Israel-Ireland diplomatic rupture could hit trade hard

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Israel's decision to close its embassy in Dublin will harm annual trade worth $6 billion and in particular tech company ties.

Israel's Ministry of Foreign Affairs announced yesterday that it is taking one of the most severe steps in the diplomatic procedures book and closing its embassy in Ireland. This is the first time that Israel has ever closed an embassy of an EU member state - Israel's biggest trade partner. The reason for taking action was an "extreme anti-Israel policy," and "crossing red lines" in its support for the Palestinians in international institutions including joining the Palestinian side against Israel in the legal proceedings in The Hague. Israel and Ireland both have tech industries as their main economic growth engines and are most clearly on a diplomatic collision course. "Globes" examines the recent developments.

What is the background to Israel closing its embassy?

Ireland is considered the most pro-Palestinian country in the EU, with public opinion deeply identifying with the Palestinians as an occupied people. After October 7, 2023, the public and politicians united in expressing support for the Palestinians, not the Israelis. "We see our history through the eyes of (the Palestinians)," Prime Minister Leo Varadkar said at the time. 79% believe that Israel is committing genocide in Gaza, according to recent polls, and 71% believe that the Palestinians live under an apartheid regime.

Ireland has in recent months initiated an attempt to suspend trade relations between Israel and the EU, claiming that Israel is violating international law. It independently announced a law to boycott products from settlements, contrary to EU policy. The Irish sovereign wealth fund has divested investments from all Israeli companies in its portfolio. Ireland also recognized a Palestinian state in May, in a move coordinated with Spain and Norway. The Irish president accused the Israeli embassy of leaking a flattering letter of congratulations he had written to the new Iranian president, and Prime Minister Simon Harris announced last week that Ireland would join a South African petition alleging genocide is taking place in the Gaza Strip. Ireland, which was the last country in the EU to open an Israeli embassy, in 1996, could now become the first to close one.

What type of trade relations are there between Israel and Ireland?

Israel and Ireland had combined annual trade of $5.9 billion in 2023, according to the Israel Export Institute. Half of this amount is in goods and half in services. In the goods sector, Israel exported goods worth $2.5 billion (mainly electronics and industrial equipment), while importing goods worth $500 million from Ireland (electronic equipment and pharmaceuticals). In the services sector, Ireland has become, with the help of a favorable tax policy, a destination for Israeli tech companies seeking easy access to the European market, so it is mainly intellectual property.

According to Ofir Angel, chairman of the Israel-Ireland Chamber of Commerce, who is chairman of international consulting firm Auren in Israel, "Hundreds of Israelis have relocated to Ireland," in recent years, as part of the opening of European office or the transfer of Israeli tech companies to Ireland. One of the most notable of these is Wix, which opened an office in Dublin.

Angel says, "Before the war in Gaza, there were several Irish companies that visited Israel to examine participation in infrastructure projects in transport, communications and railways, and there were joint projects by Intel, (which operates in both countries)." But since the beginning of the war, he says, "Inquiries from Ireland have dropped by 80%. It's as if Irish companies are not interested in having any connection with Israel, or being labelled with one."

From the Israeli side, he says, interest in recent years has mainly been from tech companies. "The Irish still have a policy of lenient taxation for tech companies, and it is an English-speaking European country that uses the euro, so it is a successful destination for companies trying to enter the European market. But since the start of the war, it has been much more difficult to be an Israeli in Ireland. The atmosphere is against us. Everyone who lives there hides the fact that they are Israeli."

What are the economic implications of closing the embassy?

Angel says, "From a business perspective, it's a shame, because there are people at the embassy in Dublin who have been very helpful to Israeli companies entering the Irish market in recent years. There is an experienced team there who even help informally in opening appropriate doors. These connections will disappear."

From a strategic perspective, he adds, this is a wretched development, "Because all these years Israel has not invested much in diplomacy or in changing public opinion in Ireland. We could actually be a country close to the Irish, not a rival country. We have similar characteristics and we are competing for US technology investors. We need to decide strategically how to proceed, and right now both sides have been dragged into being rivals. We are currently competing for investors as well as for global public opinion."

What are the diplomatic implications of closing the embassy?

"There is a very sharp message here of giving up on a country from a diplomatic perspective," says Dr. Maya Sion-Tzidkiyahu, director of the Israel - Europe Relations Program at the Mitvim Institute. "It is true that Ireland is a small country, but it is not marginal. Economically, it is important because it is a hub for many international tech companies. Our message in closing the embassy is that we see no point in having relations with them. No matter what we do, they will not see the Israeli side, which is irreversible."

Dr. Sion-Tzidkiyahu says that the Irish case is exceptional and the positions against Israel are particularly strong, "So it is difficult to see the picture changing. Sometimes it is precisely when you break the rules that you convey the message properly. When the Irish themselves call for the embassy in Israel to be closed and diplomatic relations to be severed, when pictures of the Israeli ambassador are published with blood illustrations and calls for her removal, maybe it is good to think about how far you can go banging your head against the wall."

How will Israel's move be seen in Ireland?

Irish newspapers reported the Israeli move in their front pages on Monday morning. Prime Minister Simon Harris said Ireland was not expected to close its embassy in Israel in the near future in response, "Because it does important work." Irish Foreign Minister Micheal Martin said Ireland was "not hostile" to Israel, but that the situation in Gaza "exceeds any measure of humanity." He also reiterated Ireland’s intention to bring the EU’s association agreement with Israel, which serves as the basis for trade relations, to the EU summit.

The chairperson of the Jewish Representative Council of Ireland, Maurice Cohen, said he was "deeply concerned." He criticized the Irish government’s policy of joining South Africa in the Hague case, and said the embassy closure was not only a "symbolic blow" to Israelis and Jews but also a disadvantage due to the loss of embassy services. On social media, many Israelis living in Ireland expressed concern about the continued receipt of consular services at the embassy in Dublin.

Published by Globes, Israel business news - en.globes.co.il - on December 16, 2024

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