Israel has joined the European-Mediterranean cumulation of origin zone. The main beneficiaries will be Israeli textile companies; the Ministry of Industry, Trade and Labor believes that the agreement will save hundreds of jobs in the textile and related industries in which splitting manufacturing processes is important.
The Council of Ministers of the EU last week approved the extension of cumulation rules to Mediterranean basin countries. Israeli participation in the EU cumulation of origin system will enable Israeli exporters to exceed one of the fundamental clauses of the Israel-EU trade agreement, which stipulates to be eligible for quota benefits, an exporter must deliver goods directly to the destination in Europe.
Under the European-Mediterranean cumulation of origin zone, Israeli exports can send goods to the EU via third parties. This will allow Israeli-owned factories in Eastern Europe or Jordan to export duty-free goods to third countries within the EU. Until now, only direct exports from Israel to the EU were exempt from customs duties. Until now, Israeli manufacturers in Jordan enjoyed duty-free and quota-free exports to the US on jointly produced goods; this arrangement will now be extended to the EU.
As a result, companies like Polgat Ltd. (TASE:PLGT) and Kitan Textiles Industries Ltd. Can carry out part of their high value added and sophisticated production stages in Israel, and send simple sewing to be carried out in countries with lower labor costs, such as Jordan or in Eastern Europe., without losing customs benefits on exports to the EU. At the same time, Israeli companies will improve their competitiveness against Far Eastern manufacturers who enjoy extremely low labor costs.
Until now, it was not possible to carry out some production in Israel and the rest in third countries (Romania, Turkey, or Jordan), and be eligible for cumulation production rights for duty-free export to the EU. Ministry of Industry, Trade and Labor foreign trade administration deputy director general Ronit Kan predicts that joining the European-Mediterranean cumulation of origin zone will create textile jobs in Israel, and will not cause the export of production, since it will be possible to split production stages and keep high-value work in Israel.
Published by Globes [online], Israel business news - www.globes.co.il - on October 27, 2005