BILL ANALYSIS �
SCR 121
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Date of Hearing: June 24, 2014
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
Jose Medina, Chair
SCR 121 (Block, et. all) - As Introduced: May 19, 2014
SENATE VOTE : 34-0
SUBJECT : Trade: Israel: memorandum of understanding
SUMMARY : Memorializes the Legislature's support for the
memorandum of understanding (MOU) calling for strategic
partnerships between California and Israel. Specifically, this
bill :
1)Makes declarations, which among other things, state:
a) The Governor of California and the Prime Minister of Israel
signed a MOU calling for strategic partnerships on
innovation, exchanges, and cooperation;
b) The signing of the MOU was the culmination of an effort
started by the California Legislature in 2009;
c) The participants in the MOU seek to expand the current
level of cooperation between Israel and California in the
areas including alternative energy, environmental technology,
health, food and agriculture, research, and development;
d) Collaboration between California and Israel will foster
peace and democracy in the Middle East;
e) The MOU will solidify a formal relationship between the two
parties to foster economic cooperation and economic
development, facilitate joint industrial research and
development, and enhance business relationships between
Israeli universities and universities throughout California.
2)States that the MOU envisions, among other actions, that the
following actions will be undertaken:
a) Bilateral, interagency working groups with international
expertise will be convened to coordinate initiatives;
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b) The California innovation hub network will be used to
facilitate collaborations between Israeli and Californian
entrepreneurs and researchers;
c) Ad hoc task forces, trade delegations, and professional
exchanges between Israel and California in key sectors will be
encouraged;
d) Public-private partnerships between Californian and Israeli
entities in the areas of economic development, social
entrepreneurship, or academic research will be established;
and,
e) Collaboration between universities in California and Israel
on research and development will be facilitated.
3)Resolves that the Legislature supports the MOU for strategic
partnerships for joint innovation, exchanges, and cooperation
between California and Israel.
FISCAL EFFECT : None
COMMENTS :
1)Author's Purpose : According to the author, "SCR 121 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. On March 5th 2014, Governor Jerry Brown and Prime
Minister Benjamin Netanyahu signed a Memorandum of Understanding
in Mountain View, California to boost economic, cultural, and
academic cooperation between California and Israel in the areas
of cybersecurity, health, biotechnology, education, agricultural
technology, water conservation, and alternative energy."
2)Framing the Policy Issue : This resolution, sponsored by the
California Legislative Jewish Caucus, recognizes the
Legislature's support for the March 5, 2014, MOU between the
State of California and Country of Israel. The MOU lays the
foundation and framework for joint research and development
projects, academic and business exchanges, and the overall
enhancement of the cooperation between the two signatories.
3)Background on the Legislative Jewish Caucus : The California
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Legislative Jewish Caucus was formed in January of 2014 to
discuss and advocate for issues of priority to its members,
including immigration reform, civil rights including
anti-Semitism on college campuses, and Israel. Members of the
Caucus have described it as secular, rather than religious.
One of the first official acts of the Caucus was to participate
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.
4)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 promotion activities as a
springboard for their own economic agenda.
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 the effectiveness of the FTA including issues such as
the concerns voiced by U.S. exporters in meeting Israeli customs
requirements, which led to addressing market access issues
including standards, customs classification, and technical
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
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intellectual property.
In March of 2014, the U.S. Trade Representative announced the
removal of Israel from the Special 301 Report Watch List. The
Special 301 Report identifies trading partners that do not
adequately and effectively protect intellectual property rights.
Among other actions, Israel passed patent legislation that
satisfied the remaining commitments it had made in a 2010
Memorandum of Understanding to make its patent system more
transparent, efficient and effective.
5)Drivers in California's Future Economy : For decades, California
has been known as a place where innovation and creativity
flourish. A 2007 study on California's global competitiveness
identified eight key dominant and emerging industry clusters
including high-tech manufacturing, biotech and clean
technologies. In 2011, California remained the number one state
in the U.S. for attracting foreign direct investment and venture
capital (51% of total dollars). Over 931,000 Californians are
employed in high tech jobs, and biotech continues to be a
dominant industry sector in both Northern and Southern
California, providing $115 billion in annual revenues and
employing 267,271 individuals.
While research shows that the state is uniquely positioned to be
a preferred global partner in the areas of innovation, science,
and technology, the state also needs to adapt to the reality of a
growing talent pool in other countries and the global
redistribution of manufacturing abroad. Emerging economies
around the world are striving to become leaders in innovation and
not merely "copycat" economies of the U.S.
Although these dynamics may pose challenges to current leading
technology centers, for California they offer new opportunities
for collaboration and cooperation. A quick look at California's
top 10 exports (chart below) shows that the state is already
exporting important value added products across the world and
contributing to a global supply chain of manufacturing.
---------------------------------------------------------------
| California's Top 10 Exports in 2013 (based on movement of |
| goods) |
---------------------------------------------------------------
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|----+-----------------------------+-----+------+-------+-------|
|Rank| Description |2012 | 2013 |2013 % |% |
| | |Value|Value | Share | Change, |
| | | | | |2012 - |
| | | | | | 2013 |
|----+-----------------------------+-----+------+-------+-------|
|--- |Total California Exports and |161,8|168,12| 10.6 | 3.9 |
| |% Share of U.S. Total | 80 | 8 | | |
|----+-----------------------------+-----+------+-------+-------|
|--- |Total, Top 25 Commodities |55,75|58,127| 34.6 | 4.3 |
| |and % Share of State Total | 0 | | | |
|----+-----------------------------+-----+------+-------+-------|
| 1 |CIVILIAN AIRCRAFT, ENGINES, |5,799|7,488 | 4.5 | 29.1 |
| |AND PARTS | | | | |
|----+-----------------------------+-----+------+-------+-------|
| 2 |DIAMONDS, NONINDUSTRIAL, |4,537|5,581 | 3.3 | 23.0 |
| |WORKED | | | | |
|----+-----------------------------+-----+------+-------+-------|
| 3 |MACHINE FOR |4,477|4,753 | 2.8 | 6.2 |
| |RECP/CONVR/TRANS/REGN OF | | | | |
| |VOICE/IMAGE | | | | |
|----+-----------------------------+-----+------+-------+-------|
| 4 |PETROL OIL BITUM MINERAL (NT |3,611|4,105 | 2.4 | 13.7 |
| |CRUD) ETC NT BIO | | | | |
|----+-----------------------------+-----+------+-------+-------|
| 5 |ALMONDS, FRESH OR DRIED, |2,455|3,166 | 1.9 | 29.0 |
| |SHELLED | | | | |
|----+-----------------------------+-----+------+-------+-------|
| 6 |ANTISERA, BLOOD FRACTIONS & |1,927|2,470 | 1.5 | 28.2 |
| |IMMUNOLOGICAL PRO | | | | |
|----+-----------------------------+-----+------+-------+-------|
| 7 |PHONES FOR CELLULAR NTWKS OR |1,276|2,276 | 1.4 | 78.4 |
| |FOR OTH WIRELESS | | | | |
|----+-----------------------------+-----+------+-------+-------|
| 8 |MACHINES FOR MAN. |2,051|2,228 | 1.3 | 8.6 |
| |SEMICONDUTOR DEVICES/ELEC I | | | | |
|----+-----------------------------+-----+------+-------+-------|
| 9 |PARTS & ACCESSORIES FOR ADP |4,351|2,144 | 1.3 | -50.7 |
| |MACHINES & UNITS | | | | |
|----+-----------------------------+-----+------+-------+-------|
| 10 |ELECTRONIC INTEGRATED |1,988|2,138 | 1.3 | 7.5 |
| |CIRCUITS, NESOI | | | | |
---------------------------------------------------------------
---------------------------------------------------------------
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|Source: U.S. Census |
|Bureau |
---------------------------------------------------------------
With its diverse population and access to world-class research
universities and national laboratories, the state is a highly
prized academic and research partner. As early as 2004, the
state had bi-national research initiatives with Canada and
Iceland on renewable energy and other technologies. The
University of California at San Diego has a multi-year
manufacturing initiative with Mexico, supporting economic growth
on both sides of the border. As California's economy becomes
increasingly integrated within the global economy, developing and
maintaining relationships with centers of innovation across the
world, including Israel, is important.
Profile on Israel : Israel declared its independence in 1948 and
is governed by a unicameral 120-seat Legislative Assembly where
its members serve four-year terms. President Shimon Peres (since
July 15, 2007) is the chief of state, while Prime Minister
Benjamin Netanyahu (since March 31, 2009) is the head of state.
Israel is a small country (20,770 sq miles) located in the Middle
East. It 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. For comparison, the
country is slightly smaller than the U.S. state of New Jersey.
There are 7.8 million who live in Israel, ranking it the 99th
largest country in the world. Tel-Aviv is the main business city
of Israel where 50% of the population lives. Over 90% of the
population lives in an urban area.
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, is changing how the Negev Desert is being
economically perceived.
In 2013, Israel's GDP was $272.7 billion, making it the 49th
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largest economy in the world. Economic output in 2013 was
described weak by Organization for Economic Cooperation and
Development (OECD), but it remained better than average among
OECD countries and the world. Performance in the 2nd quarter of
2014 placed at 3.75% growth, higher than the world average at
1.02% and OECD average at 1.02%. [OECD is an economic forum
consisting of highly industrialized and upper-middle income
countries which have come together for the purpose of
international economic development and investment.]
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. 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 between Iran and
Israel due to Tehran's support for terrorist groups active in the
region and continued nuclear progress ? also present the
potential for regional conflict. The borders with Lebanon and
Syria are closed, but instability in Syria and threats from the
Iran-backed terrorist group Hizballah in Lebanon also present
some risk of violent incidents or conflict. Israel signed peace
treaties with Egypt (1979) and Jordan (1994)."
Israel was the 23rd largest export market for U.S. goods in 2013.
Two-way trade flow of goods between the U.S and Israel in 2013
was $36.4 billion dollars. Total U.S. exports in 2013 to Isreal
were 13.7 billion with the top exports including precious stones,
electrical machinery, machinery, aircraft, and optic and medical
instruments. Israel was the 21st largest supplier of good to the
U.S. in 2013 including precious stones, pharmaceutical products,
electrical machinery, and optic and medical instruments.
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 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
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higher rate than historic innovation powerhouses such as Finland,
Norway, Denmark, and Australia. In 2013, the patents granted to
individuals in the U.S. were 147,660, from California 39,139, and
from Israel 3,152.
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 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 in networking and
investment opportunities.
6)California's Trade Economy : International trade and foreign
investment serve as critical components of California's $2.0
trillion economy. If California were a country, it would be the
17th largest exporter and the 14th largest importer in the world.
Merchandise exports from California ($168 billion) accounted for
over 10.6% of total U.S. exports in goods, shipping to over 220
foreign destinations in 2013. California's land, sea, and air
ports of entry served as key international commercial gateways
for the $538 billion in products entering and exiting the U.S. in
2012. Statewide, 4.4 million California jobs are dependent on
foreign trade. Over 562,700 California workers benefit from jobs
with foreign-owned firms, which accounts for 5.1% of all private
sector jobs in the state.
California's significance in the global marketplace results from
a variety of factors, including: its strategic southwest and
coastal location offering direct access to growing foreign
markets in Mexico, Latin America, and Asia; its nine diverse
regional economies; its large, ethnically diverse population,
representing both a ready workforce and significant consumer
base; its access to a wide variety of venture and other private
capital; its broad base of small- and medium-sized businesses;
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and its culture of innovation and entrepreneurship, particularly
in the area of high technology.
Mexico is California's top trading partner, receiving $23.9
billion (14%) in goods in 2013. The chart below shows export
data on the state's top five trade partners. Other top-ranking
export destinations not shown on the chart include Hong Kong,
Taiwan, Germany, the Netherlands, and the United Kingdom.
-----------------------------------------------------------------
| California Export based on Movement of Goods 2012 and 2013 |
-----------------------------------------------------------------
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
| Rank | Country | 2012 Value | 2013 Value | 2012 % Share | 2013 % Share | % Change, |
| | | | | | | 2012 - 2013 |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
| --- |Total | 161,880| 168,128| 10.5| 10.6| 3.9|
| |California | | | | | |
| |Exports and % | | | | | |
| |Share of U.S. | | | | | |
| |Total | | | | | |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
| --- |Total, Top 25 | 143,671| 149,020| 88.8| 88.6| 3.7|
| |Countries and | | | | | |
| |% Share of | | | | | |
| |State Total | | | | | |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
| 1 |Mexico | 26,370| 23,933| 16.3| 14.2| -9.2|
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
| 2 |Canada | 17,424| 18,819| 10.8| 11.2| 8.0|
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
| 3 |China | 13,970| 16,359| 8.6| 9.7| 17.1|
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
| 4 |Japan | 13,033| 12,711| 8.1| 7.6| -2.5|
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
| 5 |South Korea | 8,246| 8,394| 5.1| 5.0| 1.8|
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
| | | | | | | |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
| 17 |Israel | 8,246| 2,323| 5.1| 1.4| -12.5|
--------------------------------------------------------------------------------------------------------
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|Source: tradeport.org |
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| |
| |
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California's largest industry sector by employment is Trade,
Transportation, and Utilities, which encompasses everything from
major retail outlets, to import-export businesses, to
transportation and warehousing. California leads the nation in
export-related jobs. The U.S. Department of Commerce estimates
that for every one million dollars of increased trade activity,
11 new jobs are supported. Workers in trade-related jobs earn on
average 13% to 28% higher wages than the national average.
In today's globally linked economy, manufacturing utilizes
products from across the U.S., as well as from other nations. In
2012, 61% ($1.3 trillion) of the products imported into the U.S.
were inputs and components intended for use by American
producers. In addition, U.S. imports often include components or
benefits from services provided by U.S. firms, including many
California companies. The Wilson Center estimates that Mexican
imports and Canadian imports contain 40% and 20% U.S. components,
respectively.
Trade and foreign investment support new job creation, bring new
technologies and skills to California workers, generate local and
state revenues, and generally strengthen the state's economic
base. In the future, California's economy will become
increasingly reliant on accessing foreign markets where a
majority of global economic growth is expected to occur.
7)Amendments : Staff understands that the author will be offering
amendments to add specificity to the resolved clause of the
resolution. The amendments are detailed below:
Resolved by the Senate of the State of California, the
Assembly thereof concurring, That the Legislature hereby
supports the memorandum of understanding for establishing
strategic partnerships between California and the nation of
Israel that support for joint innovation in clean technologies
and water conservation, health and biotechnology,
cybersecurity, education, agricultural technology, research,
and other informational exchanges, and that also promote
mutual cooperation , understanding, and friendship by
encouraging trade delegations and collaboration on mutual
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projects and issues of interest between California and Israel ;
and be it further
8)Related Legislation : Below is a list of legislation from the
current and prior legislative sessions.
a) AB 2012 (John A. P�rez) Economic Development
Reorganization: This bill transfers the authority for
undertaking international trade and foreign investment
activities from the Business, Transportation and Housing
Agency to the Governor's Office of Business and Economic
Development. In addition, the bill transfers the
responsibility for establishing an Internet-based permit
assistance center from the Secretary of the California
Environmental Protection Agency to Governor's Office of
Business and Economic Development. Status: Signed by the
Governor, Chapter 294, Statutes of 2012.
b) AB 2713 (Quirk-Silva) Public Private Partnerships to
Promote Trade: This bill authorizes the Governor's Office of
Business and Economic Development to establish public-private
partnerships to help guide state activities related to the
export of California products and the attraction of
employment-producing foreign investment. The bill requires
the establishment of a subaccount to hold private donation for
county and industry-specific marketing activities. The bill
also requires the establishment of a partnership to support
California trade and investment within South Korea. Status:
Pending in the Senate.
c) 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: Pending in the Senate.
d) SCR 82 (Hueso) Sister State with Jalisco: This bill
establishes a sister state relationship between California and
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, Resolution Chapter 70, Statutes of
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2014.
REGISTERED SUPPORT / OPPOSITION :
Support
Bay Area Council
The Anti-Defamation League
The Jewish Public Affairs Committee of California
Opposition
None received
Analysis Prepared by : Toni Symonds and Holland Nguyen / J., E.D.
& E. / (916) 319-2090