, luggage and other light goods if they are made with some Israeli content.
QIZs could also be used in Turkey for processed foods such as olives, dates and raisins as well as textiles and clothing to encourage further regional integration, Gresser said.
Gresser also proposed new annexes aimed at safeguarding and boosting electronic commerce, preventing the emergence of new technical barriers to trade and enhancing protection of intellectual property rights, he said.
Changes to the QIZ program would probably require the approval of Congress, he said.
(Editing by Doina Chiacu)