Israel's Abraham Accords: Unlocking New Business Opportunities

What does "normal" mean in a year like 2020? For the state of Israel, surprisingly even by COVID-19 standards, it means the establishment of formal political, diplomatic and economic ties, through the signing of the Abraham Accords Peace Agreement, with the Kingdom of Bahrain (Bahrain) and the United Arab Emirates (UAE), with other countries in the region that may follow suit.¹

The signing of the Accords, in addition to spurring a wave of new and expanded business opportunities in the Middle East and North Africa (MENA) region, has the added effect of normalizing the "under the radar" business ties that have been developing among the three countries for years. Companies and individuals operating in the region can look forward to increased bilateral cooperation between Israel and its new Gulf partners in the areas such as finance and investment; healthcare; innovation, trade and economic relations; visas and consular services; civil aviation; maritime arrangements; tourism, culture and sport; energy; environment; education; science, technology and peaceful uses of outer-space; telecommunications and post; agriculture and food security; and water.² Furthermore, observers are also seeing a lifting of certain political barriers (e.g., boycotts and fear of potential backlash from Arab states) that, in the past, stayed the hand of many a multinational investor from pursuing business opportunities in Israel. Now, companies, individuals and government entities may feel confident putting down business roots in any of the three countries.

The geopolitical realignment allows Israeli "startup nation" companies to establish a presence in the Gulf countries as a gateway for the MENA region. In fact, since signing of the Accords, Israel and its two new regional partners have enjoyed increased bilateral cooperation in areas of intra-regional trade, finance and investment. The UAE for example, not only abolished its almost four-decade-old boycott law against Israel,³ the two countries have reopened telecommunication links, agreed to operate 28 commercial and 10 cargo flights weekly between the two,⁴ and, in a move unprecedented for the region, allowed one another's citizenry visa-free travel.⁵

Some observers also expect to see an increase in and diversification of investment strategies pursued by U.S., Israeli and UAE actors. An expectation made more likely by the establishment of a $3 billion development fund focused on promoting private sector-led investment in agriculture, infrastructure, energy security and clean water access in the MENA region.⁶ The fund, a joint effort of the U.S., Israel and UAE, is reportedly already busy working on two deals – an energy bridge and a cross-border checkpoint modernization program.⁷

At the trilateral level, investment strategies and related legal issues may include, but are not limited to:

1. Gulf-country entity invests in an Israeli technology company that has U.S. affiliates or manufacturing operations therein (potentially implicating U.S. tax, export controls, intellectual property transfer and customs laws, and triggering review by the Committee on Foreign Investment in the United States, or CFIUS, if control of a U.S. business is at stake),⁸
2. Gulf country invests in an Israeli company that considers the United States as a key market (implicating U.S. customs laws), and
3. UAE and Israeli joint venture invests in a United States entity (potentially triggering CFIUS jurisdiction)⁹

U.S. Legal Considerations

U.S. legal ramifications should be considered when a trilateral partnership is contemplated. For example, unlike Bahrain and Israel, the United States does not have a free trade agreement with the UAE.¹⁰ And, where a free trade agreement is in place, country of origin issues that determine whether the U.S.-imported product is eligible for duty-free treatment and exempt from certain customs fees must be fully analyzed (eligibility determined by the terms of the free trade agreement in place). Interested parties will also need to consider 1) whether tax treaties exist between the investors' home states and 2) whether its transaction triggers CFIUS review or implicates the United States' export controls regime. Israel and the UAE, for example, are treated differently for export control purposes generally and particularly when the export, re-export or transfer (in-country) involves a high technology good (e.g., communications equipment, electrical machinery, etc.) or a defense article or service. On the CFIUS front, interested parties should pay particular attention to investments in U.S. businesses by joint Israeli and Gulf-country ventures where the Gulf-country entity is owned by other non-U.S. actors (U.S. businesses receiving foreign investment, however, must always consider whether receipt thereof triggers CFIUS review).

How We Can Help?

The Accords are sure to create new intra- and inter-regional business partnerships and increase the movement of peoples and services across the borders of the U.S., Israel, UAE and Bahrain. If companies or individuals are interested in pursuing tri-party investments or joint partnership opportunities with the signatories to the Accords, they will need an experienced legal team to walk them through the applicable legal, regulatory and policy issues.

Bringing a deep understanding of the Israeli marketplace and years of experience advising clients on a range of legal issues related to 1) procurement and regulation; 2) investment; 3) government incentives; 4) technology, agriculture, water and energy; 5) transportation and logistics; 6) healthcare products and devices; and 7) hospitality and real estate, Holland & Knight's Israel Practice is well-positioned to guide clients during this time of intra- and inter-regional cooperation.¹¹ Our firm's Middle East and International Trade practices, likewise, are experienced in advising clients on a variety of legal issues including, but not limited to, banking and finance (conventional and Islamic finance and Islamic law); anti-boycott and anti-money laundering laws; customs and export control laws; and industrial security matters.

For more information or questions on the Accords and their implications, contact the authors or another member of our Israel Practice.

Notes

¹ A projection based on the close relationship between Bahrain and the Kingdom of Saudi Arabia (and the unspoken understanding that actions of the former must have been, at least tacitly, approved by the latter).

² See Abraham Accords Peace Agreement: Treaty of Peace, Diplomatic Relations and Full Normalization between the United Arab Emirates and the State of Israel, Sept. 15, 2020, and Abraham Accords: Declaration of Peace, Cooperation, and Constructive Diplomatic and Friendly Relations Peace Agreement: Treaty of Peace, Diplomatic Relations and Full Normalization between the State of Israel and the Kingdom of Bahrain, Sept. 15, 2020. 

³ See "On Path To Normalize Relations, UAE Formally Ends Boycott of Israel," NPR, Jason Slotkin, Aug. 29, 2020.

⁴ See "Israel and UAE launch direct phone links after historic accord," BBC News, Aug. 16, 2020. 

⁵ See "Israel, U.A.E. to Allow Citizens Visa-Free Travel," The Wall Street Journal, Felicia Schwartz, Oct. 20, 2020.

⁶ See "U.S., UAE, Israel to Form Joint $3 Billion Fund in Jerusalem," Bloomberg, Ivan Levingston, Oct. 20, 2020. 

⁷ Id. 

⁸ A minority investment in certain U.S. businesses may be sufficient to trigger CFIUS review. Whether CFIUS has jurisdiction over your investment (now including certain transactions involving the purchase, lease or concession of certain U.S. real estate), is fact-specific and must be analyzed on a transaction-specific basis.

⁹ Should any other Arab state of the Persian Gulf execute its own peace agreement with Israel, the actors involved in the above-referenced hypotheticals are expected to diversify.

¹⁰ The UAE and the United States have standardized some trade relations. Specifically, the UAE, as a member of the Gulf Cooperation Council (GCC) is a party to the U.S.-GCC Framework Agreement for Trade, Economic, Investment and Technical Cooperation and signed a Trade and Investment Framework Agreement, focusing on economic reform and trade liberalization, with the United States.

¹¹ See Holland & Knight's Israel Practice Newsletter: Summer 2020, which provides valuable insight on pertinent issues affecting U.S. and Israeli companies.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.