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Expires 1/24/901N 1114: NUMOMMENONNIMIMOMONIN ith a trade deficit of $3.1 billion one might expect Israel's policy of countertrade to be weighted heavily in favor of its local industry. In fact, the reverse is true. The Israeli Ministry of Trade and Industry has devis- ed a set of policies relating to countertrade which instead of obliging foreign companies to buy Israeli products, mirrors the countries-' export objectives. The Industrial Cooperation Authority in Tel Aviv is the department within the Ministry responsible for im- plementing industrial cooperation policies. Accor- ding to its director, Zvi Alon, the Israeli government is in- terested only in industrial cooperation pacts, and not buy-back, off-set, barter, or other types of countertrade agreements. The difference is that all agreements are ver- bal understandings and con- tain no obligations or penalties if the foreign com- pany fails to meet any of the conditions. It also does not define price or quantity. Alon explains that Israel's policy in the area of counter- trade has nothing to do with a shortage of foreign ex- -change or trade imbalances, but rather to give Israeli corn- panies the opportunity to penetrate' foreign markets and enable them to come in contact with large multina- tionals. It is hoped that by do- ing so it will lead to a future joint-venture for research and development of manufactur- ing, thus further enhancing Israel's overll industrial objectives. "All purchases are on a competitive basis and thus the intention of our efforts is that Israeli companies only be given a fair chance to com- pete for contracts," he says. "We don't believe that forcing a company to buy a product which can't compete on price or quality, in the long run, will enhance our trading posi- tion. We're looking for a customer, not an order?' Israel's strategy is to drop the companies on the front door of the foreign firms and hopefully after all the in- dustrial cooperation structure has been removed, exports will follow. This liberal strategy was selected due to the political or even psychological problems of trading with a country which is perceived to be in a state of war. Israel's counter- trade policies are very much part of its overall strategy for expansion of exports which take into consideration the small local market, its distance from its major markets, and the lack of local marketing expertise. About 150 U.S. companies are involved in industrial cooperation agreements with Israeli companies, almost ex- clusively in computers, defense, or other high-tech areas. Figures quoted recent- ly in the local press estimated that industrial cooperation agreements comprise only 5 percent of total Israeli trade. Alon doesn't see this figure increasing substantially over the next few years. Many of the companies do not work within the framework of the Industrial Development Authority, such as IBM, which recently awarded a $5 million sub- Israeli companies are trying to penetrate foreign markets. contracting contract to Thlrad Ltd., Israel's second largest manufacturer of telecom- munications equipment. As part of IBM's commitment to use sub-contractors from local markets, 'Thlrad will produce a controller to be used in the AS 400 series manufactured in Milan, Italy. It is the first time a company outisde of Europe is producing a part for IBM Europe. NCR Corporation also has a firm commitment to buy from Israel companies and in 1988, doubled its purchases to $11 million. In one of the largest deals to date, General Dynamics sign- ed a purchasing agreement with Israel's Ministry of Defense. Under the pact, the American company agreed to purchase $800 million of Israeli defense and electronics products over a ten year period in exchange for the Israel Air Force purchase of F-16 fighter jet aircraft. One of the major outcomes of the first agreement was the two companies bidding on and winning a $300 million U.S. military contract. The U.S. defense firm will utilize Tadiran's close cooperation with the Israel defense Forces to field-test certain military products and use Israel's overall lower production costs to manufacture them.