Reprint permission from the September, 1994 issue of Crain's Small Business.

U.S. companies eyeing the enticing opportunities in the newly integrated European market may find that routing their goods through Israel and "processing" them there can add significantly to their bottom lines.

Along with other countries, Israel has preferential trade accords with both the European Union - now including Belgium, Denmark, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain and the United Kingdom - and the European Free Trade Area, excluding Switzerland - that is, Austria, Finland, Iceland, Liechtenstein, Norway and Sweden.

These pacts forbid most customs duties and import quotas.

But among the parties to these agreements, only Israel also has a free trade agreement with the U.S., which fully takes effect on Jan. 1.

For that reason, savvy U.S. exporters can use Israel as a trade "bridge" between the United States and virtually all of Western Europe and avoid the duties to which their qualified goods would otherwise be subject.

The strategy is by no means automatic.

For one thing, not all goods qualify. For another, U.S. exporters need to be sensitive to the business barriers they will face in making free trade a reality.

Qualifying goods are those which, for treaty purposes, "originate" in Israel - that is, they are either "wholly obtained" there or they have "undergone sufficient working or processing" there.

Thus, the U.S. exporter seeking to benefit from the agreements will have goods produced in Israel, but use U.S.-made components and American know-how.

This approach will take advantage of Israel's highly skilled, English-speaking and relatively cheap labor; its high-tech expertise; its government's significant economic incentives to foreign investors, and its proximity to Europe.

The operation might be structured in a variety of ways. An Israeli company might purchase imported components. American and Israeli firms might form a joint venture. Or a U.S. company might establish an Israel-based subsidiary.

However shaped, the entity may afford its owner lower labor and production costs than those incurred at home, as well as tariff savings.

Before jumping in, an American business will want to satisfy itself that the effort is worthwhile, in spite of the well-known challenges of political unrest and administrative bureaucracy. A careful cost-benefit analysis assessing this new opportunity in the fledgling "global community" is reasonable first step.

Marc J. Lane (mlane@marcjlane.com) is a Chicago lawyer and financial planner and an adjunct professor of law at Northwestern University School of Law.