Focus on Issues: U.S. Free-trade Deal May Leave Israel Running Behind in Pantyhose Production

Since Israel became a modern state, it has taken its share of blame for troubles in the Middle East and the world.

But is the Jewish state also responsible for those annoying runs in women’s pantyhose?

Not only is Israel a trailblazer in high-tech industries, the nation is also one of the largest exporters to the United States of nylon yarn used to make pantyhose.

But all that could change if Congress expands free-trade benefits to the United States’ southern neighbors.

When Congress returns next month, both the House and Senate are slated to debate a controversial move to open U.S. markets to countries that include Venezuela, the Dominican Republic and Haiti in a measure known as the Caribbean Basin Initiative.

So what does this have to do with Israel?

A lot, officials say, because in 1985, Israel and the United States negotiated a free-trade agreement of their own. The current measures on Capitol Hill would undermine this deal, Israel’s supporters say.

In addition, new free-trade zones between Jordan and Israel designed to highlight the economic benefits of peace could fall victim to the agreement if they are not protected.

“The bottom line is that what the U.S.-Israel free-trade agreement gives with one hand, the CBI, to a large extent, takes away with the other,” said Harold Luks, a Washington attorney who represents Israel and Nilit, a nylon yarn producer.

American companies import more than $40 million of nylon yarn each year from Israel and then ship it south where lower-paid workers weave it into pantyhose.

Because of the free-trade agreement, an American company that imports Israeli yarn pays no tarriffs and counts the product as American under trade laws. Even though the pantyhose are made outside of the United States, the finished product returns to America without facing tariffs or quotas.

But that would change if the current version of the CBI become law.

Under the proposed bill, once Israeli textile goods leave the United States for assembly somewhere else, they once again become Israeli and lose their free- trade privileges.

This sets a condition “better not use Israel. And that, we think, is wrong,” Luks said.

While Nilit’s $40 million in imports is a mere fraction of Israel’s total exports to the United States, it’s half the company’s business, officials said.

But still, the fight for Israel’s free-trade status is not only about one company.

“This is not why we have a free-trade agreement with the United States,” said Rachel Hirschler, assistant economics minister at the Israeli Embassy in Washington.

“We are worried especially about Nilit, but it’s the whole idea which is really the problem,” said Hirschler, who worries that a precedent will be set for future trade agreements.

Because of the agreement, “Israel is seeking a straightforward amendment to the CBI. If the content is Israeli, it should be recognized as if it was originating in the U.S.,” Luks said.

This is not the first time that Israeli companies have faced the erosion of its free-trade agreement with the United States.

Some Israeli companies already took a hit when the United States, Canada and Mexico extended free-trade benefits to each other in the North American Free Trade Agreement. In the complex world of free-trade agreements, each product has different rules. But for the most part, NAFTA did not respect Israel’s free-trade agreement with the United States.

“Israel took a big hit on NAFTA” because the U.S.-Israel free-trade agreement was not acknowledged when NAFTA was concluded, Luks said.

“NAFTA had the effect of taking away something from the Israel-U.S. free-trade agreement.”

Already some members of Congress are beginning to consider the issue. The Clinton administration has yet to take a position, according to Capitol Hill sources.

But for at least one Jewish group, the issue is not on its radar screen. Earlier this year, the American Jewish Committee, unaware of the CBI’s negative consequences for Israel, sent a letter to members of Congress supporting the measure.

When asked about the letter, an AJCommittee official said the group would support Israel’s quest for an amendment “if asked by Israel.”

The pro-Israel lobby is also gearing up to support Israel’s free-trade agreement.

“As a general principle, we oppose any effort to unilaterally change the terms and spirit of the U.S.-Israel free-trade agreement,” an American Israel Public Affairs Committee official said.

“We should be finding ways to expand trade with Israel.”

For Israel the questions are stark.

“What does free-trade agreement with Israel stand for? What does it mean when members of Congress say there is a special relationship with us and Israel? This is where, for members of Congress, it should mean something,” Luks said.