In The Middle East, Business May Be Brokering Peace

There were some unexpected--but not unwelcome--visitors at the big international trade fair in Tel Aviv in early May. Along with the German, French, and American buyers sizing up esoteric new drip-irrigation technology and specialized fertilizers were scores of businessmen from countries that regard Israel as an enemy: Morocco, Saudi Arbia, and Bahrain.

As peace negotiations between Arabs and Israelis move at a snail's pace in Washington, business between the Jewish state and its neighbors in the Arab world is showing surprising signs of life. In recent weeks, for example, Israeli companies have begun work at a $5 million joint venture in southern Morocco. Last April, Benjamin D. Gaon, chief executive of Tel Aviv-based Koor Industries Ltd., Israel's largest industrial conglomerate, quietly lined up deals with Morocco and another Arab country he won't identify. "This is still a very, very sensitive issue," says Gaon. "But we feel we are awakening from a long, long sleep."

U.S. officials trying to broker peace between the Israelis and the Arabs wonder whether the growing economic ties could add momentum to the political negotiations. On a quiet breakthrough arranged by the U.S., many Middle Eastern countries, including Israel, now hold regular meetings to discuss ways of spurring economic growth in the region. At the latest round of these miltilateral talks, held in Rome in May, Israelis, Palestinians, Saudis, and others kicked around ideas ranging from joint promotion of tourism in the Holy Land to a high-speed train system that could one day run from Syria to Egypt through Israel. Israel Trade & Industry Minister Micha Harish thinks these meetings are "beginning to affect the agenda " of the political negotiations.

SWEETER FRUIT. In fact, the prospect of money, jobs, and economic growth is starting to look mighty appealing. The Palestinians agreed to come back to the bargaining table in May after the U.S. and Egypt persuaded Saudi Arabia to resume the financial aid King Fahd had cut off to punish the Palestinians for supporting Irag's Saddam Hussein. The World Bank, which usually takes its cues from the U.S., is laying the groundwork for a potentially huge development effort in the West Bank and Gaza if a deal is struck. "The fruits of peace need to be made much more attractive," says a senior U.S. official.

Even without a formal settlement, the quiet commerce between Israel and its neighbors is substantial. From tomatoes and lettuce that are shipped regularly across the occupied West Bank into Jordan to air-conditioning units, drugs, solar heaters, and chemicals, trade this year will reach some $400 million to $500 million, estimates Gil Feiler, an economist at Israels Bar-Ilan University. "Business is several steps ahead of politics," he says.

Those numbers amount to less than 5% of Israeli exports, but such trade could mushroom quickly if real progress is made in the peace talks. A top corporate lawyer in Riyadh says that large Saudi trading companies are quietly preparing for commercial ties with Israeli companies. Koor's Gaon says that the Arab market could easily account for 20% of Koor's $2.2 billion sales following a political pact.

CLOAK AND DAGGER. Since direct commercial links still are illegal, Israeli and Arab businessmen have to show a good deal of creativity--and care--in dealing with each other. In Cyprus, just a short flight from Damascus or Tel Aviv, goods manufactured in Israel and the Israeli-occupied territories are brought to the port of Limassol, where they are repacked and shipped to the Arab world--with Made-in-Cyprus labels. Because of a similar repackaging operation in Europe, products manufactured by Netafim, an Israeli world leader in desert irrigation, wind up in Jordan and Saudi Arabia. An Eqyptian businessman reports that he even takes Israeli labels off of agricultural equipment that he sells in Egypt, where it is legal, because of lingering hostility to the Jewish state.

Such cloak-and-dagger games may not be needed much longer. The U.S. and Israel are mounting a big behind-the-scenes effort to kill the Arab boycott, under which all Arab countries except Egypt ban trade with Israel. The current plan is to persuade the Group of Seven leading industrial nations to adopt a forceful antiboycott statement at the group's upcoming summit in Tokyo. Already, Germany is forcing its companies to adopt tough, U.S.-style antiboycott procedures.

The Arab boycott is fraying, anyway. Sine the gulf war, Saudi Arabia and Kuwait have quietly disregarded the secondary boycott, which forbids trade with companies doing business in Israel. That, in return, has led such companies as Korea's Hyundai Corp. and Japan's Matsushita, which once shied away from Israel, to become active there.

While the Arabs' ability to absorb Israeli products is probably limited, exports to major markets in Asia and Europe could explode. That could be the real payoff to Israel from a peace treaty.