During the mid-1950s, Israel, like other developing countries, promoted the textile and apparel industry to be a ready source of employment. By 1985 the textile and clothing industry was represented by 1,523 establishments. These businesses employed about 46,000 workers (representing 15 percent of industrial workers) and earned revenues equal to approximately US$13 million, or 8.8 percent of total industrial earnings. In 1988 Israel continued to promote this industry as a source of employment for unskilled and semiskilled immigrants and for local Israeli Arab labor.

The textile and apparel industries were characterized by many small firms and a few large, vertically integrated companies (including Polgat Enterprises, considered one of the most efficient producers in the world). Like other Israeli industries, the textile and apparel industry depended for its survival on its ability to export to Europe and the United States. Given the generally high tariff barriers in Europe and the United States on such products, the agreement Israel signed with the European Economic Community (EEC) in 1977, the Israel-EEC Preferential Agreement, as well as the United States-Israel Free Trade Area Agreement (as of 1987) have lowered and will lower further these tariffs, thus making Israeli textile and apparel products marginally competitive. Duty savings were not expected to play a major role in increasing Israel's trade competitiveness in these markets as long as Israeli wages in these industries were higher then comparable wages in Asia. Because they pay higher wages, Israeli textile and apparel producers have continued to concentrate on the more expensive segment of the market.

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Source: U.S. Library of Congress