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<NREC>Israeltoc
Israel: Table of Contents <A>=Israel COUNTRY
COMMERCIAL GUIDE FOR ISRAEL FY 1999 prepared by
the American
Embassy, Tel Aviv July 1998 TABLE OF
CONTENTS I. EXECUTIVE SUMMARY II. ECONOMIC TRENDS AND
OUTLOOK Major Trends and Outlook Principal Growth Sectors Government Role in the Economy Balance of Payments Situation Infrastructure Situation III. POLITICAL ENVIRONMENT Bilateral Relationship with the U.S. The Peace Process Major Political Issues Affecting Business Climate The Political System Orientation of Major Political Parties Schedule for Elections IV. MARKETING U.S.
PRODUCTS AND SERVICES Distribution and Sales Channels Use of Agents and Distributors; Finding a Partner Franchising Direct Marketing Joint Ventures/Licensing Steps to Establishing an Office Advertising and Trade Promotion Pricing Product Sales Service/Customer Support Selling to the Government Performing Due Diligence/Checking Bona Fides of Banks/Agents/Customers Need for a Local Attorney V. LEADING SECTORS FOR
U.S. EXPORTS AND INVESTMENT Best Prospects for Non-Agricultural Goods and Services Best Prospects for Agricultural Products Significant Investment Opportunities VI. TRADE REGULATIONS AND
STANDARDS Trade Barriers Customs Valuation Import Licenses Export Controls Import/Export Documentation Temporary Entry Labeling, Marking Requirements Prohibited Imports Standards Free Trade Zones/Warehouses Special Import Provisions Membership in Free Trade Arrangements VII. INVESTMENT CLIMATE Openness to Foreign Investment Right to Private Ownership and Establishment Protection of Property Rights Performance Requirements and Incentives Transparency of the Regulatory System Corruption Labor Efficient Capital Markets and Portfolio Investment Conversion and Transfer Policies Expropriation and Compensation Dispute Settlement Political Violence Bilateral Investment Agreements OPIC and Other Investment Insurance Programs Foreign Investment Statistics VIII.TRADE AND PROJECT FINANCING Brief Description of Banking System Foreign Exchange Controls Affecting Trade General Financing Availability Export Finance/Methods of Payment Export Financing and Insurance Project Financing Correspondent Banking Arrangements IX. BUSINESS TRAVEL Business Customs Travel Advisory and Visas Holidays Business Infrastructure X. APPENDICES A. Country Data B. Domestic Economy - Statistics C. Trade Statistics D. Investment Statistics E. U.S. and Country Contacts F. Market Research G. Trade Event Schedule INTERNATIONAL COPYRIGHT,
U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE,
1998. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES <NREC>Israel01 Israel:
Executive Summary <A>=Israel I. EXECUTIVE SUMMARY This Country Commercial
Guide (CCG) presents a comprehensive look at Israel's commercial environment,
using economic, political and market analyses. The CCGs were established by
recommendation of the Trade Promotion Coordinating Committee (TPCC), a
multi-agency task force, to consolidate various reporting documents prepared
for the U.S.business community. Country
Commercial Guides are prepared annually at U.S. Embassies through the combined
efforts of several U.S. government agencies. Over the last decade Israel
has undergone a profound transformation.
Buoyed by political rapproachment with Jordan and Egypt, the beginnings
of an agreement with the Palestinians, and a substantial increase in population
from the ex-Soviet Union, the Israeli economy averaged growth of 6-7 percent in
the first half of the decade. With the
peace process stagnating, economic growth at 1.7 percent in 1997 and
unemployment creeping steadily upward, the Israeli government has managed to
press ahead with structural reforms that many analysts say provide a solid
foundation for economic growth within the next few years. In the meantime, Israel’s economic managers
have succeeded in re-orienting the Israeli economy away from traditional low
tech and heavy industry into services and production of high value products for
the new high technology industries. Israel’s economic
transformation from hyde bound socialism to dynamic entrepreneurial capitalism
is one of the most impressive, if under-acknowledged, international success
stories. Israel’s proportion of
scientists, engineers, and other skilled personnel in the labor force is high
by international standards. Capitalizing on this human resource potential, the
government has instituted economic reforms and new policies that have created a
global high technology powerhouse in such industries as semiconductors,
computer software, telecommunications and biomedical equipment. The dramatic growth of Israel’s high tech
sector in recent years has led to a shortage of qualified workers and a
significant rise in salaries for these positions. Israel’s highly developed
economy and western oriented business culture will seem very familiar and
comfortable to the visiting American executive.
The country’s legal and regulatory regime is based on European
commercial law and has developed its own very strong legal precedence over the
last 50 years. Over the past few years
net foreign investment in Israel has risen sharply, from a $505 million in 1992
to some $3.4 billion in 1997. The
U.S.-Israel Free Trade Agreement has contributed greatly to the expansion of
bilateral trade to $13 billion in 1997.
The fact that Israel has concluded Free Trade Area Agreements with four
other countries, the European Free Trade Area (EFTA) and the European Union
indicates a real commitment to a liberal trading regime. In order to improve its
inadequate legislatory framework for the protection and enforcement of
intellectual property rights (IPR), the Government of Israel has taken serious
steps to revise the IPR provisions in the areas of patents, copyrights,
trademarks, industrial designs, integrated circuits and cable broadcasting,
based on international guidelines and in accordance with Israel’s international
obligations. Israel also intends to
establish a National Police Unit dedicated to IPR. The real key to Israel’s
economic take-off will be its ability to come to some peaceful accomodation
with its immediate Palestinian neighbors and the other countries of the
region. As the Peace Process has
stalled, so have the bright prospects for economic integration which were
supposed to boost the regional demand for Israeli products and services. With a genuine peace in this region, Israel
is easily poised to be a significant “engine of growth” for the whole Middle
East. Country Commercial Guides
are available for U.S. exporters from the National Trade Data Bank’s CD-ROM or
via the Internet. Please contact
Stat-USA at 1-800-Stat-USA for more information. Country Commercial Guides can be accessed via
the World Wide Web at http://www.stat-usa.gov; http://www.state.gov; and
http://www.mac.doc.gov. They can also be
ordered in hard copy or on diskette from the National Technical Information
Service (NTIS) at 1-800-553-NTIS. U.S.
exporters seeking general export information/assistance and country-specific
commercial information should contact the U.S. Department of Commerce, Trade
Information Center by phone at 1-800-USA-TRADE. INTERNATIONAL COPYRIGHT,
U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE,
1998. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES <NREC>Israel02 Israel:
Economic Trends and Outlook <A>=Israel II. ECONOMIC TRENDS AND
OUTLOOK Major Trends and
Outlook In the first half of the
1990s, Israel enjoyed a remarkable economic expansion that brought new levels
of prosperity and a significant increase in purchasing power. With economic growth averaging nearly six
percent between 1990 and 1996, Israel's economy expanded by some 40 percent in
real terms, and per capita income jumped from $11,000 to almost $17,000. Along with rapid economic growth came an even
faster increase in import demand, as Israeli purchases of goods and services
from abroad grew from $24 billion in 1990 to over $43 billion in 1996. The principal factors behind
Israel’s economic boom of the first half of the decade were: (a) the influx of over
750,000 new immigrants (16 percent of Israel’s population at the end of
1989). These immigrants, principally
from the former Soviet Union (FSU), added significantly to Israel’s labor force
while stimulating consumer demand and new investment; (b) economic reforms that
opened the economy to greater international competition. The reforms resulted in the development of
the financial markets and in a reduction of governmental control of the
economy; (c) the Middle East peace
process, which reduced Israels international isolation, opening new export
markets and stimulating foreign investment. More recently, economic
growth has slowed substantially, from 7.1 percent in 1995 to 1.9 percent in
1997 and perhaps 1-2 percent in 1998.
This slowdown in growth chiefly reflects a sharp turnaround in new
investment, which grew by 9.1 percent in real terms in 1995 but declined by 5.1
percent in 1997. The slowdown in growth
is generally attributed to the waning of the stimulative effects of the
immigration waves, such as for residential construction and new business
investment; high interest rates and much tighter fiscal policy in 1997; and
increased political and security uncertainty in the wake of terrorist incidents
and a lack of progress in the peace process. Nonetheless, Israel remains
well-positioned to compete in the knowledge-intensive industries of the 21st
century, and its economy has the potential to grow at some four to five percent
per year. Israel's proportion of
scientists, engineers, and other skilled personnel in the labor force is high
by international standards, and Israeli companies are rapidly developing
experience in the business aspects of transforming technology into marketable
products and services. Further, the
ongoing structural transformation of the economy, especially its shift from
traditional to higher-value goods and services, should add to Israel's growth potential
in the near future. Finally, structural
reforms that will increase the level of competition and reduce the role of the
state should add to overall efficiency and productivity. Principal Growth
Sectors Israel is emerging as a
high-tech center, particularly in such industry sectors as semiconductors,
computer software, telecommunications, and biotechnology. Infrastructure investments are likely to
remain high in the near term, in response to increasing affluence and a 2.5
percent annual population growth.
Housing, road construction, electric power, public transportation,
natural gas, telecommunications, and ports and railways offer promising
opportunities. In addition, Israel's
retail distribution network offers scope for increased penetration by
U.S.-style retail chains, which are making their mark on Israel's marketing
system. Government Role in
the Economy Over the past decade, Israel
has moved gradually toward a more open, competitive, and market-oriented
economy. Nonetheless, the level of
government involvement in the economy remains high, as do the public's
expectations for government assistance.
Despite a government commitment to reduce taxes, Israel's tax burden
remains high by U.S.standards, at roughly 40 percent of GDP. The country's infrastructure network remains
publicly-owned, as does much of the banking system. However, the pace of privatization picked up
markedly in 1997, highlighted by the sale of a controlling stake in Israels
largest bank, Bank Hapoalim, which controls some eight percent of the Israeli
economy through its various corporate holdings.
For 1998 and 1999, the government plans the sale of Israel’s second and
third largest banks, Banks Leumi and Discount, the sale of additional shares in
the telecommunications company Bezeq, the divestiture of its remaining shares
in Israel Chemicals, and the sale of 49 percent of the national airline, El Al. Balance of Payments
Situation Israel has traditionally run
a large external trade deficit, usually in excess of ten percent of GDP, that
has largely been offset by cash grants from the U.S. government and charitable
organizations and individuals abroad.
From 1992 through 1996, strong domestic demand and declining national
savings led to a steady increase in Israel’s external current account deficit
which, in 1996, hit a worrisome level of $5.3 billion, or 5.6 percent of
GDP. The significant tightening of
fiscal policy undertaken in 1997, when the government’s budget deficit fell to
2.8 percent of GDP from 3.9 percent in 1996, was motivated in large part by the
need to prevent a potential external financial crisis. The reduced budget deficit and overall
economic slowdown helped to reduce the current account deficit to $3.6 billion,
or 3.6 percent of GDP, in 1997; a further reduction is expected in 1998. Despite Israel’s recent
succession of large current account deficits, its net external debt has
remained relatively stable in absolute terms in the past few years, while its
debt/GDP ratio has declined, reaching 19.1 percent in 1997. This fact reflects the large inflow of equity
investment, both portfolio and direct, that Israel has received in the past few
years. Investment in the Tel Aviv Stock
Exchange, acquisitions of Israeli companies, and equity flotations by Israeli
companies on foreign stock markets, principally New York, have brought billions
of dollars in new capital to Israel in recent years, primarily though not
exclusively to its high technology industries. Foreign borrowing by the
Israeli private sector, undertaken as an alternative to high domestic interest
rates, has been another important factor in Israel’s balance of payment
situation in recent years. Such
borrowing peaked in 1997, helping to increase Israel’s foreign exchange
reserves from $11 billion to over $20 billion during the year. Concern has been expressed over the currency
risk implicit in such borrowing should there be a sudden change in sentiment and
a rapid depreciation of the shekel. Infrastructure
Situation To cope with its growing
population and to improve the functioning of the economy, Israel is making
large investments to upgrade its infrastructure. Major projects include the construction of a
new terminal at Ben Gurion International Airport, a tunnel through Mt. Carmel
to provide a bypass route around Haifa, the Cross-Israel Highway, a major
north-south artery and mass transit systems planned for Jerusalem, Beer Sheva
and the Tel Aviv region. Significant
improvements to Israel's ports, railways, and road network are also
planned. The Israel Electric
Corporation (IEC) is in the midst of a $10 billion investment program, which
will double the country's generating capacity to about 12,000 megawatts by the
end of the decade. Israel is also preparing
for the availability of natural gas by planning a natural gas distribution
network. Local authorities are searching
for solutions to environmental problems related to municipal solid waste and
wastewater treatment. The first
international tender for a waste-to-energy plant was issued in January
1998. Development of regional sanitary
landfills, a national air pollution monitoring system and municipal wastewater
treatment plants, even in outlying regions of the country, are indicative of a
growing awareness of environmental issues.
INTERNATIONAL COPYRIGHT,
U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE,
1998. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES <NREC>Israel03 Israel:
Political Environment <A>=Israel III. POLITICAL ENVIRONMENT Bilateral
Relationship with the United States Israel and the U.S. are
closely bound by historic, religious, political and cultural ties, as well as
by many other mutual interests. Over the
years, U.S. economic and security assistance has been an acknowledgment of
these enduring ties, and a signal of a strong and long-lasting U.S. commitment
to Israel. In recent years bilateral
cooperative institutions in numerous fields have been established, which
further strengthen the relations between the U.S. and Israel. Foundations in the fields of science and
technology include the Binational Industrial Research and Development
Foundation (BIRD), the Binational Science Foundation, the Binational
Agricultural Research and Development Foundation (BARD), and the U.S.-Israel
Science and Technology Commission. The
U.S.-Israel Education Foundation (USIEF) sponsors educational and cultural
programs. The Peace Process The issue of Arab-Israeli
peace has been a focal point in U.S.-Israeli relations, and the close working
relationship between the two countries has greatly facilitated the
breakthroughs in the Middle East peace process.
On September 13, 1993, the late Prime Minister Yitzhak Rabin and PLO
Chairman Yasser Arafat signed the Declaration of Principles, which outlined a
six-year timetable for achieving permanent and comprehensive peace between
Israel and the Palestinians. On May 4,
1994, Rabin and Arafat initialed an accord implementing the first stage of that
agreement: self-rule for Gaza and Jericho under the administration of a
Palestinian Authority (PA). The Paris
Protocol, signed in April of 1994, was also incorporated into the May 1994
Agreement on the Gaza Strip and Jericho Area.
The Paris Protocol set up the framework for the conduct of economic
relations between Israel and areas administered by the Palestinian
Authority. On September 28, 1995, the Interim
Agreement was signed, calling for a phased Israeli withdrawal from certain
areas of the West Bank. To date, six
West Bank cities (Nablus, Tulkarm, Ramallah, Jenin, Bethlehem, Qalqilyah) have
been turned over to the PA and Israel has withdrawn from the Arab-populated
areas of Hebron, in accordance with the Hebron protocol of 15th January,
1997. On January 20, 1996 the
Palestinians held their first democratic elections, choosing Yasser Arafat as
Ra’ees of the Executive Authority along with 88 PA Council members. The government of Prime Minister Netanyahu,
which took office in June, 1996, affirmed its commitment to continue
implementation of the Interim Agreement and expressed a readiness to resume
negotiations with the Palestinians on final status issues on an accelerated
basis. Since the Hebron
redeployment, in January 1997, the Government of Israel (GOI) has insisted that
further IDF redeployment is contingent on fulfillment by the Palestinians of
the mutual obligations of the parties, as incorporated in the Note for the
Record of 17th January 1997 attached to the Hebron Protocol. To date (July 1998) Israel has yet to
announce the extent of the second redeployment and has stated that further
redeployment is conditional on resolution of the outstanding reciprocity issues
contained in the Note for the Record. On October 26, 1994, Israel
and Jordan signed a Treaty of Peace which led to the immediate opening of two
border crossings. In the years since,
the world has witnessed a series of first-ever public meetings between senior
Israeli and Jordanian leaders, both abroad and at the Dead Sea, Aqaba, Amman,
and on the shores of the Sea of Galilee.
Tourism between the two countries has developed since the first Israeli
tourists bearing Israeli passports were welcomed into Jordan, and a non-stop
bus service and air services between Amman and Tel Aviv were initiated in
mid-1996. The peace treaty addresses
boundary demarcations, water issues, police cooperation, environmental issues,
transportation, and border crossings. Full
diplomatic relations have been established, and diverse contacts have been
initiated as the normalization process has proceeded. The economic cooperation element of the
treaty includes agreements on free trade, investment, banking, industrial
cooperation and labor, among various other sectors. In 1997 Israel and Jordan signed an agreement
establishing joint production facilities in a qualifying industrial zone (QIZ)
in Irbid. Products from these facilities
will enter the U.S. market duty-free under U.S. legislation. More QIZs are expected in 1998. Israel and Jordan continue to work on a joint
airport project for the Aqaba-Eilat region, and inaugurated a pilot project in
1997 for some Israel-bound flights to land at Aqaba airport. Under U.S. sponsorship,
Israel and Syria conducted talks aimed at achieving a peace agreement. The talks made some headway in identifying
areas of agreement and disagreement, but were suspended in early 1996, following
major terrorist attacks in Israel and Prime Minister Peres’ call for early
elections. Efforts continue to find a
formula to enable resumption of the talks. Israel has proposed a
military withdrawal from southern Lebanon under UN Security Resolution 425 with
appropriate security guarantees from the government of Lebanon. Currently there are no direct negotiations
with Lebanon on this issue. Progress on
outstanding issues with Lebanon, including Hizballah terror and Israel’s
presence in southern Lebanon, probably depends on success in talks between
Israel and Syria. Major Political
Issues Affecting Business Climate Two major political issues
affect the business climate in Israel: regional instability and terrorism. These two considerations have led some
foreign businesses to move cautiously on investments in Israel. Historic agreements between Israel and its
Arab neighbors provide a sound framework for further progress in achieving a
comprehensive Middle East peace and, in turn, a favorable business climate
throughout the region. The Political System Israel is a parliamentary
democracy. The president is elected by
the Knesset, a unicameral parliament, for a five-year term. In March 1998 Ezer Weizman was re-elected for
a second term as President of Israel.
The Prime Minister is Binyamin Netanyahu,
the leader of the Likud party, who in May 1996 won a narrow victory in the
national elections. Netanyahu became
Prime Minister under a new law, which went into effect in 1996 and which
mandates the direct election of the Prime Minister and separate elections for
the Knesset. Netanyahu subsequently
formed a center-right religious coalition that holds a majority of 66 seats in
the Knesset. The Knesset's 120 members
are elected to four-year terms, although the Prime Minister has the option to
call for new elections before the end of the term, or the Prime Minister's
government can fall on a vote of no-confidence in the Knesset. The president then has the option of asking
the current Prime Minister to form a new government. If he cannot, new elections are held for the
Knesset. A total of eleven political
parties are currently represented in the 14th Knesset. They include: Likud-Gesher-Tsomet alliance,
Shas, National Religious Party, Meretz, Yisrael B'Aliya, Hadash, The Third Way,
United Torah Judaism, United Arab List, and Moledet. The January 1998 departure
of David Levy from the Cabinet affected Prime Minister Netanyahu’s
majority. Levy’s Gesher movement kept
its five Knesset seats and retains its voting independence on major issues
before the Knesset. This has reduced the
Prime Minister’s automatic majority to 61 votes, as follows: his ruling coalition
in the Knesset is composed of his own Likud-Tsomet (27 seats), Shas (10 seats),
the National Religious Party (9 seats), Yisrael B'Aliya (7 seats), the Third
Way (4 seats) and United Torah Judaism (4 seats), for a total of 61 seats out
of 120. In addition, an ultra-right-wing
party, Moledet (2 seats), has pledged to
vote with the government depending on the issue and the government's position. Orientation of Major
Political Parties The political spectrum runs
a wide gamut from the Hadash Party, a left-wing umbrella group including the
Communist Party and other Marxist factions that is made up of both Arab and
Jewish citizens, to the left-wing Meretz Party (which is actually a compendium
of three separate parties), the center-left and chief opposition Labor Party,
the new centrist Third Way Party, the ruling right-center Likud-Gesher-Tsomet
party bloc, the religious parties - National Religious Party, Shas, United
Torah Judaism (also a mix of two separate parties) - and the rightist Moledet. Yisrael B'Aliya, is a centrist party focused
on the rights of Russian immigrants. The
United Arab List, a combination of the Democratic Arab Party and
representatives of Israel’s Islamic Movement, is a defender of the rights of
Arab citizens. Schedule for
Elections Elections for the 15th
Knesset are scheduled to take place in the year 2000. INTERNATIONAL COPYRIGHT,
U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE,
1998. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES <NREC>Israel04 Israel:
Marketing U.S. Products and Services <A>=Israel IV. MARKETING U.S.
PRODUCTS AND SERVICES Distribution and
Sales Channels Approximately 25 percent of
Israel's 6.0 million population is concentrated in the Tel Aviv metropolitan
area, Israel's commercial and financial center.
Another 15 percent of the population lives in Haifa, a major port and
the center for most heavy industry.
Almost all goods are imported through Israel's two Mediterranean ports,
Haifa in the north and Ashdod in the south.
They have good transportation links to the rest of the country. Most companies are headquartered in the Tel
Aviv or Haifa metropolitan areas; a growing number of firms also maintain
branches, showrooms, or service facilities in Jerusalem and Beer Sheba. Consumer malls have become
an overnight success story in Israeli retailing. More than 30 large shopping malls now exist
and others are planned. Trendy,
specialized national chain stores and franchises have become increasingly
popular, replacing traditional food and consumer goods monopolies. The key to this success has been the
increasing variety of new products and services offered to the Israeli
consumer, driven by sustained growth in consumption. Israel’s food market is
estimated at $11 billion. Thirty percent
is directed to the institutional market which includes the army, hospitals,
hotels, restaurants, and factories as
raw materials for processing.
Distribution is direct by manufacturers, importers or wholesalers. Over half of the food
directed at non-institutional consumers is sold through supermarkets and
similar retail chains. Some 400
supermarkets, with an average floor size of 600 square meters, are located
throughout the country. Some of the
larger stores have areas of 1,000 - 2,000 square meters. Supersol and Blue Square Co-op are the two
main supermarket chains, together accounting for fifty percent of the total
sales volume in supermarkets. The rest of the food market
is served by typical Middle Eastern open markets and small groceries. In recent years specialty food stores
catering to the more affluent have developed in main metropolitan centers. Most U.S. exporters choose
to market their products in Israel through agents/distributors who generally
prefer to act as exclusive representatives of their foreign suppliers and
maintain their own distribution networks.
Chain and department stores sometimes prefer to deal directly with
overseas suppliers in order to cut middleman costs. Use of Agents and
Distributors: Finding a Partner Most U.S. manufacturers
prefer to sell to the Israeli market through a local agent or distributor on
either an exclusive or non-exclusive basis.
Some exporters use a commission agent who conducts limited promotional
campaigns and calls on potential buyers, but does not import on his own. This approach is most commonly used by
exporters of heavy industrial equipment.
A good local representative with proven reliability, loyalty, technical
suitability and after-sales service capability is a key factor to success in
selling and maintaining a continued presence in the Israeli marketplace.
U.S. companies need to be aggressive in their pursuit of business opportunities
and maintain an active in-country presence. The most common approach
used by exporters of light industrial equipment and consumer goods is to obtain
a local distributor. Distributors will
import on their own account, carry sufficient stock to satisfy ongoing demand
or to use for demonstration, maintain their own sales organization, supply
spare parts and maintain a service division (if applicable). In concluding a
representation agreement U.S. companies should be sure to include the following
elements: --contract duration; --exclusivity (if
applicable); --compensatory amount as a
function of contract duration, in case of termination of exclusivity; --promotional input by agent
and volume of sales; and --dispute settlement
mechanism, either by arbitration, or by assigning a tribunal (preferably U.S.). Once an adequate agreement
is concluded, there is usually no need for the U.S. exporter to retain a local
attorney. Legal support for the ongoing
operation of the agency should be provided by the local representative. Foreign companies interested
in participating in government projects are often required to form a
joint-venture partnership with an Israeli company in order to tender their
bids. The U.S. Commercial Service
and the U.S. Foreign Agricultural Service (FAS) at the U.S. Embassy in Tel Aviv
provide agent/distributor search and other services designed to assist U.S.
companies to establish themselves in the Israeli market. For information on these services interested
firms may contact the nearest Department of Commerce district offices or the
U.S. government officials listed at the end of this report. Franchising Franchising has become
increasingly popular in Israel since the introduction of this retail concept to
the local market in the mid-1980's. Its
popularity is particularly high in the fast food restaurant sector. Due to the strong presence of such companies
as Domino's Pizza and Pizza Hut, McDonald's, Kentucky Fried Chicken, Burger
King, Dunkin Donuts, The Country’s Best Yoghurt, Ben and Jerry's and more
recently, Haagen Dazs, the U.S. share of the Israeli fast food franchising
market exceeds 50 percent. Franchising has also
penetrated other industry sectors. ACE
Hardware and Office Depot opened franchises in 1993/1994, and operate branches
in the main commercial centers of the country.
Toys-R-Us opened its first outlet in 1995. Most franchises in Israel are owned by a main
franchisee, who owns and operates branches in various parts of the country. One of the exceptions is Subway, which has a
network of individually owned and operated outlets. Mailboxes is currently making its entry into
the market with individually owned franchises.
The key to success in Israel lies in strong management and good,
ongoing, in-country training programs to ensure continuing high quality
standards. Direct Marketing Direct marketing is
relatively new on the Israeli scene.
Activity in this field started in 1992, with the introduction of cable
TV, and already there are six active companies (including telemarketing). In the coming year the direct marketing
sector is expected to grow by about 20 percent. Other effective avenues for
advertising are: point-of-sale promotions in supermarkets, drugstores and
malls; advertising in major Hebrew newspapers, especially in weekend editions;
and professional business journals. Joint
Ventures/Licensing Manufacturing under joint
venture or licensing agreements is common in Israel and encouraged by the
GOI. Section VII of this report provides
information on investments in Israel. Israeli businesses strive to
obtain licensing agreements for a five-year period, automatically renewable for
another five years. They prefer
agreements, in which the licensor takes equity with the licensee. The norm for royalties is
4-5 percent of the turnover, although higher rates are common for luxury
articles, for items that include author's fees, and for specialized
machinery. Twenty-five percent
withholding tax on royalties and fees is deducted at the source. The licencee may repatriate royalties through
an authorized bank by producing a
statement from a certified accountant.
The licencee is entitled to claim an income tax deduction on royalties
and fee payments. Steps to
Establishing an Office A foreign firm can operate
in Israel as a foreign company, a foreign partnership or by establishing a
branch office. There are no restrictions on foreign ownership of Israeli
companies or securities. Israel allows
repatriation of foreign investment capital and profits. A foreign company that
wishes to establish an office in Israel is required to register with the
Registrar of Companies, at the Ministry of Justice. The company must file a copy of the document
by which it is incorporated and which states its objectives and rules, together
with a list of its directors and the name of its representative in Israel. If these documents are in English, they must
be accompanied by a Hebrew translation.
There is no requirement for the managers or directors of the company to
be Israeli citizens or residents.
However, U.S. representatives assigned to manage the Israel office must
first obtain work permits from the Employment Service Division of the Ministry
of Labor. Authorization from the
Ministry of Labor and, if applicable, the Investment Center, is necessary before
the Ministry of Interior can issue a visa to begin employment in Israel. U.S. companies wishing to establish an office
in Israel are advised to consult with a legal or accounting firm. Advertising and
Trade Promotion Aggressive product promotion
and advertising are effective tools in Israel, especially for consumer goods,
where brand image is important and U.S. products face fierce competition from
local and European suppliers. The most
effective means of advertisement is through commercial television and
radio. To date, Channel Two is the only
commercial Israeli TV station broadcasting nationwide, permitted by law to
carry private TV commercials, while state-owned Channel One carries sponsored
advertising by public corporations. The
state-owned Kol Israel (the Voice of Israel) radio station broadcasts
commercial ads via two of its several channels.
In addition, 13 privately-owned authorized regional radio licensees
accept commercial ads. Major Newspapers and
Business Journals English Language: The Jerusalem Post (daily newspaper) The Jerusalem Report (weekly) Link Magazine (monthly) Israel Business Today (weekly) *The International Herald Tribune - local edition *The local edition of the
International Herald Tribune includes an abridged english language version of
the Haaretz daily Hebrew Language(dailies): Haaretz Globes (financial) Maariv Yediot Aharonot Pricing Product Price is a key factor
affecting purchasing decisions by Israeli companies and consumers. Companies often use low pricing during the
introductory period to facilitate market penetration of a new product, followed
by a price increase once market share and reputation are established. Since most distributors prefer exclusivity, a
special pricing clause may be incorporated into the contract. Whenever a similar product is produced
locally, U.S. companies should be careful of possible dumping ramifications. Sales
Service/Customer Support Efficient
after-sales-service and client support are important to assure a company’s
competitiveness in the Israeli market, especially in sophisticated, high-tech
sectors. U.S. firms should ensure that
their local representatives receive adequate and ongoing training and technical
support. The “time between failure and
time to repair” is one of the main issues affecting purchasing decisions by
Israeli companies and government-owned entities. Selling to the
Government Israel is a signatory to the
WTO government procurement code. Since
the enactment of the 1993 Public Procurement Law and Regulations, GOI entities
and government-owned companies are required by law to procure by tender. Open tenders are published in the local
press. However, government-owned
companies, whose tenders are of most interest to U.S. suppliers, often use
selective bidding practices inviting only selected companies to submit
bids. The Public Procurement Law
contains "Buy-Israel" regulations, which award a 15 percent advantage
to local companies, and the "National Priority Zones” regulations
providing an additional 5-15 percent advantage to companies located in
so-called national priority areas. Where
Israel's WTO or other international obligations conflict with the
"Buy-Israel" and "National Priority Zones" regulations of
the Public Procurement Law, the international obligations take precedence. Defense procurement is
handled by the Ministry of Defense. The
Ministry maintains a 200-person purchasing mission in New York, which handles
purchases of U.S. equipment including direct commercial contracts paid by FMS
funds. In spring of 1995 the GOI
enacted the "Industrial Cooperation" regulations, instructing GOI
entities, including government-owned companies, to include an offset
requirement clause in their tenders.
Foreign companies making a sale to GOI entities of $500,000 or over are
required to purchase local products or use local content for at least 35
percent of the cost of the awarded contract.
The Industrial Cooperation Authority (ICA) under the Ministry of Industry
and Trade, administers the offset program.
U.S. companies interested in selling to the GOI are strongly advised to
appoint a well-connected local agent. Performing Due
Diligence/Checking Bona Fides of Banks/Agents/Customers Prior to entering into a
distribution/representation agreement, investment project or joint venture with
an Israeli company, it is common practice for U.S. companies to perform a due
diligence check on the said Israeli company. This is particularly recommended
when the Israeli company is relatively unknown or small to medium in size. The U.S. Commercial Service in Tel Aviv can
provide basic information on companies with whom its trade specialists are
acquainted. There are several local
companies in Israel, in addition to Dun & Bradstreet, that can provide
comprehensive in depth reports, which relate to the bona fides and financial
stability of banks/agents/customers. Most U.S. banks correspond
with the five leading Israeli banks. It is advisable, especially when working
with new clients, to seek verification from a corresponding U.S. bank of the
authenticity of documents stemming from the Israeli banking system. Performing the above checks
is particularly relevant in the Israeli economy today, as many companies are
experiencing difficulties following the rapid growth period of the early-90s
and the subsequent slow-down that currently prevails. Need for a Local
Attorney U.S. companies should seek
professional legal and/or accountancy advice whenever engaged in complicated
contractual arrangements in Israel.
Companies who wish to establish an office, invest, or apply for IPR
registration in Israel should seek professional legal advice. Companies may also wish to seek legal
assistance when encountering trade or payment problems. A list of local law firms is available from
the U.S. Commercial Service in Tel Aviv. INTERNATIONAL COPYRIGHT,
U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE,
1998. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES <NREC>Israel05 Israel:
Leading Sectors for U.S. Exports & Investments <A>=Israel V. LEADING SECTORS FOR
U.S. EXPORTS AND INVESTMENT Best Prospects for
Non-Agricultural Goods and Services Note: Official GOI
statistics are quoted in U.S. dollars.
Where needed the following exchange rate was used: USD - NIS 3.60 (USD million except where
noted) 1 - Airport/Ground Support Equipment (APG) At the end of 1997 the
Israel Airports Authority issued the first tenders for the construction of the
new Ben Gurion international airport terminal.
The Authority plans to issue tenders for the supply and installation of
large systems, i.e. generators, chillers, boilers, compressors, baggage
handling systems, loading bridges by the end of 1998. A new terminal was built at Haifa airport,
which has been opened to short distance international flights. The Government is contemplating privatizing
Haifa airport. Expansion of ground
facilities and upgrading of the main runway, possibly into the sea, will be delayed
pending a decision regarding the future of the airport. Agreement has been reached between the
governments of Israel and Jordan regarding the joint use of Aqaba airport. Israel will close the Avdat military airfield
to civilian wide body aircraft and build a new terminal at Ein Evrona, north of
the current Eilat airport terminal. 1997 1998 1999
(proj) (est) Total Market Size 64 85 95 Total Local Production 20 25 30 Total Exports 8 12 15 Total Imports 52 72 80 Imports from the U.S. 34 45 50 The above statistics are
unofficial estimates. 2 - Food Processing/Packaging Equipment (FPP) The Israeli market for food
processing/packaging equipment stood at $66 million in 1997. Despite the slight decrease from 1996 caused
by the general slow-down in the Israeli economy, the market has grown
significantly in recent years to meet the increased demand created by the
growth of the entire food sector. The United States-Israel
Free Trade Area Agreement removed all customs tariffs on imported U.S. goods in
this sector. The sharp rise of 125 percent in imports from the U.S. between
1996 and 1997 was a delayed reaction to the removal of these tariffs (which
came fully into effect in 1995), combined with a recognition by Israeli
importers of the quality and value of U.S. products. As the Israeli food processing industry
continues to expand, the demand for U.S. products is likely to remain high in
the coming years. 1996 1997 1998 (est) Total Market Size 70 66 74 Total Local Production 18 19 21 Total Exports 7 8 8 Total Imports 59 55 61 Imports from the U.S. 4 9 11 The above statistics are
unofficial estimates. 3 - Computers and Peripherals (CPT) U.S.-made computers and
peripherals account for over 30 percent of the import market in this
sector. Israeli consumers have a
preference for U.S. brand-name computers, and the three largest U.S. companies
dominate the market. Portable computers
are not popular in Israel, accounting for for a seven percent market
share. The Israeli market is avid for
the latest technologies, which explains the fact that 30 percent of the
computers sold have Pentium 586 processors.
Ministry of Defense entities prefer U.S.-made computers, as they can be
purchased with FMS funds. Growth in this
industry sector is expected to continue as sales of home computers are on the
increase. Israel is a very competitive
market, and although European firms and Far Eastern manufacturers are becoming
more active every year, U.S. manufacturers are expected to keep the lead on the
market based on the quality of their products. 1996 1997 1998 (est) Total Market Size 740 995 1,110 Total Local Production 415 588 635 Total Exports 185 235 250 Total Imports 510 642 725 Imports form the U.S. 161 194 306 The above statistics are
unofficial estimates. 4 - Franchising (FRA) The Israeli franchising
market has grown steadily over the past fifteen years. The most developed segment of the franchising
market in Israel is the fast food sector, estimated to represent about 75
percent of the market. However, other
sectors offer good opportunities for internationally known franchising
concepts. There are no official figures
on this industry sector. Total market size for
franchising in 1997 was estimated at $810 million, representing a steady growth
of 8-12 percent over the last three years.
The current slow-down in the local economy may somewhat reduce the sector’s
growth rate over the next 3-4 years.
U.S. companies are also extremely competitive in the non-food
franchising. The non-food franchising
market, estimated at $200 million, is expected to grow at a five percent annual
rate over the next three years. 1997 1998 1999 (prog) (est) Total Market Size 810 850 890 Local Franchises 340 355 370 Export Market n/a n/a n/a Foreign Franchises 470 495 520 U.S. Franchises 410 430 450 The above statistics are
unofficial estimates. 5 - Telecommunications Equipment (TEL) The Israeli
telecommunication market will continue to manifest strength, expected to result
in a sustained growth of 8 to 10 percent over the next three years. Israel's telecommunication market offers good
opportunities with the deployment of the third cellular operator and imminent
introduction of D.B.S. broadcasting.
Future growth is expected to be led by upgrades to new technologies
which will affect virtually every sub-sector of the market. The trend towards deployment of fibre optic
lines will spark growth in both fibre optic equipment and new network
equipment. Qualitatively, American
products are considered to be top of the line and subsequently, the U.S. import
market share is expected to remain above 50 percent. 1996 1997 1998 (est) Total Market Size 1,526 1,459 1,600 Total Local Production 2,295 2,570 2,830 Total Exports 1,765 1,995 2,200 Total Imports
996 884 970 Imports from the U.S.
629 486 535 The above statistics are
unofficial estimates. 6- Chemical Production Machinery (CHM) The performance of the
Israeli chemical production machinery market in 1996 and in 1997 reflected the
sustained growth of the chemical industry output, generated by investment in
automation of production processes, as well as expansion of the production
infrastructure to meet overseas demand.
Customers seem to prefer U.S.-manufactured chemical production machinery
due to a traditional U.S. orientation in this sector. 1996 1997 1998 (est) Total Market Size 87 104 114 Total Local Production 53 61 67 Total Exports 32 37 41 Total Imports 66 80 88 Imports from the U.S. 28 35 39 The above statistics are
unofficial estimates. 7 - Electronic Components (ELC) In 1997, total market value
was down 22 percent, mainly as a result of increased stocks held by leading
end-users and the continued tendency to reduce prices. However, the U.S. import market share
rocketed 40 percent, compared with 26.6 percent in 1996, reflecting the high
technological reputation U.S.-made components enjoy. American suppliers capable of competing in a
most advanced and sophisticated market will find Israel a very receptive
market. The wide range and broad basis
of the Israeli electronics industry, combined with the fast growing export
markets for the local electronics industry, provide electronic components with
a buffer against a downturn in demand in any single end-user industry. 1996 1997 1998 (est) Total Market Size 694 541 589 Total Local Production 490 520 574 Total Exports 288 299 330 Total Imports 492 320 345 Imports from the U.S. 131 128 139 The above statistics are
unofficial estimates. 8 - Toys and Games (TOY) In the past three years the
Israeli toy market has undergone a major change resulting from the
liberalization of the import market and the introduction of major international
chains into the market. Major chains, such
as Toy-R-Us, offer the Israeli consumer
toys and games for all ages and at all price ranges. The Israeli market for toys
and games grew almost nine percent from 1996 to 1997, from $147 million to $160
million. The market is expected to
continue growing at the same rate to $172 million by the end of 1998. The demand for toys & games peaks during
the Jewish holiday seasons: Rosh Hashanah, (Jewish New Year), Hannukah and
Pesach (Passover). Children up to the
age of 15 represent 20 percent of Israel’s total population. 1996 1997 1998 (est) Total Market Size 147 160 172 Local Production 22
24 26 Total Exports 3 5 7 Total Imports 128 141 153 Imports from the U.S. 14 15.7
17.5 The above statistics are
unofficial estimates. 9 - Computer Software (CSF) Local production of computer
software is well developed and at a high standard, reflecting the Israeli
high-tech sector in general. In the
course of the last three years, computer software became one of Israel’s leading
industries. Therefore, U.S. products encounter fierce competition on the local
market. U.S. product capabilities are
best used in the multimedia and interactive software fields, education and
entertainment, and specialized professional software (legal, medical,
etc.). These industry sectors are
growing at a startling pace. Many
European and Far Eastern companies have established themselves in the local
market through joint-ventures with Israeli companies. 1996 1997 1998 (est) Total Market Size 900 1,110 1,200 Total Local Production 860 1,050 1,150 Total Exports 450 620 700 Total Imports 490 580 750 Imports form the U.S. 380 456 632 The above statistics are
unofficial estimates. 10 - Machine Tools/Metalworking Equipment (MTL) Over the next three years
the market for machine tools and metalworking equipment is expected to maintain
its annual growth rate of eight percent.
However, between 1998-2000 U.S. exports are expected to maintian their
relative momentum in increasing import market share --from 12.6 percent in 1995
through 16.3 percent in 1996, to 17 percent in 1997-- with an estimated annual
growth rate of 13.8 percent. The domestic metalworking
industry employs over 60,000 people, and constitutes 20 percent of Israel's
industrial output and 19 percent of its exports. Growth in this market will be driven by
demand for automation equipment and advanced machinery in high-tech defense
industries and sophisticated export oriented businesses. Israel has a well-understood need to stay in
the technological forefront in the fields of metallurgy, missile systems, armor
and avionics. As a result, there is a
receptive audience among users of metalworking equipment for all types of
advanced devices and systems. Germany,
Italy and Japan are the strongest third country competitors. 1996 1997 1998 (est) Total Market Size 234 252 271 Total Local Production 130 141 153 Total Exports 55 60 66 Total Imports 159 171 184 Imports from the U.S. 26 29
33 The above statistics are
unofficial estimates. 11 - Processed Food (FOD) (including beverages and cigarettes) The processed food sector in
Israel has expanded rapidly in recent years, resulting from a combination of
the removal of many import barriers and the increased variation and volume of
domestic production as a reaction to the liberalization of the import market. In 1997 the import market
for processed foods totaled $811 million, of which 23 percent came from the
U.S. The slight fall in imports in 1997
came as a result of the slow-down in the Israeli economy, but imports are
expected to grow again in 1998. The
principal competition comes from the EU and Eastern Europe where traditional
trade ties have remained strong. The
important advantage of U.S. manufacturers lies in the quality of their
products. Changes in tastes and behavior
of the Israeli consumer have resulted in importers preferring U.S. products
that offer a better quality and value than the local production or imports from
elsewhere. Market penetration by U.S.
products is dependent on investment in sales promotion and market
development. Once successful in finding
a niche for their products, U.S. suppliers who demonstrate consistent quality
and reliability accompanied by responsiveness to importer needs, will find that
the Israeli market will reward them with a high degree of consumer loyalty and
increasing demand for their products. 1996 1997 1998 (est) Total Market Size 2,036 2,171 2,297 Total Local Production 1,817 1,890 1,916 Total Exports 609 530 470 Total Imports 828 811 851 Imports from the U.S. 208 186 217 The above statistics are
unofficial estimates. 12 - Information Services (INF) The market for information
services is rapidly expanding in the intense commercial and academic R&D
environments. Over the past two years
local production has increased significantly, while U.S. manufacturers and
service suppliers also have to compete with European products available on the
market. User-friendly and specialized
data-bases and commercial uses for the Internet offer best market prospects in
this industry. 1996 1997 1998 (est) Total Market Size 43 52 57 Total Local Production 10 13 17 Total Exports 4 5 7 Total Imports 37 44 47 Imports from the U.S. 29 33 36 The above statistics are
unofficial estimates. 13 - Leasing Services (LES) The total value of the
Israeli leasing market is estimated at $800 million. This figure reflects all the leasing
transactions, pending payments. Two
thirds of the market is handled by the banking sector, which provides only
financial leasing. The remaining
one-third of the market is handled by private leasing companies offering a
combination of financial and operating leases.
The local market views operating leases as a high cost/low performance
service. Seventy percent of the
leasing activities in the Israeli market consist of financial leasing of
private and commercial vehicles. A
strong presence of an entrepreneur, ready to contend with the risks entailed in
the operating leasing sector, has not yet emerged in Israel. The market is receptive to U.S. equipment
suppliers offering leasing agreements for transportation, construction,
industrial, medical, and high-tech equipment.
Established activities in secondary overseas markets should contribute
to the competitiveness of U.S. lessors. Israel has not yet enacted
specific legislation related to financial lease transactions. The Israel Equipment Lessors Association has
initiated and submitted a legislative proposal, which is pending preliminary
approval by the Ministry of Justice. 1996 1997 1998 (est) Total Sales 720 760 800 Sales by local firms 720
760 800 Sales by foreign owned firms
-0- -0- -0- Sales by U.S. owned firms -0- -0- -0- The above statistics are
unofficial estimates 14 - Industrial Chemicals
(ICH) In the course of 1997
Israel’s imports of mineral fuels, mineral oils and distillation derivatives,
bituminous substances, and mineral waxes (HS 27) increased by five percent to
$2.27 billion. Another major import sector
is organic chemicals (HS 29), which accounted for $680 million in 1997,
representing an annual increase of three percent. The 1998 projection for total imports of
industrial chemicals is $3.95 billion.
Imports are estimated to grow, steadily, at an average annual rate of
four percent. The current U.S. share of
the import market is eight percent. The chemical industry plays
a central role in the Israeli economy, representing almost 15 percent of total
industrial output. U.S. companies have
invested in the local production and R&D, and are involved in numerous
joint ventures, supplying the Israeli market and exporting to other markets,
including the US. 1997 1998 1999 (proj) (est) Total Market Size 6,800 7,000 7,200 Total Local Production 4,707 4,950 5,100 Total Exports 1,616 1,750 1,850 Total Imports 3,709 3,800 3,950 Imports from the U.S. 294 306
315 The above statistic are
unofficial estimates. Best Prospects for
Agricultural Products In Israel’s trade relations
with the U.S. Israel completely barred imports of most fresh produce and many
processed food items. This was possible
under Article VI of the U.S.-Israel FTA Agreement of 1985. On completion of the GATT-Uruguay Round
negotiations, Israel participated in the creation of the World Trade
Organization (WTO) and as a member is committed to abolition of almost all
import quotas and bans, tariffication of
all non-tariff barriers to trade and
their reduction over time to allow completely free imports from all its
trading partners. In November 1996, the two countries signed a five-year Agreement
on Food and Agriculture, designed to allow the coexistence of the WTO and the
U.S.-Israel FTA Agreement. As a result of the new
agreement, in January of 1996 Israel removed almost all import bans.
Effective December, 1996 Israel established Tariff Rate Quotas (TRQs) on
a list of U.S. products, and provided a preferential duty rate at least ten
percent below the general rates imposed on imports. It is difficult, therefore, to study past
import history to estimate export potential for U.S. products. The list below indicates the
most important Tariff Rate Quotas for U.S. products. In most cases, these products were totally
banned or import quotas with high levies existed. Tariff Free Quotas for
Imports from U.S.A. HS Code Product
Description 1988 1999 0202.0000 Frozen beef 6,998 7,558 0204.0000 Frozen lamb and goat 541 562 0207.0000 Poultry, fresh chilled or frozen 265 273 0303.XXXX Fish, frozen, fresh water, not filleted 229 245 0303.XXXX Fish, frozen, salt water, not filleted 4,007 4,288
0402.1000 Dried milk, fat
<1.5 % 1,082 1,125 0402.2000 Dried milk, fat > 1.5 % 1,082 1,125 0405.0000 Butter and other dairy spreads 324 337 0406.0000 Cheese and curd 386 405 0407.0000 Eggs in shell (millions) 3.8 3.9 0702.0000 Tomatoes,
fresh or chilled 117 126 0703.1000 Onions and shallots 117 126 0703.2000 Garlic 108 112 0704.1000 Cauliflower and broccoli 1,082 1,125 0710.0000 Vegetables, frozen 433 450 0711.9020 Tomatoes, puree and juice 162 169 0713.2000 Chick peas (garbanzos), dried 110 116 Tariff Free Quotas for
Imports from U.S.A. HS Code Product
Description 1998 1999
0806.1000 Grapes, fresh (Oct 15-Jan 31) 551 579 0806.2000 Grapes, dried (raisins)
530 546 0808.1000 Apples, fresh 1,697 1,748 0808.2010 Quinces, fresh 551 579 0808.2020 Pears, fresh (Nov 1 - May 31)
811 844 0813.2000 Prunes 743 765 1005.1010 Popping corn 105 113 1202,0000 Groundnuts 216 225 1206.1020 Confectionery sunfl. seeds 2,122 2,185 1602.3000 Processed poultry 265 273 1604.2030 Prepared or preserved fish, carp 18 20 1604.2030 As above: not containing carp 121 133 2002.1000 Tomatoes, whole or in pieces 162 169 2002.9000 Tomato paste 379 394 2004.0000 Other vegetables, prep./ preserved 108 112 2008.1000 Groundnuts, roasted, mixed or not 87 90 2009.0000 Orange juice 3,308 3,473 2009.2000 Grapefruit juice 551 579 2009.3000 Juice of any other single citrus fruit 551 579 2009.5000 Tomato Juice 165 174 2009.7000 Apple juice 106 109 Source: U.S.-Israel
Agreement on Food and Agriculture, November 1996. Appendix B. Best Prospects for
Agricultural Products Wheat - 041000 Israel has a growing demand
for wheat and flour. The GOI permits
milling quality wheat imports and flour purchases from sources other than the
U.S., but U.S. Hard Red Winter remains the preferred flour grain. Prospects exist for imports by Israeli
merchants and brokers for sale to neighboring countries such as Jordan and
Lebanon. Israel’s market for milling
quality wheat is between 550 and 650 thousand metric tons, depending on the
size of the domestic wheat harvest. (Thousands of metric tons) 1997 1998 1999 Total Market Size 1,000
1,000 1,000 Total Local Production 200 160 250 Total Exports
0 0 0 Total Imports
800 840 750 Imports from the U.S. 765 800 700 The above statistics are
unofficial estimates and include consumption of 150 - 200 thousand metric tons
of wheat in the West Bank and Gaza. To date the majority of
Palestinian flour consumption is provided by Israeli millers as there are no
commercial mills in the West Bank or the Palestinian Authority. When the
Palestinians construct their own mills, imports to the combined
Palestinian and Israeli market will remain unchanged, however Palestinian
importers may turn to non-U.S. sources, at least for a portion of their needs. Feed Grains and Other Animal Feeds Israel produces virtually no
feed grains of its own. Under the
Economic Support Agreement which grants the government $1.2 billion in economic
assistance funds, Israel undertakes to import at least 1.6 million metric tons
of bulk agricultural commodities including feed grains, milling quality wheat
and oilseeds. In recent years
performance has exceeded the commitment by more than 500,000 mt in spite of the
feed mill industry's high sensitivity to the price of the feed it imports. Market share of US imports depends on grain
price ratios of U.S. to (mainly) European suppliers. Recent trial shipments of
feed grains and protein meal from Asia and Eastern Europe have proven
disappointing. Quality was not
satisfactory and some difficulties in timing of deliveries was experienced. Feed mills can be expected to continue to
search for the golden combination of dependability, high quality, and low
price. To the extent that an ideal
source is not found they can be expected to turn to the U.S. as a key supplier
excelling in dependability of supply and product quality. However, if 1998 is an indication of changes
in trends, U.S. exporters will have to increase their market promotion efforts
in order to fend off the heavy competition of Eastern Europe. (Thousands of metric tons) 1997 1998 1999 Total Domestic Market 2,040 2,050 2,100 Total Local Production 96 100 90 Total Exports
0 0 0 Total Imports 1,950 1,950 2,010 Imports from the U.S. 1,100 900 1,000 The above statistics are
unofficial estimates. Dried Fruits Israel's annual raisin and
prune imports are governed by tariff rate quotas of 550 and 750 metric tons
respectively. Domestic raisin production grows with the expansion of grape
production for fresh exports. However
Israel's domestic raisin production is of low quality. Consumers demonstrate a revealed preference
for U.S. Jumbo Golden Seedless raisins.
The import statistics below include apricots, figs etc., which originate
mainly in Mediterranean countries such as Greece and Turkey. Dried fruits other than raisins and prunes
are not subject to import quotas. (Metric tons) 1997 1998 1999 Total Domestic Market 6,000 5,900 6,000 Total Local Production 1,500 1,100 1,100 Total Exports
0 0 0 Total Imports 4,000 4,700 4,500 Imports from the U.S. 1,500 1,300 1,500 The above statistics are
unofficial estimates. Following conclusion of the
U.S.-Israel Food and Agriculture Agreement of November 1996, Israels market is
open to imports beyond the tariff rate quotas on raisins and prunes. Whereas
the duties on ex quota shipments of raisins appear uneconomical, on prunes the
levy is actually below the levels of previous years. Note: The discrepancy
between market size and the total of production and imports represents changes
in stocks. Tree Nuts U.S. nuts enter Israel
without quota restrictions and with a significant customs advantage. As of January 1, 1995 all duties on imports
from the U.S. were canceled while those from the European Union are close to 15
percent and from third countries (e.g. Turkey) as much as 22.5 percent. Market promotion by the California Walnut
Commission demonstrated that a well-designed campaign can yield good dividends
in market share and absolute quantities.
Although there is a market of more than $13 million for pistachios,
Israeli importers consider U.S. pistachio varieties which have been tried on
the local market to be inferior. They
claim they do not suit local taste which tends more to the Persian and Turkish
varieties. Recent tasting tests indicate
that the California pistachio is quite acceptable to the Israeli palate and if
properly promoted could capture a portion of the market presently dominated by
Iranian nuts, which Israeli law bans from entering the country. In 1997 and 1998 the Israeli Customs
Authority began a systematic check of country of origin of all pistachios. Nuts discovered to have Iranian origin were
not granted entry. This treatment,
combined with a poor crop year in Iran, opened the market to U.S.
pistachios. In the first half of 1998
the U.S. provided some 40 percent of total imports. With appropriate market development
activities, U.S. market share could grow significantly. (Metric tons, shelled basis) 1997 1998
1999 Total Domestic Market 15,500 15,500 15,000 Total Local Production 2,000
2,100 2,000 Total Exports 1,100 1,000 1,000 Total Imports 14,000 13,000 14,000 Imports from the U.S. 7,000
8,000 7,500 The above statistics are
unofficial estimates. High Quality Beef Late in 1993 the GOI
relinquished its monopoly on the importation of almost all types of meat. At present, beef and lamb imports are in the
hands of the private sector. By law, all imported meat and meat products must
meet the kosher requirements of the Chief Rabbinate of Israel, including fresh
and chilled meat. Estimates place the
potential of this market at several thousand tons, once it is properly
developed. However primary demand,
possibly as much as 70 or 80 percent of the total, is for kosher beef. The urrent governmental ban on all imports,
of non-kosher meat is in violation of Israel’s national treatment obligation
under the WTO and U.S.-Israel FTAA.
Provided the necessary changes of the laws governing beef occur, the
market for imported non-kosher, high quality beef could develop into three to
five thousand tons within a few years.
Price will play an important role in determining the size of the U.S.
market share, although studies indicate that the Israeli consumer appreciates
quality and is willing to pay up to ten percent more for a high quality
product. In any case, there is need for
an investment in market development to educate the public which has been
exposed for many years to inferior beef from South America. Israel continues to receive the majority of
its supply from that region. The market
for kosher U.S. beef is estimated at 10,000 mt.
With proper market development and sales promotion this figure could
double. In the wake of the BSE (Mad
Cow) crisis, the Israel Veterinary Service bans all imports of target organs,
which include central nervous system and spinal column, including the brain,
lymph glands, spleen and, recently, bones from all countries which do not
legislate the prohibition of use of protein meal and flour of animal origin in
livestock feeds. U.S. beef is licensed
for bone-in sales but products from the central nervous system are still
banned. (Thousands of metric tons) 1997 1998 1999 Total Domestic Market 110
110 115 Total Local Production 55 50 50 Total Exports
0 0 0 Total Imports
55 60 65 Imports from the U.S. 5 5 7 The above statistics are
unofficial estimates and include offal. In most of 1997 only offal
was imported from the U.S. In 1998 less
than 500 mt of kosher beef can be expected to be shipped unless additional
plants indicate a willingness to produce kosher beef and beef products
according to Israeli specifications. No
plants conducting kosher slaughter are approved by the Israel Veterinary
Services to export their products to Israel. Significant Investment
Opportunities 1 - Independent Power Producers (IPPs) According to GOI plans, IPPs
will constitute up to 20 percent of Israel’s electricity production capacity by
the year 2005. The first IPP tender,
issued by the Israel Electric Corporation (IEC) for a 370MW gas turbine-combined
cycle plant was awarded in July 1998.
The Ministry of Natinal Infrastructures (MNI) has tasked a foreign
consulting engineering company with the preparation of a second IPP project of
similar scope and technology, which the MNI plans to issue as an international
BOO tender in the first half of 1999.
The MNI recently mentioned the possibility of developing of a third IPP,
which would bring the generating capacity of IPP’s open to foreign competition
to more than 1,100 MW. 2 - Hotels Tourism is one of the most
viable and fastest developing sectors of the Israeli economy, offering
opportunities for investments in hotels and hotel infrastructure. Total revenues of the industry from incoming
tourism in 1995 amounted to $3.1 billion, of which $600 million were from hotel
services. After the Madrid Peace
Conference in November 1991 and until the first quarter of 1995, incoming
tourism showed an upward trend, averaging an annual increase of 12 percent. Since then, a number of serious terrorist
incidents in Israel and the region, and the rising tensions from the stalled
peace process have led to a decline in incoming tourism in Israel. Existing hotel facilities
are limited. The number of rooms in 1995
was 35,000. According to forecasts,
Israel will require an additional 57,000 hotel rooms by the year 2006. Under the Law for the Encouragement of
Capital Investments, tax benefits and financial incentives are available for
investments in hotels and other accommodation facilities, recreation sites and
certain other tourist attractions that meet specified criteria for Approved
Enterprise status. (See Chapter VII -
Investment Climate) INTERNATIONAL COPYRIGHT,
U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE,
1998. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES <NREC>Israel06 Israel:
Trade Regulations & Standards <A>=Israel VI. TRADE REGULATIONS AND
STANDARDS Trade Barriers Israel is a signatory of the
GATT-Uruguay Round Agreement which created the World Trade Organization
(WTO). As such, its government has
agreed to replace non-tariff barriers with equivalent duties which are to be
reduced over time. In the United
States-Israel Free Trade Area Agreement (FTAA), signed in 1985, both parties
agreed to remove all tariffs by January 1995 while allowing non-tariff
protection for sensitive agricultural products which are subject to
agricultural policy considerations.
According to the U.S. government, the combination of the FTAA and the
WTO agreements requires Israel to open its market completely to U.S. products. The GOI argues that since both the FTAA and
the WTO Agreement allow each economy to protect its sensitive products from
undue competition, it is necessary to renegotiate the U.S.-Israel agreement to
take the WTO requirements into account while not leaving Israeli agriculture
without some degree of protection. An interim solution to the
impasse was negotiated in late 1995, when a five year framework agreement was
developed, wherein Israel undertook to grant U.S. food and agricultural
products gradual, continuously improving access to its markets. The agreement is to be renegotiated in the
year 2000. The result of the framework
agreement is that total bans and limited quotas which existed at the end of
1995 were replaced by Tariff Rate Quotas (TRQs) and duties or fees which
provide U.S. products with at least a ten percent advantage over Most Favored
Nation (MFN) tariffs. The U.S.
preference is scheduled to improve annually by varying proportions, depending
on the sensitivity of the product. The consequence of this
arrangement is that fresh fruits and vegetables, and a number of other
agricultural products, of which the import had traditionally been totally
banned, may now be imported with payment of significant duties. Beginning in 1996 U.S. apples and pears as
well as a variety of frozen berries and other fruits have found a willing
market among Israeli consumers. Because agricultural rules
of the Israel-U.S. FTAA allow imposition of fees and levies but not duties, the
Israel Customs Tariff shows all agricultural products of U.S. origin as being
exempt from duty. However, a separate
order indicates the fees and levies imposed on imports from the U.S., many of
them exceeding 100 percent. Similar to locally produced
goods, imports, including those from the U.S. are subject to a 17 percent Value
Added Tax (VAT) and, for some products, purchase taxes. In the case of food, beverages and tobacco,
purchase tax is imposed almost exclusively on alcohol and alcoholic beverages,
excluding table wine, and on cigarettes.
“Fees” on wine were reduced from 70 percent in January, 1996, to 50
percent when the agreement was signed.
They fall by two percent annually to 40 percent in the year 2001. See below the section on Tama, the factor
used to inflate the base value on which purchase taxes are imposed. Customs Valuation Since January 1998 Israel
has implemented the Customs Valuation principles of the WTO code. Under the new regulations, the basis for
valuation is the Transaction Value, in most cases the CIF price. With the implementation of the new system,
the Harama (uplift in Hebrew) practice was eliminated. The Harama, which allowed an arbitrary
uplifting of the CIF basis by 2-10 percent to arrive at a Regular Price, had
been strongly criticized by the U.S. Government as being contradictory to FTAA
principles. Israel levies a 17 percent
VAT on virtually all products sold in Israel, including imports. The VAT is levied on the CIF landed cost plus
purchase tax. VAT is recovered by the
importer upon resale of the goods and is ultimately paid by the consumer on the
basis of the retail price. Israel levies purchase tax
on some products, primarily luxury and consumer items. Calculation of the tax is based on the
wholesale price of domestic products and on the CIF landed value plus
"Tama" (the Hebrew acronym for "additional rate of
increase") on imports. Tama was
designed to artificially raise the declared value of an imported product for
purposes of calculating purchase taxes.
The Tama system results in higher taxation on imported goods than on
domestic products. The U.S. and Israel
Governments have agreed upon an "Optional Tama track", under which a
U.S. exporter can declare the real wholesale price of a product for the
calculation of purchase tax. The
purchase tax is then applied to the adjusted price. Interested U.S. companies should contact the
U.S. Department of Commerce’s Israel Desk for further information on this
system. Import Licenses All import licensing
requirements for U.S.-made consumer and industrial goods have been eliminated
under the FTAA, including for most food and agricultural products. However, in the case of products for which
there is a TRQ, the Ministry of Agriculture or the Ministry of Industry and
Trade issues a license exempting the bearer from duty on the quantity indicated
in the license. Importers wishing to
bring in goods without availing themselves of the TRQ are not required to
obtain a license except for veterinary or phytosanitary purposes, or from the Food Control Administration of the
Ministry of Health. For information on entry
procedures and requirements for food direct inquiries to Ministry of Health,
Food Control Administration, 12-14 Ha’arba’a St., Tel Aviv 64 739, Israel; tel:
972-3-563 4781, fax: 972-3-562 5769. Under the United
States-Israel FTAA, all remaining duties imposed on U.S.-made products were
eliminated on January 1, 1995. As Israel
also maintains FTAA's with the EU and EFTA, U.S.-origin products compete on a
par with most European goods and have a substantial market access advantage
over suppliers from Japan and other countries of the Far East. As Israel's FTAA with the EU does not include
agriculture, the duties paid on food items of European origin partially offset
the increased transportation expenses which add to the cost of U.S.
products. (See "Membership in Free
Trade Agreements" below.) Although import duties have
been eliminated for U.S. imports into Israel, they are still subject to VAT
and, for some products, purchase taxes as described below. Licensing Procedures for
Medical Equipment Licensing of imported and
locally manufactured medical devices and equipment is subject to enforcement
according to a Ministry of Health directive which went into effect on January
1, 1995. Companies interested in exporting
medical equipment or devices to Israel should first request a letter of
acceptance from the Ministry of Health in accordance with the export provisions
contained in Section 801(e) of the U.S. Federal Food, Drug & Cosmetic
(FD&C) Act. The request should be
accompanied by one of the following documents: - 510(k), - Pre-Market Approval (PMA),
or - Investigational Device
Exemption (IDE). Because the Ministry of
Health uses FDS standards and ECRI nomenclature for the purpose of issuing
licenses, the licensing procedures for American-made medical equipment are
facilitated. Implantable medical devices
require mandatory labeling in the patient’s file for tracking and surveillance
purposes. The labels must contain the
following information: - Name and address of the
manufacturer - Name and address of the
importer - Type of implant - Sub-type of implant - Size - Serial number - Batch number - Reused implant - Medication element needed The registration authority
is: Ministry of Health Pharmaceutical Division Medical Device Department P.O.B. 1176 Jerusalem 91010 Tel: 972-2-568 1216, 568
1217 Fax: 972-2-572 5827 Export Controls Israel maintains very few
export controls. Those that do exist are
primarily targeted against internationally controlled substances and/or
designed to protect national security. Israel is adherent to the
MTCR and maintains export controls on a variety of military and sensitive
technologies destined for certain proscribed countries. U.S. export licenses are required for exports
to Israel of certain high-technology, defense equipment/technologies and
weapons for chemical/biological warfare.
U.S. exporters should ensure that they are in compliance with the export
control regulations as administered through the U.S. Department of Commerce,
Bureau of Export Administration and U.S. Department of State, Office of Defense
Trade Controls. Import/Export
Documentation Shipping documentation U.S. exporters to Israel
must follow U.S. Government requirements regarding export control
documentation. The Israeli Customs
Services prefer that exporters use their own commercial invoice forms
containing all required information including name and address of supplier,
general nature of the goods, country of origin of the goods, name and address
of the customer in Israel, name of the agent in Israel, terms, rate of exchange
(if applicable), Israel import license number (if applicable), shipping
information, and a full description of all goods in the shipment including
shipping marks, quantity or measure, composition of goods (by percentage if
mixed), tariff heading number, gross weight of each package, net weight of each
package, total weight of shipment, price per unit as sold, and total value of
shipment. The total value of the
shipment includes packing, shipping, dock and agency fees, and insurance
charges incurred in the exportation of the goods to Israel. The commercial invoice must be signed by the
manufacturer, consignor, owner, or authorized agent. U.S. exporters should also double-check with
their freight forwarder, shipping company or importer what other documentation,
including bill of lading and packing list, is required. U.S. Certificates of Origin
for Exporting to Israel In order to benefit from the
provisions of the FTAA, a special "U.S. Certificate of Origin for
Exporting to Israel" (CO) must be presented to Israel Customs. The certificate does not need to be notarized
or stamped by a Chamber of Commerce if the exporter is also the
manufacturer. Instead, the exporter
should make the following declaration in box 11 of the certificate: "The undersigned hereby
declares that he is the producer of the goods covered by this certificate and that
they comply with the origin requirements specified for those goods in the
U.S.-Israel Free Trade Area Agreement for goods exported to Israel". The actual forms are printed
by a number of commercial printing houses in the U.S. For further information on how to obtain
them, U.S. exporters may wish to contact the U.S. Department of Commerce Israel
Desk Officer. It is possible for exporters
to apply for a blanket CO, or "Approved Exporter" status. An "approved exporter" is only
required to present an invoice which substitutes for the CO, and which contains
an "approved exporter" number and a declaration that the goods comply
with the origin requirements.
Certification and notarization are not necessary. Authorization Procedures for
"Approved Exporter" Status a) A manufacturer or exporter who wishes to
become an "Approved Exporter" should complete a declaratory form and
present it to the Export Department, Israel Customs Services, 32 Agron Street,
P.O. Box 320, Jerusalem. Potential
candidates are U.S. firms with total annual exports to Israel of at least $20
million who have a clean record with the Israel Customs Services. b) Israel Customs will
examine whether the manufacturer or exporter complies with the criteria and
grant approval for "Approved Exporter" status. The approved exporter will be given an
identity number to be stamped on all invoices.
The approval is valid for six months, after which the exporter should
receive an automatic extension from Israel Customs. If the exporter does not receive an extension
notice he/she must terminate use of the approval. Compliance Procedures for
Approved Exporters a) The "Approved
Exporter" should stamp the invoice with his/her identity number and add
the following declaration: "The undersigned hereby
declares that the goods listed in this invoice were prepared in the U.S. and
they comply with the origin requirements specified for those goods in the
U.S.-Israel Free Trade Area Agreement for goods exported to Israel." b) For shipments of mixed
goods, separate invoices must be prepared for goods which do not comply with
origin requirements and/or for which approval to operate as an "Approved
Exporter" has not been granted. Temporary Entry Temporary entry of U.S.-made
goods may be effected either with an "ATA Carnet" issued by a U.S.
Chamber of Commerce, or through payment of a deposit, reimbursable upon
re-export. Labeling/Marking
Requirements Israel has strict marking
and labeling requirements which frequently differ from those of other
countries. It is recommended that U.S.
exporters consult with their Israeli importer prior to shipping. All imports into Israel must
have a label indicating the country of origin, the name and address of the
producer, the name and address of the Israeli importer, the contents, and the
weight and volume in metric units. In
all instances, Hebrew must be used; English may be added provided the printed
letters are no larger than those in Hebrew.
Food products sold in Israel must be packaged according to standard
uniform weights and volumes, usually metric.
If not, the vendor must indicate the price per unit of weight or volume
on the product. Nutritional labeling is
compulsory on all packaged foods.
Specific information on these standards is available from the Director,
Department of Weights and Measures, Ministry of Industry and Trade, 30 Agron
Street, Jerusalem 94190; tel: 972-2-622 0601, fax: 972-2-560 5994. Marking should be done by
printing, engraving, stamping, or any other means, on the package or the goods
themselves. If marking is not possible,
a label should be well-sewn or stuck to the goods or package. Marking details should be clear, legible,
easy to trace, and in a different color from the background in order to be
clearly distinguishable. Printing dyes
and other marking materials should not affect merchandise quality. The marking should not be blurred. On a multi-layered package,
the external layer should be marked. If
the external layer is transparent the marking should be done underneath that
layer, provided it is still clear and legible.
On a package containing subpackages, the labeling should specify the
number of subpackages, the net content of a subpackage, and the overall net
weight of the package. An aerosol
container should indicate the net quantity weight unit for semi-solid or powder
products, and volume unit for liquids.
For products that tend to lose weight under regular marketing/commercial
conditions, the maximum quantity of expected depletion should be mentioned. Specific labeling
regulations apply to some consumer goods, paper products, handbags, musical
recordings, fertilizers, insecticides, chemicals, pharmaceuticals, some food
products, seeds, and alcoholic beverages.
In addition, special packaging requirements apply to fruit, plants and
meat. Outside and inside containers of
dangerous articles, such as poisons, insecticides, drugs, flammable goods,
ammunition, explosives, reptiles, insects, bacteria and radioactive materials
should be clearly marked. For
information on food labeling and packaging contact the Israel Ministry of
Health, Food Control Administration, 12-14 Ha’arba’a Street, Tel Aviv 61070;
tel: 972-3-563 4782, fax: 972-3-562 5769. Prohibited Imports Israel maintains
restrictions on imports of what the government considers to be economically
sensitive products subject to agricultural policy considerations. These are mainly high variable levies. U.S. meat exports face an
especially difficult environment due to the enactment of a complete ban on
non-kosher meat imports at the end of 1994.
The ban violates Israel’s national treatment obligations under the WTO
and U.S.-Israel FTAA. The U.S. continues
to consult Israel on this issue. The only other product
prohibitions are on internationally controlled substances and/or are designed
to protect public morals, human, animal or plant health, or national security. Standards It is the declared policy of
the GOI to adopt international standards wherever possible and to implement
mandatory standards related only to safety, health, and the environment. In practice, however, many products are still
subject to mandatory standards, some of which were designed to favor domestic
producers over importers. These local
standards often specify in terms of design rather than performance. The Standards Institution of
Israel (SII) is the agency responsible for the development of most product
standards, compliance testing, and certification of products and industry
quality assurance systems. For further
information, interested firms should contact the Standards Institution of
Israel, 42 Levanon Street, Tel Aviv 69977; tel: 972-3-646 5154, fax: 972-3-641
9683. Israel has not officially
adopted ISO-9000 standards, although there is a growing preference for ISO-9000
standard products among Israeli importers.
Also, many GOI procurements, notably for IEC and other GOI-owned companies
specify ISO-1000 or higher standards. Most imported food products
are subject to metric system size requirements which may exclude standard sizes
used by U.S. companies, thereby requiring them to package products especially
for export to Israel. The GOI
implemented unit-pricing standards in September, 1998, which should relieve
U.S. products from most of the weight and measure restrictions. Although the metric system is not mandatory
for other product areas, metric standards are preferred by Israeli importers as
non-conformity may affect marketability.
The electrical standard is 220V, 50Hz. The GOI requires that food
and health products be registered with the Ministry of Health before they can
be sold in the country. FDA approval for
food and healthcare products is not mandatory, but it is preferred by Israeli
importers as it accelerates the product registration process and import license
approval. Product registration normally
takes from 4-6 weeks if all documentation is in order. FDA approval of a product does not guarantee
its acceptance by the Israeli authorities. Free Trade Zones/Warehouses Israel has one free trade
zone, the Red Sea port city of Eilat. In
addition to the Eilat Free Trade Zone, there are three free ports: Haifa Port (including Kishon); the Port of
Ashdod; and the Port of Eilat. In May
1994 the Israeli parliament passed legislation authorizing the establishment of
Free Processing Zones (FPZ's). However,
by June 1998 no FPZ was operational.(See "VII. Investment Climate"
for further information.) The Israeli government has
plans to expand and upgrade the major ports of Haifa (in the north) and Ashdod
(in the south). There is good quality
warehousing in all of the major ports and trade zones, but current capacity is
inadequate in the face of growing demand. Special Import
Provisions There are no special import
provisions. Membership in Free
Trade Arrangements Israel has adopted a liberal
import policy, and has thus far concluded Free Trade Area Agreements (FTAAs)
with the European Union (EU), the United States, EFTA, Canada, the Czech
Republic, Slovakia, Hungary and Turkey. Israel signed its first FTAA
in 1975 with the EEC (now the EU) which was fully implemented by 1989. A second FTAA was concluded with the U.S. in
1985, under which all duties were eliminated on January 1, 1995. A third FTAA was signed in 1992 with the EFTA
countries, followed by agreements with Canada, Turkey, Hungary, Slovakia and
the Czech Republic. As part of the peace
treaty with Jordan a preferential trade agreement has been agreed upon. INTERNATIONAL COPYRIGHT,
U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE,
1998. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES <NREC>Israel07 Israel:
Investment Climate <A>=Israel VII. INVESTMENT CLIMATE Openness to Foreign
Investment The Israeli government
places a high priority on encouraging inward foreign investment. There are generally no restrictions for
foreign investors doing business in Israel,
except for parts of the defense industry that are closed to outside
investors on national security grounds.
Investments in regulated industries (e.g. banking or insurance) require
prior government approval. There are no
regulations regarding acquisitions, mergers, and takeovers that differ for
foreign investors. Foreign investors are
actively encouraged to participate in Israel's privatization program, although
the government is likely to require majority Israeli control over certain sectors,
such as air transport, shipping, and telecommunications. The Israeli government
offers incentives for investment in specified regions of the country and in
certain economic sectors, such as tourism and agriculture, to both residents
and foreign investors. All benefits
available to Israelis are also available to foreign investors, who in some
cases may enjoy more generous tax treatment than domestic investors. Details on the government's investment
incentives are provided below in the section on performance requirements and
incentives. Various international
agreements are in effect to finance research and development (R&D) jointly
with Israel on a national treatment basis.
The GOI actively encourages industrial research and development, and the
Office of the Chief Scientist at the Ministry of Industry and Trade offers
R&D grant incentives for a wide variety of projects. The Israel‑U.S. Binational Industrial
Research and Development Foundation (BIRD) promotes commercial cooperation in
R&D, and the United States‑Israel Science and Technology Commission
was established to foster the commercialization of technology in the two
countries. The Binational Agricultural
Research and Development Foundation (BARD) supports joint U.S.-Israel research
on agricultural topics of mutual interest to the two countries. Research is carried out jointly in the U.S.
and Israel by mixed research teams.
Specific R&D incentives are discussed in the Performance
Requirements and Incentives section. Right to Private
Ownership and Establishment The Israeli legal system
protects the right of both foreign and domestic entities to establish and own
business enterprises, as well as the right to engage in remunerative
activity. Private enterprises are free
to establish, acquire, and dispose of interests in business enterprises. As part of its current privatization efforts,
the Israeli government actively encourages foreign investment in privatizing
government‑owned entities. Both the Ministry of
Industry and Trade and the Ministry of Finance are concerned with fair trade,
and there is a law against unfair competition.
It is Israeli government policy to equalize competition between private
and public enterprises, although there are problems with competition because of
the existence of monopolies and oligopolies in several sectors in Israel. In some instances, private sector firms have
charged that their public sector competitors are unfairly advantaged by
government ownership. The courts are
reviewing this issue. In the case of
monopolies, defined as entities which supply more than 50 percent of the
market, prices are controlled by the government. Protection of
Property Rights Israel has a modern legal
system based on British mandatory and British case law. Effective means exist for enforcing property
and contractual rights. Courts are
independent; there is no government interference in the court system. Israeli civil procedures provide that
judgments of foreign courts may be accepted and enforced by the local courts. Secured interests in
property, both chattel and real, are recognized and enforced by the Israeli
judicial system. A recognized and
reliable system of recording such security interests exists. While Israel has a
legislative framework to ensure the protection of intellectual property rights
(IPR), enforcement is a problem, because of inadequate arrests, prosecutions,
convictions, penalties, and scarce policing resources. The U.S. Trade Representative, in recognition
of a serious increase in the illegal copying and distribution of audio CDs,
video cassettes and software, elevated Israel to the "priority watch
list" in the 1998 Special 301 Report. The GOI plans to address the
problems listed by the U.S. Trade Representative ‑‑ those of an old
statutory framework for copyright law and inadequate enforcement ‑‑
through IPR revisions in the areas of patents, copyrights, trademarks,
industrial designs, integrated circuits, and cable broadcasting. Progress in the committees convened to draft
new legislation is varied, with legislation nearly ready for introduction to
the Knesset, Israel's legislative body, in the area of design, trademarks, and
copyrights. All legislation will be
based on the guidelines of the World Intellectual Property Organization's
(WIPO) model legislation. In addition,
as a signatory of the GATT Uruguay Round and World Trade Organization (WTO)
agreements, including Trade in Intellectual Property and Services (TRIPS),
Israel has stated it will make the revisions necessary to meet all GATT TRIPS
requirements. Israel also intends to
establish a National Police unit, dedicated to IPR enforcement. Currently, there are
available to owners of rights the full range of criminal and administration
relief, including injunctive relief, damages, seizure and destruction of
infringing goods; provisional relief, customs border controls and criminal
and/or civil sanctions against infringers.
As noted, however, the low priority given to IPR enforcement by the
police means that IPR violators are often able to escape punishment. Israel adheres to the major multilateral IPR
agreements, including the Berne Convention for the Protection of Literary and
Artistic Works, the Paris Convention for the Protection of Industrial Property,
and the Geneva Phonograph Convention. Patents Patent protection is
available comprehensively, including product as well as process protection for
pharmaceuticals. Israel employs
compulsory licensing in limited circumstances: for medicines, for a dependent
patent (i.e., an earlier patent on which use of a later patent is dependent),
in case of abuse of monopoly, where the Arab boycott precludes use of the
patent, or where necessary to protect the public interest. Patent protection is provided for twenty
years from filing. Under the revised patent
law, which is expected to be introduced to the Knesset in 1998, compulsory
licensing for medical purposes is likely to be eliminated. The Embassy has received no recent complaints
by American businesses regarding compulsory licensing. Copyrights Israel's present copyright
law is based on the United Kingdom Copyright Act of 1911, with subsequent
amendments. Protection includes the
exclusive right to (a) copy or reproduce the work; (b) translate or otherwise
adapt the work; (c) distribute copies of the work; and (d) publicly communicate
the work. There is no explicit
protection for derivative works, but protection would be granted, provided the
derivative work includes sufficient elements of originality. At present, there is no
separate statutory protection for computer software, which is protected under
the general copyright law, as "literary works." Sound recordings are protected under the
present copyright act and an amendment to the copyright act has been enacted
into law, which provides for rental and leasing rights for sound recordings and
compensation to copyright holders for private copying onto blank
cassettes. Rental rights for software
will be included under the new draft copyright act, currently being prepared
for introduction to the Knesset by October or November of 1998. Trademarks Trademarks are protected
under the Trade Marks Ordinance, and appellations of origin are protected under
the Appellations of Origin (Protection) Law.
Reform legislation is pending but passage is not expected until late
1998 or early 1999. Trade Secrets There is no protection for
trade secrets under the rubric of intellectual property law in Israel. Trade secrets are classified as privileged
information under the Evidence and Civil Procedure Law, and the Penal Law provides
that an employee with express knowledge of a trade secret who reveals it may be
imprisoned for up to six months. In
addition, a tort action may be brought against an individual who divulges a
trade secret under Israeli tort law.
There is no limitation on the length of time for classifying an item as
a trade secret. The GOI is also
preparing legislation for introduction in 1998-1999 for the protection of trade
secrets. Integrated Circuits At present, there is no
protection for semi‑conductor chip design. The Microchip Topography Committee, operating
under the auspices of the Ministry of Justice, is drafting legislation that is
expected to meet all requirements of GATT‑TRIPS and the Washington treaty
on semi‑conductor chips. Cable Broadcast Law The proposed legislation
does not contain any compulsory licensing or mandatory arbitration
features. The draft law is still under
inter-ministerial review and enactment is not expected before late 1998 at the
earliest. Performance
Requirements and Incentives There are no universal
performance requirements for investors in Israel. However, performance requirements are
sometimes included in contracts with the government, particularly relating to
exports. Two basic laws provide the
framework for investment incentives in Israel: the Encouragement of Capital
Investments Law, 1959 (with subsequent amendments), and the Encouragement of
Industry (Taxes) Law, 1969. In addition,
there are the Encouragement of Industrial Research and Development Law, 1984,
and the Law for the Encouragement of Investments (Capital Intensive Companies),
1990. The Law for the Encouragement of
Investments expired December 31, 1997. Approved Enterprise Status Foreign investors do not
need government approval to invest in Israel.
To receive investment incentives from the Israeli government (detailed
below), however, such investors must apply for status as an approved enterprise. They are required to submit an application to
the Ministry of Industry and Trade, Investment Center, which identifies
physical and financial details of the projected investment; background
information on the investors; sources of financing; forecasts of sales,
operating results, cash flow, and "break-even point"; and projected
manpower requirements. Among the
criteria applied by the Investment Center in deciding whether to grant such
status is a legally-mandated cost-benefit test which evaluates the long-term
value of the project from the point of view of the Israeli economy. Government approval for the incentives
program is not given if investment in a proposed area is considered
saturated. Investors may be required to
disclose proprietary information in the application for approved status. Investors may apply for
either of two forms of investment incentives:
the grants option or the tax exemption option. Under each plan, the extent of the benefit is
determined by the geographic location of the investment. For purposes of investment support, Israel is
divided into three regions: national
priority area A (roughly speaking, the Negev desert and northern Galilee),
national priority area B (the western Galilee and certain areas between
Jerusalem and Ashdod), and the central region (generally, the coastal region
from Haifa to Ashkelon). Priority area A
receives the most generous treatment and the central region the least. Grants Option Benefits available under the
grants option include both direct government subsidization of the investment
(detailed below) and reduced tax rates.
The amount of the grant is based only on planned investment in fixed
assets, such as buildings and equipment, and at least 30 percent of the
investment must be financed by the investor's own equity. The investment project must be completed
within three years of the date of approval of the investment, and at least 25
percent of the project must be completed in the first year. The investment incentives
provided under the grants option include: a. Reduced
tax rates, as spelled out in Table A below, and accelerated depreciation, and b. Direct
grants, which depend on the type of project and its location in the country. Grants available, by type of
investment and region (in percent of amount
invested) Type of Priority Priority
Central Investment
Area A Area
B Region Industry (1)(2) 20 10 0 Hotels (1) 20 20 0 Other tourism 15 0 0 Notes: (1) In 1997 alone, industrial investments of less than NIS 160 million
(approximately $45 million) and hotels were eligible for investment grants of
24 percent in area A and 12 percent in area B.
These grant rates dropped to 20 percent and 10 percent, respectively, in
1998. (2) Beginning in 1997, approved industrial investments located in area A
were eligible, under the grants option, for a complete tax holiday of two years
and five additional years of reduced taxes, as detailed in Table A below. Tax Holiday Option The tax holiday option is
available to incorporated businesses only (subject to tax on corporate
income). The investment plan to be
submitted by the interested investor must include only fixed assets. The plan must be completed within three years
of the date of its approval, and at least 25 percent of the plan must be
completed within one year. The incentives available
under the tax holiday option include: a. Accelerated
depreciation, and b. A tax holiday on undistributed profits, as specified below. If a firm elects to distribute profits, it
will be liable for taxation at the rate at which it would have had to pay had
it not chosen the tax holiday option. Tax Holiday Option --
Benefits by Region Area A 10 years full tax holiday Area B 6 years full tax holiday plus
one year at reduced
tax rates shown in Table A. Central Region 2 years full tax holiday plus five years at reduced
tax rates shown in Table A. Table A: Tax Rates on Approved and Unapproved
Enterprises For approved enterprises
electing the grants option, the tax rates in the table are applicable for seven
consecutive years, or for ten years in the case of enterprises that are at
least 25% foreign-owned. Approved Enterprises by
Local/Foreign Ownership Unapproved Local 49-74%
74-90% 90-100% 1. Taxable Income 100 100 100 100 100 2. Corp. Tax Rate 36 25 20 15 10 3. Balance 64
75
80 85
90 4. Total Tax on 36 25 20 15
10 Undistr. Income 5. Tax on Dividends 16* 11.25
12 12.75 13.5 (15% of Balance) 6. Total Tax on Distr. Income 52.0 36.25 32.0
27.75 23.5 * - Tax on dividends
distributed to individuals or companies abroad.
Dividends paid to Israeli companies are untaxed. Research and
Development The Israeli Government is
particularly interested in research and development (R&D) and provides
grants of up to 66 percent of approved R&D expenditures through the
Ministry of Industry and Trade's Office of the Chief Scientist (OCS). This is a highly active office, providing
most of the R&D monies spent to develop Israel's infrastructure ($350-$400
million annually). Its grants take
various forms, from the 66 percent available to start‑up companies, to
the 60 percent for those investing in Development Area "A", to the 50
percent for standard R&D projects, to the 20 percent available for foreign
subcontractors. There are also specific
tax benefits and credits available for R&D investors. Overhead expenses are provided for as an
agreed‑upon percentage of direct R&D expenditure, usually around 45
percent of sanctioned gross salaries. If
a grant‑supported R&D project results in a commercial project,
repayment of the grant is usually stipulated, generally through royalty pay
backs at a set rate. Repayment is not
required for projects that do not achieve commercialization. For joint ventures between
Israeli and American firms, research funding is also available through the
Israel‑U.S. Bilateral Industrial Research and Development Fund
(BIRD). BIRD funding is in the form of
conditional grants of up to 50 percent of approved R&D costs over a two‑
to three‑year period. These grants
are repayable if a project earns revenues, at an agreed‑upon rate of
gross sales. Total repayment does not
exceed 150 percent of the grant. Because
BIRD encourages R&D projects, it tends to more readily support new programs
than the private sector. The U.S.‑Israel Science and Technology
Commission established in 1994 also has the objective of commercializing
technology through joint ventures. "Capital
Intensive" Investments. In 1990, the Israeli parliament
passed the Law for the Encouragement of Investments (Capital Intensive
Companies), providing further tax benefits for investors qualifying as
"capital intensive companies."
A company may be qualified as a "capital intensive company" by
the Minister of Finance if: a) It has paid up capital of no less than $30 million, of which at
least 75 percent is channeled into qualifying activities; b) Share ownership is restricted to non‑residents; and c) The aim of the company is to either a) conduct business in Israel
in areas of activity which have been designated as "qualifying
activities"; or b) invest in Israeli companies whose primary activities
are "qualifying activities." "Qualifying
activities" include the establishment or expansion of businesses in areas
such as industry, agriculture, tourism, transportation, construction, water,
energy, communications, computers, etc. Benefits to the company
include: a) Real capital gains from the sale of shares or fixed assets
(including real estate) which were used in qualifying activities are taxed at
the rate of 25 percent, lower than the standard rate of taxation for
businesses. b) Revenue income of the company derived from these activities is
taxed at 25 percent. c) Revenue income which the company derives from dividends paid from
a "qualified investment" is taxed at 15 percent. U.S. investors interested in
learning more about Israel's system of investment incentives are encouraged to
refer to: Investment Center Ministry of Industry and Trade 30 Agron St. Jerusalem 94190 Tel: 972-2-622-0220 Fax: 972-2-624-5110 http://www.israel-industry-trade.gov.il Transparency of the
Regulatory System Problems with competition
are evident in Israel, although it is government policy to encourage increased
competition through market liberalization and deregulation. Tax, labor, health, and safety laws are
frequently an impediment to the foreign investor in Israel, mostly because of
high levels of regulation. Although
there is a current trend towards deregulation, Israel's bureaucracy can still
be difficult to navigate, especially for the foreign investor unfamiliar with
the system. It is important that
potential investors get approvals or other commitments made by regulatory
officials in writing before proceeding, rather than relying on unofficial oral
promises. Corruption While some Israeli
politicians have been indicted in recent years on charges of improper use of
campaign donations, corruption is not generally regarded as a serious problem
in the Israeli business environment, and should not, as a rule, pose a problem
for the foreign investor. Labor Israel's civilian labor
force numbered 2.2 million at the end of 1997 (excluding Palestinians from the
West Bank and Gaza and short-term foreign workers, mostly from East Asia and
Eastern Europe). Highly skilled and well‑educated,
the Israeli labor force continues to be a major asset to the economy. Those working in professional, technical,
scientific, and academic positions account for 25 percent of the
workforce. Skilled workers make up
another 24 percent. Approximately 38
percent of the workforce have more than 13 years of education and over 17
percent have 16 or more years of education.
More than 30 percent of university students specialize in fields with
high industrial R&D potential ‑‑engineering,
mathematics, physical sciences, and medicine.
The rapid growth of Israel's high-tech industries in recent years has
increased the demand for workers with specialized skills; such workers are in
short supply, and their salary levels are rising accordingly. The Israeli labor market has
also successfully absorbed a significant portion of the roughly 750,000
immigrants who have arrived since 1989.
Among them are well-trained scientists, physicians, and academics from
the former Soviet Union. Such workers
can be expected to play a greater role in boosting the performance of the
Israeli economy in the coming years. In the past few years, the
number of Palestinian day laborers from the West Bank and Gaza has dropped
sharply, as Israel has turned increasingly to short-term contract workers,
mostly from East Asia and Eastern Europe, to work in such fields as agriculture
and construction. Most Israeli workers are
organized by the national labor federation, the Histadrut. The fundamental changes in the Histadrut
first instituted in 1994 are continuing: a new leadership has moved to
drastically reshape the labor federation, reducing its staff and narrowing its
focus. No longer linked to the nation’s
health care system, and having divested itself of a number of assets, the
Histadrut plans to concentrate on its core trade-union activities and the
provision of services related to employment.
In addition, the organization will expand to include small businesses
and factories, including those in which collective bargaining agreements do not
presently exist. Collective bargaining
negotiations in the public sector take place between the Histadrut and the
Ministry of Finance, representing the government. In the private sector, negotiations at the
national level between the Histadrut and the Employers Association are
supplemented by local negotiations to finalize details. Strikes and workers' sanctions in the private
sector are relatively rare, but occur more frequently in government‑owned
enterprises, including the defense industry.
The government and Histadrut cooperate to ensure the protection of
worker rights as defined by the International Labor Organization (ILO). The Histadrut opposes the privatization of
essential industries and those of strategic importance; it has accepted
privatization of other concerns on the condition that workers rights are
protected and labor agreements secured for a period of time. Israel strictly observes the
Friday afternoon to Saturday afternoon Sabbath, and special permits must be
obtained from the government authorizing Sabbath employment. At the age of 18, most Israelis are required
to perform 2‑3 years of national service.
Until age 50, Israeli males are required to perform 30‑50 days of
military reserve duty annually, during which time they are compensated by the
National Insurance Institution. Efficient Capital
Markets and Portfolio Investment Israel actively seeks
foreign participation in its domestic capital markets. Credit is allocated on market terms. Various credit instruments are available to
the private sector, and foreign investors can receive credit on the local
market. Legal, regulatory, and
accounting systems are transparent and conform with international norms,
although the prevalence of inflation-adjusting accounting means that there are
differences from U.S. accounting principles.
The regulatory framework for portfolio investment is currently being
tightened in light of rapid growth of non-trading scandals. The government hopes to provide a more
effective regulatory environment and supervision to help encourage continued
expansion of capital markets in a competitive and fair atmosphere. The Israeli banking system
is financially sound, although the bank supervisory authorities have taken
steps to limit its exposure to the construction industry, while also expressing
concern over the risks involved in the growing use of foreign
currency-denominated loans by private borrowers. As a result of a 1983 crisis in bank shares,
the government owns the majority of shares of the country's leading banks. A program to privatize the banks is underway. Three large banks -- Bank Hapoalim, Bank
Leumi, and Israel Discount Bank -- dominate Israel's capital markets,
controlling well over 80 percent of industry assets. The government is currently undertaking a
comprehensive bank reform to enhance competition and improve regulation of the banking
industry. As of the end of 1996, the
total assets of Israel's five major banks amounted to an estimated $138
billion. Most Israeli firms are not
publicly traded and many of the dominant firms that are traded publicly are
controlled through integrated holding companies. In the case of publicly traded firms where
ownership is widely dispersed, the practice of "cross-shareholding"
and "stable shareholder" arrangements to prevent mergers and
acquisitions is common, but not directed in particular at preventing potential
foreign investment. Hostile takeovers
are a virtually unknown phenomenon in Israel, given the high concentration of
ownership of most firms. Israel has no laws or
regulations regarding the adoption by private firms of articles of
incorporation or association which limit or prohibit foreign investment,
participation, or control. No practices
exist in which private firms restrict foreign investment participation or
control in/of domestic enterprises. Conversion and
Transfer Policies In 1998, Israel abolished
most of its remaining controls on foreign exchange, save only for limits on
Israeli institutional investors holdings of foreign securities and foreigners
access to certain hedging instruments.
Nonetheless, despite the virtual elimination of exchange controls, foreign
exchange transactions must still be reported to the central bank. Foreign residents and recent immigrants can
maintain unrestricted, freely transferable accounts (called "Patakh"
nonresident accounts) with Israeli commercial banks. Once the "Patakh" account is
established, foreign investors can open a shekel account which allows them to
invest freely in Israeli companies and securities. These shekel accounts are fully convertible
into foreign exchange. Most transactions are
conditional upon their performance being carried out through an authorized
dealer. An authorized dealer is a
banking institution licensed to arrange, inter alia, foreign currency
transactions for its clients. The
authorized dealer operates in accordance with the procedural instructions of
the Comptroller of Foreign Exchange and the operations of authorized dealers
are subject to the directives of the Supervisor of Banks. Expropriation and
Compensation There have been no
expropriatory actions affecting U.S.-owned businesses in Israel in the recent
past. Public authorities rarely
expropriate land, although they will do so in the near future, with
compensation, for the construction of a new North-South highway which will run
through the central part of the country.
Property would only be expropriated if the possibility had been
indicated in a contract or as a result of a court order. Such an event remains unlikely, but, if it
should occur, adequate payment, with interest from day of expropriation until
final payment, is prescribed by law. Dispute Settlement In recent years, there has
been one significant investment dispute involving three U.S. construction
firms. The cases concern compensation
for housing construction contracts canceled by the GOI. The companies negotiated a compensation
package with the Israeli government only to have those packages withdrawn by
the government. Two of the companies
have filed suit in the Israeli court system while the other has not yet made a
legal claim. One of the two lawsuits has
been settled. Israel has a written and
consistently applied commercial law based on the British Companies Act of 1948
as amended over time. The GOI is
currently modernizing this law through legislation. Israel's commercial law contains standard
provisions governing company bankruptcy and liquidation. Personal bankruptcy is covered by a separate
bankruptcy ordinance. Monetary
judgements are always awarded in local currency. The GOI accepts binding
international arbitration of investment disputes between foreign investors and
the State. Israel is a member of the
International Center for the Settlement of Investment Disputes (ICSID) and the
New York Convention of 1958 on the Recognition and Enforcement of Foreign
Arbitral Awards. Political Violence Israel is a parliamentary
democracy with a relatively stable domestic environment. The smooth transition in government following
the tragic assassination of Prime Minister Rabin in 1995 underlined the
strength and continuity of Israel’s democratic traditions. Nonetheless, the unresolved conflict between
Israel and the Palestinians, now under negotiation, means that the potential
for politically-inspired violence and terrorism still exists. U.S. citizens are urged to use caution in
their travels within Israel, particularly with respect to the use of public
transportation, since buses have been a frequent target of terrorist violence
in recent years. Israel has signed peace
treaties with Egypt (1979) and Jordan (1994), and its borders with those two
countries are open. The lack of similar
agreements with Lebanon and Syria means that those borders remain closed, and
the potential for violent incidents remains. Bilateral Investment
Agreements Israel has bilateral
investment agreements with Bulgaria, Estonia, France, Germany, Hungary, Latvia,
Lithuania, Poland, Romania, and Ukraine.
It is currently negotiating agreements with Albania, Argentina, Armenia,
Belarus, Belgium, Britain, Canada, China, Columbia, Cyprus, Czech Republic,
Georgia, Greece, India, Italy, Kyrgyzstan, Malta, Mexico, Moldova, Peru,
Portugal, Russia, Slovenia, Switzerland, Turkey, Turkmenistan, and
Uzbekistan. Other bilateral investment
agreements are being investigated as Israel continues to develop diplomatic
relations with more nations. OPIC and Other
Investment Insurance Programs OPIC offers a full range of
programs in Israel and currently insures American direct investment in Israel
against political risk. OPIC is also
active in financing projects sponsored by U.S. investors in Israel. Israel is a member of the Multilateral
Investment Guarantee Agency (MIGA). Foreign Investment
Statistics Foreign investment in Israel
hit a new peak of $3.4 billion in 1997, well above the few hundreds of millions
of dollars that used to be the norm. In
the past, outside investors shied away from Israel because of several
factors: high inflation until the
mid-1980s, frequent changes in rules and regulations, and government
intervention in the economy. Other
factors influencing investors included questions about political risk and the
Arab boycott. Such concerns still play a
role, although considerably diminished in recent years as the peace process has
reduced Israel's international isolation and improved its credit rating. In the past few years,
Israel has more actively pursued and encouraged foreign investment,
particularly because of the important role such investment plays in creating
jobs for new immigrants, a primary consideration for Israel. Moreover, the ongoing peace process has
opened Israel to more trade and investment with countries formerly reluctant to
do business with it. In addition, the
rapid development of Israel’s high-tech industries in recent years has attracted
significant new flows of foreign capital.
As a result, net foreign investment (inflows less outflows) in Israel
has risen sharply over the past few years:
from a total of $505 million in 1992 to some $3.4 billion in 1997, as
noted below. The stock of foreign direct
investment in Israel totalled an estimated $7.4 billion as of the end of
1997. In addition, foreign investors
held $2.1 billion in securities traded on the Tel-Aviv Stock Exchange and $9.0
billion in the shares of Israeli companies traded on foreign stock markets. Foreign Investment Flows (in
millions of dollars) 1994 1995 1996 1997 A. Investment by Foreigners in Israel Direct - Net 415 1516 2030 2569 --Inflows 645 1766 2375 3249 --Outflows 230 250 345 680 Securities - Net 183 386 331 712 --Inflows 991 1752 1831 4373 --Outflows 807 1365 1500 3659 Other - Net 28 17 83 125 Total 626 1912 2355 3406 B. Investment by Israelis Abroad Direct - Net 735 646 743 670 New 765
759 1041 1015 Repatriations 29 113 299 345 Securities - Net -303 -15 -76 150 New 736
754 1948 1328 Repatriations 1039 769 2024 1178 Total 433 673 682 520 Source: Bank of Israel, Annual Report 1996. INTERNATIONAL COPYRIGHT,
U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE,
1998. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES <NREC>Israel08 Israel:
Trade and Project Financing <A>=Israel VIII. TRADE AND PROJECT FINANCING Brief Description of Banking System Israel has a modern and
sophisticated banking system, based on the European "universal"
banking model. The government currently
owns, and is in the process of privatizing, several of Israel's largest banks,
as the result of a bank shares crisis in the early 1980's. Despite its ownership, the government does
not interfere in the day-to-day management of the banks. Most types of loans and project financing
traditionally available in industrialized countries are available in
Israel. (Also see "VII. Investment
Climate, Capital Outflow Policy".) Foreign Exchange
Controls Affecting Trade Israel does maintain foreign
currency controls. Residents, including
companies that conduct business in Israel, may purchase foreign currency for
routine trade transactions but may not transfer capital abroad or hold foreign
assets without permits from the Comptroller of Foreign Exchange of the Bank of
Israel. Two types of permit are
available. The "general
permit" authorizes Israeli residents or non-residents to conduct current
transactions in foreign currency and with foreign residents through an
authorized dealer, or most commercial banks.
Specific permission for individual transactions is not required upon
receipt of this permit. Included in this
permit are normal commercial transactions for the import and export of merchandise
and the receiving or granting of normal credit associated with these
transactions. Non-residents must open a
non-resident (patah) account with a commercial bank to which the foreign
currency from abroad can be transferred.
A "specific permit" is required for non-routine transactions,
such as establishing a subsidiary or a branch in a foreign country. General Financing
Availability There is no scarcity of
capital or trade financing in Israel.
There are no unusual rules or regulations concerning export financing,
apart from the foreign currency regulations noted above. Loans at market interest rates are available
from commercial banks to finance the manufacture of exports including the
imports of raw materials and components for export products. Loan terms vary depending upon the raw
material requirements, cost of conversion and collection timeframe. Export Finance/Methods of
Payment Israeli business people have
a reputation for reliability and for making quick and on-time payments for
goods and services. In many cases,
including the purchase of agricultural commodities, payments are made without
any recourse to financing. However, as
there are always exceptions to the rule, U.S. businesses should take common
precautionary measures when doing business in Israel. The most common method of
payment is by Letter of Credit (L/C).
Collection without a L/C is not unusual, however. Cash Against Documents (CAD) is the most
common mechanism preferred by Israeli importers. Since there is no guarantee of payment, as
there is in a L/C transaction, some exporters prefer to collect an advance
payment, or an irrevocable bank guarantee on a certain portion of the
sale. This practice is appropriate and
recommended when there is no past relationship and experience with the
buyer. A combination of L/C and CAD
issued for the same Bill of Lading is also acceptable to most local banks. When substantial investment
and engineering (as required for custom-made products) are involved, it is not
unusual for exporters to demand advance payment of a certain portion of the
selling price. The Bank of Israel
authorizes advance payment of up to 35 percent or $200,000, whichever is lower. The $200,000 limitation does not exist for
import of equipment. Payment schedules vary. For raw materials, components and
semi-finished goods, credit is usually limited to 60 days. For equipment and machinery more extended
schedules range from six months to two years. The local banking system
provides sources of short and long-term credit and access to venture
capital. Due to the relatively high
interest rates for local currency loans, many importers prefer to seek U.S.
Export-Import (ExIm) Bank financing. The
ExIm Bank has most of the leading Israeli banks as correspondents and may
supplement private sources of export financing with medium and long-term
loans. Export Financing and
Insurance Export financing and
insurance for trade with Israel is available through commercial sources, from
City/State-sponsored export financing and loan guarantee programs, and from the
Small Business Administration (SBA) in cooperation with the ExIm Bank, which
can provide U.S. exporters with export credit insurance, pre-export financing
and working capital guarantees. The ExIm
Bank can also provide Israeli buyers with fixed-rate financing for their
purchases from U.S. exporters. The ExIm
Bank's Environmental Export Insurance Policy provides enhanced short-term
insurance for medium and long-term loans and guarantees for environmental
exports, projects and services. No
special credit instruments are available to U.S. exporters of agricultural
commodities, nor does Israel receive PL-480 or similar program commodity
grants. Project Financing There are several
U.S.-Israeli Government funded organizations which provide financing for joint
U.S.-Israeli R&D and research projects.
These include: the U.S.-Israel Science and Technology Commission and the
BIRD Foundation which finance commercially viable R&D projects in selected high-tech
areas; the BARD Foundation which finances agricultural R&D; and the
Binational Science Foundation which finances joint research projects. The U.S. Overseas Private
Investment Corporation (OPIC) provides medium and long-term financing and
investment insurance for projects in Israel.
Direct loans are available to projects sponsored by U.S. small businesses. For larger projects, OPIC will guarantee
loans to projects sponsored by U.S. investors, starting at $2 million per
project. OPIC can also provide fee-based
feasibility studies to companies considering overseas investments. ExIm Bank provides project
finance through its Project Finance Division, established in June, 1994. Upon completion of a favorable evaluation,
within 45 days from the commencement of the evaluation by the Bank and a
contracted financial consultant, a preliminary project letter will be issued
indicating the bank's willingness to move forward on the financing offer. For more information on financing
opportunities, interested U.S. companies should contact these organizations
directly. ("Appendix C: U.S. and Country Contacts". Also see
"VII. Investment Climate" for other investment financing
opportunities and incentives.) Correspondent Banking
Arrangements Israel's three leading banks
- Bank Leumi, Bank Hapoalim, and the Israel Discount Bank -, as well as the
Mizrahi Bank and the First International Bank of Israel, maintain correspondent
relationships with major U.S. banks and have their own subsidiaries in major U.S.
cities. Interested parties should
contact their U.S. banker or these Israeli banks directly for more detailed
information on their respective services. Major Correspondent Banks: Bank Hapoalim Bank Leumi Le-Israel First International Bank of
Israel Israel Discount Bank United Mizrahi Bank INTERNATIONAL COPYRIGHT,
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1998. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES <NREC>Israel09 Israel:
Business Travel <A>=Israel IX.BUSINESS TRAVEL Business Customs Israel has a professional
and westernized business environment in which most U.S. business persons will
feel at home. Israelis arrive
well-prepared for meetings, come straight to the point and are very direct. Appointments can be made on fairly short
notice, but punctuality is desired.
Business cards are recommended.
Business suits are appropriate for meetings with private sector
companies and government officials, but business travelers will find business
dress in both private sector and government offices to be much less formal than
in the U.S., especially during the summer months. English is widely spoken in the business
community and in government offices. Israel is two hours ahead of
Greenwich Mean Time (GMT) except during March - September, when local time is
advanced by one hour. Most businesses
and government offices work a 40-45 hour, five day-work week, from Sunday
through Thursday. Common office hours
are from 8:00 a.m. till 5:00 p.m. Retail
outlets are also open on Fridays, from 9:00 a.m. till 2:00 p.m. Banks are usually open in the mornings,
Sunday through Friday. Travel Advisory and
Visas As a result of the 1967 war,
Israel occupied the lands known as the “Occupied Territories” (the West Bank,
Gaza Strip, Golan Heights, and East Jerusalem).
Pursuant to the September 13, 1993 Israel-PLO Declaration of Principles
on interim self-government arrangements (DOP); the May 4, 1994, Cairo Agreement
on the Gaza Strip and Jericho Area; and the August 29, 1994 agreement on
preparatory transfer of powers and responsibilities, certain powers and
responsibilities for the Gaza Strip, Jericho and other major cities in the West
Bank have been transferred to the Palestinian Authority. The following public
announcement regarding potential violence in Israel and the Occupied
Territories was published on December 23, 1997: The American Embassy in
Tel Aviv, taking note of heightened tension at the present, reminds all U.S.
citizens that the potential for violence in the area remains high. Although they have not
been specifically targeted for attack, U.S. citizens have been killed in past
terrorist actions in Israel, the West Bank, and Gaza. The most recent attacks have been in highly
frequented shopping and pedestrian areas, and public buses. The U.S. Government has no information that
such actions have been planned for the immediate future, but citizens are
reminded that in the past, premeditated terrorist attacks have frequently taken
place on Sunday morning and at rush hours.
U.S. citizens should, at
all times, avoid large crowds and political demonstrations, and not remain in
an area where a demonstration or altercation appears to be developing. Such gatherings can occur spontaneously, and
have the potential to become violent without warning. U.S. citizens may contact
the Consulate of the U.S. Embassy in Tel Aviv at telephone 972-3-519 7575 for
information and help in Israel and the Gaza Strip. After hours number: 519 7551. The fax number is 972-3-519 0315. The e-mail address is
acs.amcit-telaviv@dos.us-state.gov. For information and help
in Jerusalem and the West Bank U.S. citizens may contact the U.S. Consulate
General in Jerusalem at tel: 972-2-625 3288.
After hours number: 625 3201. The
fax number is 972-2-272 2233. All travelers are advised
to refer to the latest Consular Information Sheet for Israel and travel
advisories issued by the Bureau of Consular Affairs, Department of State,
Washington, D.C. Recorded travel information
is available at tel: (202) 647 5225. For
information by fax, call (202) 647 3000.
Internet address: travel.state.gov. The State Department
advises U.S. citizens who plan to be in the region for a substantial period of
time to register at the U.S. Embassy in Tel Aviv or the U.S. Consulate General
in Jerusalem. When registering, U.S.
citizens can obtain updated information on travel and security in the
area. Entry Requirements Passports, an onward or
return ticket, and proof of sufficient funds are required for entry to Israel
and the occupied territories. A
three-month visa may be issued free of charge upon arrival, and may be extended
by the Ministry of the Interior.
Visitors who plan to travel to Arab countries without diplomatic
relations with Israel may request to have their Israeli entry visas stamped on
a separate form at the port of entry.
Visitors who have been refused entry or have experienced difficulties
with their visa status during previous visits, or who have overstayed a visa,
can obtain information from the Israeli Embassy or an Israeli consulate
regarding the advisability of attempting to return to Israel. Except during periods of closures, U.S.
citizens, except those of Palestinian ancestry may enter and exit Gaza and the
West Bank on a U.S. passport with an Israeli visa. It is not necessary to obtain a visitor’s
permit from the Palestinian Authority. Private
vehicles frequently encounter long delays entering or leaving Gaza, and may
also expect to be stopped at checkpoints entering or leaving the West Bank. International crossing
points are now in operation between Israel and Jordan at the Arava (Wadi
Al-Arabah) crossing in the South, and the Jordan River crossing (Sheikh Hussein
Bridge) in the North. Prior visas are not
necessary for American citizens using these two crossing points, but travellers
will have to pay a fee. Travelers
interested in crossing the Allenby Bridge, linking Jordan with the occupied
West Bank, should obtained visas and bridge crossing permits in advance. (Note: Palestinian Americans with residency
in the West Bank must cross into Jordan using the Allenby Bridge). Procedures for all crossings into Jordan are
subject to frequent changes. Travelers
interested in the most up-to-date border crossing information should contact
the U.S. Embassy in Tel Aviv or the U.S. Consulate General in Jerusalem. For further entry information, travelers may
contact the Embassy of Israel, 3514 International Drive, N.W., Washington, D.C.
20008, telephone (202) 364-5500, or the Israeli Consulate General in Los
Angeles, San Francisco, Miami, Atlanta, Chicago, New Orleans, Boston, New York,
Philadelphia, or Houston. 1999 Holidays The following is a list of
official Jewish and American holidays observed by the U.S. Embassy, Tel Aviv: January 1 New Year's Day January 18 Martin Luther King's Birthday February 15 President's Day April 1 *Passover (first day) April 7 *Passover (last day) April 21 *Israel Independence Day May 31 Memorial Day May 21 *Shavuot (Pentecost) July 5 Independence Day September 6 Labor Day September 11 *Rosh Hashana (New Year-first day) September 12 *Rosh Hashana (New Year-second day) September 20 *Yom Kippur (Day of Atonement) September 25 *Succot (Feast of Tabernacles) October 2 *Simhat Torah(Rejoicing of the
Law) October 11 Columbus Day November 11 Veterans Day November 25 Thanksgiving Day December 24 Christmas Day *Jewish Holidays: All
businesses in Israel are closed Business
Infrastructure Languages Hebrew and Arabic are the
two official languages of Israel.
English is the second and principal international language. Most signs in public places are in all three
languages. Due to the diversity of the
immigrant population, most Israelis are multilingual. Transportation Israel has advanced inland
and international transportation facilities.
An extensive road network links the entire country. The railway system provides limited passenger
services to the center and the north between Jerusalem, Tel Aviv and Haifa, and
more extensive freight services from the north to the Beer Sheva region in the
south. Israel is connected
internationally by means of air and waterways.
Ben Gurion International Airport is the center of air passenger and
cargo operations. Internal air services
connect the major cities of Tel Aviv, Haifa and Jerusalem to Eilat in the south
and to the Galilee region in the north.
The three main ports located in Haifa, Ashdod and Eilat offer full
freight services for international shipping.
Communications Israel's national and
international telecommunications systems are being constantly improved and
upgraded to cater to increasing demands.
Many Israeli high-tech companies operate in the data communications
sector, providing an immediate business link both domestically and
internationally. There are about 1.25
million subscribers to cellular phones operated by two companies: Cellcom
Israel Ltd. and Pele-Phone Communications Ltd., a private company co-owned by
Bezeq Israel Telecommunication Corp. Ltd. and Motorola. A third company is due to enter the market in
autumn 1998. The number of subscribers
is increasing annually at a rate of ten percent. The major telephone credit cards are:
AT&T, MCI and Sprint. Hotels and Restaurants Israel has a variety of good
business hotels and restaurants that offer a wide variety of international
cuisine. Most places accept
internationally recognized credit cards such as Visa, MasterCard, Eurocard,
American Express, and Diners Club. Food
and water is generally safe, although bottled water is often preferred. Visitors should be wary of roadside food in
hot weather. Medical facilities Modern medical care and
medicines are available in Israel.
Travelers can find information written in English about emergency
medical facilities and after-hours pharmacies in the "Jerusalem Post"
newspaper. Doctors and hospitals often
expect immediate cash payment for health services. U.S. medical insurance is not always valid
outside the United States. Supplemental
medical insurance with specific overseas coverage has proven useful. The international traveler's hotline at the Center
for Disease Control, telephone (404) 332-4559, has additional health
information. INTERNATIONAL COPYRIGHT,
U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE,
1998. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES <NREC>IsraelA01
Israel: Country Data <A>=Israel X. APPENDICES APPENDIX A. - COUNTRY DATA -Population 5.8 million (1996) -Population Growth Rate - 2.6% -Religions Judaism, Islam, Christianity, Druze -Government Parliamentary Democracy -Languages Hebrew, Arabic, English widely spoken -Work Week Sunday - Thursday INTERNATIONAL COPYRIGHT,
U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE,
1998. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES <NREC>IsraelA02
Israel: Domestic Economy <A>=Israel APPENDIX B. - DOMESTIC ECONOMY (USD millions except where
noted) 1996 1997 1998 (est) -GDP (current dollars) 97,900
100,600 97,300 -GDP real growth rate (%) 4.4 2.5 3.0 -GDP per capita 16,400 16,700 17,000 -Government spending (as % of GDP) 56 55 54 -Inflation (%) 10.6 10.0 9.0 -Unemployment (%) 6.7 7.5 8.0 -Foreign Exchange
Reserves 11,420 15,000 n/a -Average Exchange 3.2 3.4 3.6 (for USD 1.00) -Foreign Debt - Gross 48,057 50,000 52,000 - Net 20,028 22,000 23,000 -Debt Service Ratio (%) 18.2 n/a n/a -U.S. Economic Aid 1,280
1,280 1,280 -U.S. Military Aid 1,850
1,850 1,800 *Ratio of principal and
interest payments on foreign debt to exports of goods and services. INTERNATIONAL COPYRIGHT,
U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE,
1998. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES <NREC>IsraelA03
Israel: Trade <A>=Israel APPENDIX C. - TRADE (USD millions except where
noted): 1996 1997 1998 (est) Total Israeli Exports 19,067 20,200 21,400 Total Israeli Imports 29,584 30,200 32,000 U.S. Exports 5,982 6,300 n/a U.S. Imports 6,261 6,400 n/a Sources: Central Bureau of Statistics, Bank of Israel,
International Monetary Fund INTERNATIONAL COPYRIGHT,
U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE,
1998. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES <NREC>IsraelA04
Israel: Investment Statistics <A>=Israel APPENDIX D. - INVESTMENT There are no direct foreign
investment figures available which are tied directly to country of origin or to
industry sector destination. Nor are
there reliable figures available on direct foreign investments by U.S.
companies or by other nations' companies.
(See "VII. Investment Climate") INTERNATIONAL COPYRIGHT,
U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE,
1998. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES <NREC>IsraelA05
Israel: U.S. and Country Contacts <A>=Israel APPENDIX E. - U.S. AND COUNTRY CONTACTS U.S. Embassy
Trade-Related Contacts Michael Benefiel Commercial Counselor The Commercial Service U.S. Embassy 71 Hayarkon Street Tel Aviv 63903 Tel: 972-3-519-7327 Fax: 972-3-510-7215 Debbi Schwartz Economic Counselor Economic Section U.S. Embassy 71 Hayarkon Street Tel Aviv 63903 Tel: 972-3-519-7506 Fax: 972-3-510-1035 Tully Friedgut Agricultural Specialist Office of Agricultural
Affairs U.S. Embassy 71 Hayarkon Street Tel Aviv 63903 Tel: 972-3-519-7324 Fax: 972-3-510-2565 Government Offices
Related to Key Sectors Ministry of Industry and
Trade Mr. Dov Mishor Director General 30 Agron Road Jerusalem 94190 Tel: 972-2-622 0377 Fax: 972-2-625 0435 Ministry of Agriculture Mr. Daniel Kritchman Director General P.O. Box 7011 Hakirya, Tel Aviv 61070 Tel: 972-3-697-1722 Fax: 972-3-697-1516 Ministry of the Environment Ms. Nehama Ronen Director General P.O.B. 34033 Jerusalem 95464 Tel: 972-2-655 3777 Fax: 972-2-653 5934 Ministry of Defense Mr. Ilan Biran Director General Hakirya, Tel Aviv 61909 Tel: 972-3-697-5774 Fax: 972-3-691-9918 Ministry of Transportation Mr. Nahum Langenthal Director General 97 Jaffa Road Jerusalem 91000 Tel: 972-2-622-8300 Fax: 972-2-622-8206 Ministry of Communications Mr. Dani Rosen Director General 23 Jaffa Stret Jerusalem Tel: 972-2-670 6303 Fax: 972-2-624 0029 Ministry of National
Infrastructures Mr. Yaacov Katz Director General PO Box 13106 Jerusalem 91130 |