BILL ANALYSIS Ó
SCR 25
Page 1
Date of Hearing: July 7, 2015
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT, AND THE ECONOMY
Eduardo Garcia, Chair
SCR
25 (Block) - As Amended: June 30, 2015
SENATE VOTE: 34-0
SUBJECT: Trade: Israel: memorandum of understanding.
SUMMARY: Memorializes the Legislature's support for the March 2014
memorandum of understanding (MOU) between California and Israel.
Specifically, this bill :
1)Makes declarations, which among other things, state:
a) Two-way trade between Israel and California totaled over $4.2
billion in 2014, representing one of the largest two-way trade
relationships between Israel and a U.S. state;
b) California and Israel share close ties and are global leaders
in the alternative energy, environmental technology, and other
technology-based industry sectors; and
c) California is home to the largest in-state innovation network
in the U.S., which offers technology and commercialization
opportunities for Israel.
2)Makes other declarations, which among other things, state:
SCR 25
Page 2
a) March 5, 2015 marks the one-year anniversary of the signing of
a MOU between California and Israel which called for new strategic
partnerships, exchanges, and cooperation on issues of mutual
interest;
b) The signing of the MOU was the culmination of an effort started
by the California Legislature in 2009;
c) Collaboration between California and Israel will foster peace
and democracy in the Middle East; and
d) The MOU solidifies a formal relationship between the two
parties by fostering economic cooperation and economic
development, facilitating joint industrial research and
development, and enhancing business relationships between Israeli
universities and universities throughout California.
3)States that the MOU envisions the following actions, among others,
will be undertaken:
a) The convening of bilateral, interagency working groups
comprised of international experts to coordinate initiatives;
b) The utilization of the California innovation hub (iHub) network
to facilitate collaborations between Israeli and Californian
entrepreneurs and researchers;
c) The formation of ad hoc task forces, trade delegations, and
professional exchanges between Israel and California in key
sectors;
d) The establishment of public-private partnerships between
Californian and Israeli entities in the areas of economic
development, social entrepreneurship, or academic research; and
e) The facilitation of research and other collaborations between
universities in California and Israel.
SCR 25
Page 3
4)Recognizes other activities that have already been undertaken as a
result of the MOU including:
a) Two additional agreements have been signed with the assistance
of the Governor's Office of Business and Econmic Development
(GO-Biz). The first agreement being an agreement between GO-Biz
and Israel to add an economic component to the bilateral
partnership and a second agreement between the California
Institute of Regenerative Medicine and the Israel Ministry of
Economy to facilitate matching grants for stem cell research and
development;
b) A cyber-security strategic plan was developed between Israel
and California to explore government-to-government high level
security discussions on responding to targeted attacks, gaining
access to California and Israeli markets and workforce development
projects;
c) Israeli water experts met with California elected officials,
regional and local water managers, as well as water management
experts from the Central Valley; and
d) The Rady School of Management at the University of California,
San Diego, and the David Nazarian College of Business and
Economics at California State University, Northridge, continue to
lead California's collaboration with Israeli universities.
5)Resolves that the Legislature supports the MOU for facilitating the
establishment of strategic partnerships that advance joint
innovation, exchanges, and cooperation between California and Israel
on issues related to clean technologies, water conservation, health,
biotechnology, cybersecurity, education, agricultural technology,
research, and other issues of mutual interest.
FISCAL EFFECT: None
COMMENTS:
SCR 25
Page 4
1)Author's Purpose: According to the author's statement, "SCR 25 would
establish the Legislature's recognition and support for the
memorandum of understanding for strategic partnerships for joint
innovation, exchanges, and cooperation between California and
Israel."
2)Background on the Legislative Jewish Caucus: The California
Legislative Jewish Caucus (Caucus), supporters of SCR 25, was formed
in January of 2014 to discuss and advocate for issues of priority to
its members, including immigration reform and civil rights including
anti-Semitism on college campuses, and support for the nation of
Israel. Members of the Caucus have described it as secular, rather
than religious.
As one of the Caucus' first official acts, they participated in the
California State Senate's official ceremony honoring civil rights
leader Martin Luther King, Jr. Senator Marty Block, chair of the
Caucus, spoke about the significant work of Martin Luther King Jr.
and the important role Jews played in the civil rights movement.
Most recently, the Caucus Members coauthored HR 25 (Medina), which
highlighted the contributions immigrants have made to the U.S.
including the economy. The resolution also stated that immigrants
have been tireless leaders, not only in securing their own rights and
ensuring access to equal opportunity, but also in campaigning for a
fairer and more just society for all Americans. Assemblymember
Medina is both a member of the Legislative Latino Caucus and the
Legislative Jewish Caucus.
3)U.S. Trade Agreements: Within a globally connected economy, trade
agreements create the framework by which a significant number of
businesses and workers must compete, collaborate, and create economic
value. The U.S. is currently negotiating two major trade promotion
agreements, the Trans-Pacific Partnership and the Transatlantic Trade
and Investment Partnership. In their current iterations, these trade
agreements will cover 21% of the world's population, with the U.S. at
the nexus. These agreements are especially important to local and
regional governments which have been proactive in using trade
SCR 25
Page 5
promotion activities as a springboard for their own economic agendas.
The U.S. has trade agreements in force with 20 countries, including
Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican
Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Korea,
Mexico, Morocco, Nicaragua, Oman, Panama, Peru, and Singapore.
The U.S.-Israel Free Trade Agreement (FTA) was signed in 1985 and was
the first agreement of its kind between the U.S. and Israel. The FTA
is overseen by the U.S.-Israel Joint Committee. Over the years, the
U.S.-Israel Committee has served as a forum for evaluating and
enhancing the effectiveness of the FTA. Among other issues, the
U.S.-Israel Committee addressed concerns voiced by U.S. exporters
about meeting Israeli customs requirements, which led to modification
of Israeli import standards, customs classifications, and other
technical changes to regulations. The FTA is not as comprehensive as
later trade agreements with other countries. This has resulted in
ongoing negotiations and subsequent side agreements between the U.S.
and Israel to address key sectors including telecommunications,
market access for certain specialty agricultural products, and
intellectual property.
Israel was the U.S.' 24th largest trading partner in 2014 with $15
billion in U.S. goods being exported to Israel and $23 billion in
goods imported to the U.S. from Israel. According to the U.S.
Department of Commerce, the export of U.S. goods to Israel supported
an estimated 40,000 U.S. jobs in 2013. Two-way trade in services
between the U.S. and Israel was $9.8 billion in 2014, with U.S.
services exported to Israel valued at $4.7 billion and services
imported to Israel valued at $5.1 billion.
Top 2014 exports from the U.S. to Israel included: Precious Stones
(diamonds) ($6.8 billion); Electrical Machinery ($1.8 billion);
Machinery ($1.1 billion); Aircraft ($1.0 billion); and Optic and
Medical Instruments ($565 million). U.S. exports of agricultural
products to Israel totaled $692 million in 2014. Leading categories
include: tree nuts ($124 million); corn ($99 million); feeds and
fodders ($61 million); and soybeans ($61 million).
SCR 25
Page 6
U.S. foreign direct investment (FDI) in Israel was $9.5 billion in
2013, a 9.9% increase from 2011. Israel FDI in the U.S. was $9.5
billion in 2013, up 4.6% from 2012. FDI between both countries is
primarily concentrated in the manufacturing sector. Sales of
services in Israel by majority U.S.-owned affiliates were $3.0
billion in 2012, while sales of services in the United States by
majority Israel-owned firms were $2.9 billion. [Data provided in this
section is the most recent available]
4)Profile on Israel: Israel declared its independence in 1948. As the
map on the following page illustrates, Israel lies at the western
edge of Eurasia, bordering the Mediterranean Sea, with Egypt to the
southwest, Syria and Jordan to the east, and Lebanon to the north.
Israel is a relatively small country comprising 20,770 square miles.
For comparison, the country is slightly smaller than the U.S. state
of New Jersey.
The geography of Israel is characterized by diverse topographies and
climates. While in the south, many areas are lush, but less
populated, in the North, near the border with Syria, the land is
rugged, mountainous, and is the location of Israel's main source of
fresh water. More than half of the country is comprised of lowland
deserts with an annual rainfall between 60-100 mm (or less). In the
last few decades, advances in desert agriculture, including
aquaculture, have and will continue to change how the Negev Desert is
being economically perceived.
Approximately, 7.8 million people live in Israel, ranking it the 99th
largest country in the world. Tel-Aviv is the main business city of
Israel where nearly 50% of the population lives. Over 90% of the
population lives in an urban area.
In 2014, Israel's GDP was $268.3 billion, making it the 56th largest
economy in the world. The U.S. State Department in assessing Israel's
investment climate describes Israel as being open to foreign
investment and that the government actively encourages and supports
the inflow of foreign capital. Israel's GDP is driven by services
(71.9%), industry, (25.7%), agriculture (2.4%).
SCR 25
Page 7
While describing the country as having a "stable domestic
environment", the U.S. State Department also notes that the "conflict
between Israel and the Palestinians is unresolved, and the risk of
politically motivated violence continues." Further, "heightened
tensions with Iran due to concerns over Tehran's nuclear program and
its support for terrorism also present the potential for regional
conflict. Israel's borders with Lebanon and Syria are closed, but
instability in Syria and threats from the Iran-backed terrorist group
Hezbollah in Lebanon also present some risk of violent incidents or
conflict. Israel signed peace treaties with Egypt (1979) and Jordan
(1994)."
A significant part Israel's economy is driven by its high investments
in education and scientific research. Among other things, Israel
provides a variety of support programs to assist the development of
technology including incubators for early stage start-ups. The
Office of the Chief Scientist within the Ministry of Economy operates
on a yearly budget of $400 million, according to the U.S. State
Department. As a result of these and similar activities, Israel has
also become an attractive investment location for the deployment of
private venture capital funds.
Key industries in Israel include high-technology products (including
aviation, communications, computer-aided design and manufactures,
medical electronics, fiber optics), wood and paper products, potash
and phosphates, food, beverages, and tobacco, caustic soda, cement,
construction, metal products, chemical products, plastics, cut
diamonds, textiles, and footwear. Top exports include machinery and
equipment, software, cut diamonds, agricultural products, chemicals,
textiles and apparel. The U.S. is Israel's largest trade partner,
receiving 26.5% of exports, followed by Hong Kong with 8.1% of
exports, UK 5.9% of exports, Belgium 4.7% of exports, and China
receiving 4.3% of exports in 2013.
In 2011, Israel spent the highest percentage of its GDP on research
and development than any other industrialized country at 4.38%; this
was higher than second place Finland at 3.78% of GDP. In 2011, there
were 1,854 patents with foreign co-investors in which 284 of those
were made with the U.S, representing 15.4% of the total patents, a
SCR 25
Page 8
higher figure than the European Union at only 4.7%. These figures
not only represents Israel's commitment to intellectual property
rights, but also illustrates the country's effort toward investing in
science and technology at a higher rate than historic innovation
powerhouses such as Finland, Norway, Denmark, and Australia. In
2013, the patents granted by the U.S. Patent Office in the U.S. were
158,709, from California 43,679, and from Israel 3,617.
Israel and California share two key industry sections: information
and communication technology (ICT) and biotechnology. While
California remains a global leader, Israel has one of the most
concentrated and extensive networks of high-tech outside of the
Silicon Valley. The ICT sector in 2012 employed 7% of the labor
force, made up 17% of total GDP, and contributed up to 31% of total
Israeli exports. Biotechnology offers another sector where joint
research and collaboration could be beneficial for both governments.
In a 2010 report, Israeli biotech firms consistently identified the
lack of national research infrastructures and the lack of suitable
partners to carry out specific research operations as considerable
factors in obstructing the growth of the industry. With the most
recent MOU in place, it is anticipated that both Israeli and
California biotech firms will have greater access to new business and
investment opportunities.
5)Update on MOU Activities: In March 2015, GO-Biz submitted a one-year
review of MOU activities and outcomes to the government of Israel.
The review includes highlights from new agreements, as well as
updates on each of the industry focus areas identified in the MOU.
Among other highlighted activities and accomplishments:
Two supplementary agreements have been signed including an
addendum agreement to include an economic development component to
the bilateral relationship, and an agreement to facilitate
matching grants for stem cell R&D between the California Institute
of Regenerative Medicine and the Israel Ministry of Economy.
GO-Biz facilitated both of these agreements.
SCR 25
Page 9
GO-Biz organized an interagency team to discuss elements of the
MOU related to trade and investment. Two meeting were held, one
in November 2014 and another in February 2015.
GO-Biz established a new iHub, the Worldwide Innovation
Network, to facilitate the introduction of foreign companies,
foreign investment, and foreign partners to the iHub
industry-based networks. While this new iHub will be available to
assist businesses from all nations, GO-Biz is specifically
assessing potential Israeli companies with the intention of
individually introducing them to the industry partners at relevant
iHubs. The targeted start date for the Worldwide Innovation
Network is the summer of 2015 and a counterpart network is being
planned for Israel.
The Governor's Office of Emergency Services and Israeli
officials are developing a Cyber-Security Strategic Plan for the
purpose of exploring potential binational business opportunities.
Key areas include, but are not limited to, responding to targeted
attacks and helping businesses gain access to markets in
California and Israel. GO-Biz is serving as a consultant to the
business development related issues. Upcoming projects include
individual company introductions, government-to-government
exchanges, cyber-security workshops, and a cyber-security seminar
focusing on business expansion and new partnerships.
The California Energy Commission has met with Israel officials
to discuss possible inclusion within existing energy industrial
R&D grant programs. An Israeli company delegation attended the
Los Angeles Clean Tech Global Showcase and Israeli officials have
created the Los Angeles-Eilat Clean Tech Task Force, as part of an
SCR 25
Page 10
existing sister city relationship.
The review also includes a list of California and Israeli government
officials who have been assigned or have participated in
implementation activities. State government representatives include
the Governor's Office, GO-Biz, OES, the California Department of Food
and Agriculture, the California Natural Resources Agency, the
California Environmental Protection Agency, the California Energy
Commission, and the California Arts Council. Israeli representatives
include representatives from the Consulates in Los Angeles and San
Francisco, as well as the Israel Economic Mission to the West Coast.
This list is particularly helpful for businesses who wish to become
involved in these activities and the Legislature and other
stakeholders who are interested in tracking MOU-related activities.
1)California's Global Economy: International trade and foreign
investment are very important components of California's $2.2
trillion economy. California receives more FDI than any other state
in the U.S., which is significant since the U.S. is the largest
receiver of FDI in the world. The California economy benefits from
FDI in many ways, some of which include assisting in the creation of
jobs, boosting worker wages, increasing exports, bringing in new
technology and skills, and generally strengthening the state's
manufacturing base.
The top 5 regions with the highest foreign owned and affiliated
businesses are: Gateway Cities (796 establishments), South Bay-LAX
(741 establishments), San Fernando Valley (725 establishments), San
Gabriel Valley (698 establishments), and West Side (415
establishments). The top 5 cities with the highest concentration of
foreign owned and affiliated businesses are Los Angeles (1591
SCR 25
Page 11
establishments), Torrance (310 establishments), Long Beach (212
establishments), Santa Monica (134 establishments), and Pasadena (127
establishments).
The federal International Trade Administration estimates that in 2012
over 602,800 California workers benefit from jobs with foreign-owned
firms, which accounts for 4.8% of all private sector jobs in the
state. California has had the highest level of employment in
foreign-owned firms in the nation since at least 1997. Along with
employment, foreign-owned firms own more property, plants, and
equipment in California than in any other state.
If California were a country, it would be the 31st largest exporter
in the world. Exports from California accounted for over 10.7% of
total U.S. exports in goods, shipping to over 220 foreign
destinations in 2014. California's land, sea, and air ports of entry
serve as key international commercial gateways for products entering
the country. California exported $174.1 billion in goods in 2014 (up
from $168 billion in 2013), ranking only second to Texas with $289
billion in export goods. Computers and electronic products were
California's top exports in 2014, accounting for 24.5% of all state
exports, or $42.7 billion.
--------------------------------------------------------------
SCR 25
Page 12
| 2014 Exports From California to the World |
| |
| |
--------------------------------------------------------------
|----------------------+---------------+-----------------------|
| Product | Value | Percent |
| | | |
| | | |
|----------------------+---------------+-----------------------|
|334 Computers & | $42.7 billion| 24.5 % |
|Electronic Prod. | | |
| | | |
| | | |
|----------------------+---------------+-----------------------|
|336 Transportation | $18.7 billion| 10.7 % |
|Equipment | | |
| | | |
| | | |
|----------------------+---------------+-----------------------|
|333 Machinery (except | $14.9 billion| 8.5 % |
|electrical) | | |
| | | |
| | | |
|----------------------+---------------+-----------------------|
|339 Misc. Manufacture | $14.6 billion| 8.4 % |
|Commodities | | |
| | | |
| | | |
|----------------------+---------------+-----------------------|
|325 Chemical | $14.0 billion| 8.1% |
|Manufactures | | |
| | | |
| | | |
|----------------------+---------------+-----------------------|
|111 Agricultural | $13.5 billion| 7.8 % |
|Products | | |
| | | |
| | | |
|----------------------+---------------+-----------------------|
SCR 25
Page 13
|All Others |$55.5 billion | 31.9 % |
| | | |
| | | |
| | | |
|----------------------+---------------+-----------------------|
|Total | $161 billion | 100 % |
| | | |
| | | |
--------------------------------------------------------------
--------------------------------------------------------------
| Source: Tradestates.com|
| |
| |
--------------------------------------------------------------
Manufacturing is California's most export-intensive activity.
Overall, manufacturing exports represent 9.4% of California's gross
domestic product. More than one-fifth (21.9%) of all manufacturing
workers in California directly depend on exports for their jobs.
Small- and medium-sized firms generated more than two-fifths (43%) of
California's total exports of merchandise. This represents the
seventh highest percentage among states and is well above the 29%
national average export share for these firms.
Mexico is California's top trading partner, receiving $25.4 billion
(14.5%) in goods in 2014. The state's second and third largest
trading partners are Canada and China with $18.2 billion (10.4%) and
$16.0 billion (9.2%), respectively. Other top-ranking export
destinations include Japan, South Korea, Hong Kong, Taiwan, Germany,
the Netherlands, and India.
SCR 25
Page 14
---------------------------------------------------------------
| California Exports 2011 to 2014 (billions of dollars) |
---------------------------------------------------------------
|---+--------------+-----------+-----------+-----------+----------|
| | Partner | 2011 | 2012 | 2013 | 2014 |
|---+--------------+-----------+-----------+-----------+----------|
| |World | 159.4 | 161.7 | 168.0 | 174.1 |
|---+--------------+-----------+-----------+-----------+----------|
| |Mexico | 25.8 | 26.3 | 23.9 | 25.4 |
|1 | | | | | |
|---+--------------+-----------+-----------+-----------+----------|
| |Canada | 17.2 | 17.4 | 18.8 | 18.2 |
|2 | | | | | |
|---+--------------+-----------+-----------+-----------+----------|
| |China | 14.2 | 13.9 | 16.2 | 16.0 |
|3 | | | | | |
|---+--------------+-----------+-----------+-----------+----------|
| |Japan | 13.1 | 13.0 | 12.7 | 12.2 |
|4 | | | | | |
|---+--------------+-----------+-----------+-----------+----------|
| |South Korea | 8.4 | 8.2 | 8.3 | 8.5 |
|5 | | | | | |
|---+--------------+-----------+-----------+-----------+----------|
| |Hong Kong | 7.6 | 7.8 | 7.7 | 8.5 |
|6 | | | | | |
|---+--------------+-----------+-----------+-----------+----------|
| |Taiwan | 6.2 | 6.3 | 7.5 | 7.4 |
|7 | | | | | |
|---+--------------+-----------+-----------+-----------+----------|
| |Germany | 5.3 | 4.9 | 5.5 | 5.4 |
|8 | | | | | |
|---+--------------+-----------+-----------+-----------+----------|
|18 |Israel | 2.6 | 2.6 | 2.3 | 2.3 |
-----------------------------------------------------------------
---------------------------------------------------------------
SCR 25
Page 15
| Source: International Trade Administration, accessed |
| 6/25/2015|
| |
| |
| |
| |
| |
---------------------------------------------------------------
2)Related Legislation: Below is a list of bills from the current and
prior sessions.
a) ACR 100 (Alejo) El Salvador and California Partnership: This
resolution memorializes the Legislature's commitment to work
cooperatively with the Governor's Office of Business and Economic
Development (GO-Biz) on trade promotion and foreign investment
activities that enhance the state's economic relations with El
Salvador. Status: Chaptered by Secretary of State - Res. Chapter
172, Statutes of 2014.
b) SCR 6 (Monning) Sister State Santa Fe: This resolution
memorializes the intent and commitment of the California
Legislature to formalize a sister state relationship with the
Province of Santa Fe, Argentina, for the purpose of encouraging
and facilitating social, economic, scientific, educational, and
cultural exchanges that further promote the prosperity of both
regions and to improve the international understanding and
goodwill between both regions. Status: Pending on the Assembly
Floor.
c) SCR 82 (Hueso) Sister State with Jalisco: This resolution
memorializes the commitment of the California Legislature to
establish a sister state relationship with the State of Jalisco,
Mexico, for the purpose of promoting economic growth and
well-being of small, medium, and large corporations and by
increasing their potential trade and investment within the State
of Jalisco. Status: Chaptered by the Secretary of State,
SCR 25
Page 16
Resolution Chapter 70, Statutes of 2014.
d) SCR 121 (Block) California and Israel Memorandum: This
resolution memorializes the Legislature's support for the
memorandum of understanding (MOU) calling for strategic
partnerships between California and Israel. Status: Chaptered by
Secretary of State. Res. Chapter 113, Statutes of 2014.
REGISTERED SUPPORT / OPPOSITION:
Support
Anti-Defamation League
Bay Area Council
California Israel Chamber of Commerce
Jewish Public Affairs Committee of California
Los Angeles Regional Office of the American Jewish Committee
Los Angeles, City of
San Francisco Regional Office of the American Jewish Committee
Scott Wiener, Supervisor of the City and County of San Francisco
University of California
SCR 25
Page 17
Opposition
None received
Analysis Prepared by:Toni Symonds / J., E.D., & E. / (916)
319-2090