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RESTRICTED
WORLD TRADE
WT/TPR/S/157
22 December 2005
ORGANIZATION
(05-6080)
Trade Policy Review Body
TRADE POLICY REVIEW
Report by the Secretariat
ISRAEL
This report, prepared for the third Trade Policy Review of Israel, has been drawn
up by the WTO Secretariat on its own responsibility. The Secretariat has, as
required by the Agreement establishing the Trade Policy Review Mechanism
(Annex 3 of the Marrakesh Agreement Establishing the World Trade
Organization), sought clarification from Israel on its trade policies and practices.
Any technical questions arising from this report may be addressed to Mr. Arne
Klau (tel: 022/739 57 06; fax: 022/739 57 65) or Mr. Jacques Degbelo
(tel: 022/739 55 83).
Document WT/TPR/G/157 contains the policy statement submitted by Israel.
Note: This report is subject to restricted circulation and press embargo until the end of the first
session of the meeting of the Trade Policy Review Body on Israel.
Israel
WT/TPR/S/157
Page iii
CONTENTS
Page
SUMMARY OBSERVATIONS
I.
II.
III.
vii
(1)
THE ECONOMIC ENVIRONMENT
vii
(2)
INSTITUTIONAL FRAMEWORK
vii
(3)
TRADE POLICY INSTRUMENTS
viii
(4)
SECTORAL POLICIES
ix
(5)
TRADE POLICY AND TRADING PARTNERS
x
ECONOMIC ENVIRONMENT
1
(1)
MAJOR FEATURES OF THE ECONOMY
1
(2)
RECENT ECONOMIC DEVELOPMENTS
3
(3)
TRADE PERFORMANCE AND INVESTMENT
(i)
Trade performance
(ii)
Foreign investment
6
6
7
(4)
OUTLOOK
8
TRADE AND INVESTMENT REGIME
9
(1)
INSTITUTIONAL FRAMEWORK
9
(2)
TRADE POLICY FORMULATION AND IMPLEMENTATION
9
(3)
TRADE POLICY OBJECTIVES
10
(4)
MAIN TRADE LAWS AND REGULATIONS
10
(5)
INVESTMENT REGIME
12
(6)
TRADE AGREEMENTS
(i)
World Trade Organization
(ii)
Preferential trade agreements
(iii)
Other arrangements
14
14
15
18
TRADE POLICIES AND PRACTICES BY MEASURE
20
(1)
OVERVIEW
20
(2)
MEASURES DIRECTLY AFFECTING IMPORTS
(i)
Documentation and customs procedures
(ii)
Rules of origin
(iii)
Tariffs
(iv)
Other taxes and charges
(v)
Import prohibitions, licensing, and authorization
(vi)
Contingency trade remedies
(vii)
Standards and other technical requirements
(viii)
Other measures
20
20
22
22
28
30
32
35
38
(3)
MEASURES DIRECTLY AFFECTING EXPORTS
(i)
Registration and documentation
(ii)
Export taxes, charges and levies
38
38
38
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Trade Policy Review
Page
(iii)
(iv)
(v)
(vi)
(4)
IV.
Export prohibitions, restrictions, and licensing
Export subsidies, and duty and tax concessions for exports
Export finance, insurance, and guarantees
Export promotion and marketing assistance
MEASURES AFFECTING PRODUCTION AND TRADE
(i)
Incentives
(ii)
Competition policy and price controls
(iii)
Government procurement
(iv)
State-trading, state-owned enterprises and privatization
(v)
Intellectual property rights
38
40
41
41
42
42
45
48
51
52
TRADE POLICIES BY SECTOR
58
(1)
INTRODUCTION
58
(2)
AGRICULTURE
(i)
Overview
(ii)
Key subsectors
58
58
63
(3)
MINING AND ENERGY
(i)
Mining
(ii)
Energy
66
66
67
(4)
MANUFACTURING
(i)
Main features
(ii)
High-tech industries
(iii)
Traditional industries
68
68
71
73
(5)
SERVICES
(i)
Main features
(ii)
Financial services
(iii)
Transportation
(iv)
Telecommunications and postal services
(v)
Tourism
75
75
76
82
85
88
REFERENCES
91
APPENDIX TABLES
93
Israel
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CHARTS
Page
I.
ECONOMIC ENVIRONMENT
I.1
Fiscal position, 1999-04
III.
TRADE POLICIES AND PRACTICES BY MEASURE
III.1
III.2
III.3
Breakdown of applied MFN tariffs, 2005
Tariff escalation by ISIC 2-digit industry, 2005
Import licensing by HS section, 2005
IV.
TRADE POLICIES BY SECTOR
IV.1
IV.2
Domestic support to agriculture, 1997-03
Tariffs on manufactured products, 2005
2
24
27
33
61
71
TABLES
I.
ECONOMIC ENVIRONMENT
I.1
I.2
I.3
Israel at a glance, 1994, and 1999-04
Selected economic indicators, 1994-04
Foreign investment, 1998-04
II.
TRADE AND INVESTMENT REGIME
II.1
II.2
II.3
II.4
Israel's main legislation related to trade, June 2005
Rates of taxation applicable to various types of investors
Israel's notifications under the WTO Agreements, November 2005
Israel's preferential trade agreements, June 2005
III.
TRADE POLICIES AND PRACTICES BY MEASURE
III.1
III.2
III.3
III.4
III.5
III.6
III.7
III.8
III.9
III.10
III.11
III.12
III.13
III.14
III.15
III.16
Preferential rules of origin, 2005
Overview of MFN tariffs in Israel, 2000-05
Summary analysis of Israeli MFN tariff, 2005
Seasonal tariffs in Israel, 2005
Duty concessions and exemptions, 2005
"Safeguard" levies, August 2005
Taxes on imported and domestic goods and services, September 2005
Import prohibitions, November 2005
Equivalence of Israeli standards with international standards, April 2005
Goods requiring licence upon export, 2005
Goods subject to export authorization, 2005
Key features of Israel's competition law
Decisions on merger applications, 1999-04
Regulated prices in the consumer price index, 1999 and May 2005
Key features of Israel's government procurement provisions
Exports restricted to state-trading agencies, 2005
1
3
7
11
13
15
16
22
23
24
25
28
29
30
31
35
39
40
46
47
48
49
51
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Trade Policy Review
Page
III.17
III.18
III.19
Israel's status in international IPR-related agreements, conventions and treaties
Summary of intellectual property protection in Israel, April 2005
Registration of intellectual property, 1999-04
IV.
TRADE POLICIES BY SECTOR
IV.1
IV.2
IV.3
IV.4
IV.5
IV.6
IV.7
IV.8
IV.9
IV.10
IV.11
IV.12
IV.13
Indicators of agricultural production, 1999-04
Distribution of agricultural production, by category and purpose, 2004
Agricultural exports, 1990-04
Actual exports and export subsidies commitments, 1998-04
Main crop production, 2000-04
Main livestock production, 2000-03
Manufactured production by industry (excluding diamonds), 1999-04
Manufactured exports by industry (excluding diamonds), 1990-04
Evolution of the electrical and electronic equipment industries, 1998-04
Selected tariffs for the food, beverages, and tobacco industries, 1999 and 2005
Services and main subsectors, 2000, and 2002-04
Overview of the Israeli capital market, August 2005
Overview of the tourism subsector, 1995-04
52
54
56
59
59
60
62
64
65
69
70
72
74
75
81
88
APPENDIX TABLES
I.
ECONOMIC ENVIRONMENT
AI.1
AI.2
AI.3
AI.4
AI.5
Balance of payments, 1995-04
Exports by groups of products, 1999-04
Imports by groups of products, 1999-04
Exports by destination, 1999-04
Imports by origin, 1999-04
III.
TRADE POLICIES AND PRACTICES BY MEASURE
AIII.1
AIII.2
AIII.3
AIII.4
AIII.5
AIII.6
Applied MFN tariff averages by HS2, 2005
Products with applied MFN tariff rates higher than the bound rates
Products for which MFN rate may be higher than the final bound rate
Imports requiring a licence, June 2005
Tariff quotas on agricultural products within the framework of preferential trade agreements
Government owned companies, November 2005
IV.
TRADE POLICIES BY SECTOR
AIV.1
AIV.2
AIV.3
AIV.4
AIV.5
Tariff quotas on imports, November 2005
Selected indicators of the Israeli industrial sector, 1998 and 2004
Applied MFN tariffs, by ISIC Rev.2 category, 2005
Balance of services, 1995-04
Summary of Israel's specific commitments in services
95
96
97
98
99
100
104
106
108
110
116
118
120
121
124
125
Israel
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SUMMARY OBSERVATIONS
(1)
already limited agricultural production.
Mining and quarrying remain marginal.
THE ECONOMIC ENVIRONMENT
1.
The 2003 Economic Recovery Plan
has contributed to the recovery of Israel's
economy from its recent slowdown; its real
GDP grew by 4.6% in 2004, and by 4.8%
(annualized) during the first nine months of
2005. Israel has successfully maintained its
inflation on a downward path (at low rates
since the mid 1990s, after more than two
decades of high inflation). Its external current
account has improved and its gross external
debt remains manageable. Following the
abolition of all foreign exchange controls,
Israel's exchange regime was reclassified to
"independently floating" in January 2004,
from the category "exchange rate within
crawling bands".
2.
Ambitious structural reforms are
being implemented with a view to reducing
extensive state intervention and enhancing
competition in selected industries. Subject to
continued improvement of the security
situation
and
a
favourable
global
environment, the ongoing reforms are
expected to build the foundation for sustained
economic performance by Israel during the
coming years. Nonetheless, unemployment
remains relatively high, at around 9%, as is
the fiscal deficit (after foreign grants), at
between 3.8% and 5.6% of GDP, mainly due
to public expenditures for security and social
purposes.
3.
Israel's economic growth is mainly
export led and rests largely on innovation.
Israel ranks first worldwide in terms of the
ratio of research and development investment
to GDP, second in terms of the quality of
education, and third in terms of
entrepreneurship. Consequently (and also as
a result of increased competition from imports
of traditional labour-intensive products), its
production pattern has shifted towards hightechnology goods and services, intensive in
skilled labour, with an overall decline in
manufacturing and a downward trend in the
4.
Israel
depends
heavily
on
international trade (nearly 90% of its GDP).
Its exports consist primarily of manufactured
goods, in particular high-tech products. Its
imports are also dominated by manufactured
goods (80% of merchandise imports), mainly
machinery and transport equipment, and other
semi-manufactures. Imports of fuel have
increased steadily, owing to the upward
evolution of its world price. The geopolitical
situation in the Middle East has seriously
impeded trade between Israel and its
neighbours. As a result, Israel’s main trading
partners remain the European Union and the
United States. Nonetheless, in recent years,
Asia has also become a major source of
Israel's imports.
(2)
INSTITUTIONAL FRAMEWORK
5.
Israel's
overall
institutional
framework for trade policy formulation and
implementation has remained broadly
unchanged since its last TPR in 1999. The
Ministry of Industry, Trade and Labor
(MOITAL), through its Foreign Trade
Administration, has responsibility in this
regard.
Other departments, as well as
interministerial committees, may be involved,
depending on the subject. Consultations with
the private sector are conducted through
various associations and forums.
6.
A contracting party to the GATT since
1962 and a WTO Member since 1995, Israel is
an active participant in the multilateral
trading system. It is a signatory to the
Plurilateral Agreement on Government
Procurement and to the 1997 Information
Technology Agreement.
Israel currently
accords at least MFN treatment to all WTO
Members. In the ongoing multilateral trade
negotiations, Israel supports ambitious plans
for tariff reductions on non-agricultural goods
and for further multilateral liberalization in
services. On agriculture, Israel supports the
view that non-trade concerns should be an
integral part of any future multilateral
WT/TPR/S/157
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agreement. Israel has not been a defendant
or complainant in any dispute under the WTO.
It has, however, reserved third-party rights in
three cases since its last TPR.
7.
Israel has continued to expand the
coverage
of
its
bilateral
free-trade
agreements, through protocols to existing
agreements and the conclusion of new
agreements. The protocols provide for further
gradual market access improvements for
agricultural goods. As a result, most of
Israel's trade is currently conducted under
various
preferential
agreements,
with
Bulgaria, Mexico, and Romania (new
agreements), and Canada, EFTA, the EU,
Jordan, Turkey, and the United States.
Moreover, with a view to strengthening
regional economic cooperation, Israel has
concluded agreements with Egypt and Jordan
under the umbrella of its agreement with the
U.S. Israel's 1994 Protocol on Economic
Relations with the Palestine Liberation
Organization has remained unchanged.
8.
Israel has a generally liberal
investment regime, with most activities open to
private foreign and national investment. The
main exception is some postal and telegraph
services. Foreign ownership limitations are in
place in international fixed telecommunication
services and tourism. Israel encourages both
local and foreign investment by offering a
wide range of incentives and benefits,
including grants, tax incentives (rebate on
profit tax), research and development support,
wage financing, and training support. The
Government
provides
foreign-owned
companies with enhanced incentives, thereby
discriminating
against
Israeli-owned
companies.
(3)
TRADE POLICY INSTRUMENTS
9.
Israel has bound some 76% of its tariff
lines, including all agricultural lines (WTO
definition) and some 73% of non-agricultural
items. Bound tariff rates range from zero to
560% on agricultural goods, and from zero to
170% on non-agricultural goods.
Trade Policy Review
10.
In 2005, Israel's average applied MFN
tariff was 8.9%, down from 10.8% in 2000.
MFN tariff rates on non-agricultural products
(WTO definition) are generally lower (5.1%
on average), with the highest rates (up to
34.4%) on fish and fishery products, and
textiles and clothing. Applied MFN tariffs on
agricultural products remain high, with an
average tariff of 32.9%, and rates vary
considerably among product groups. As at
October 2005, the MFN applied tariffs on 88
lines at the HS eight-digit level exceed bound
tariffs. Moreover, a potential difficulty is that
some applied MFN tariffs are non-ad valorem.
11.
Goods imported through maritime
ports are subject to a wharfage fee of 1.02%.
Some items, mainly edible oils, are subject to a
tariff surcharge, although Israel has bound all
other duties and charges at zero. Internal
indirect taxes consist of a 16.5% VAT, a 5% to
20% purchase tax on a number of "luxury
goods", and various excise taxes; these apply
equally to imported and domestic goods.
Since 1999, Israel has initiated seven
anti-dumping actions and imposed definitive
anti-dumping measures in four cases. In June
2005, Israel amended its legislation on
contingency measures in order to bring it into
conformity with the WTO Agreements on AntiDumping, and Subsidies and Countervailing
Measures. No countervailing or safeguard
measures have been imposed by Israel since
its last TPR.
12.
In July 2003, Israel lifted its general
prohibition on imports from WTO Members
that have no diplomatic relations with it or
prohibit imports from Israel. The authorities
hope that this unilateral step will be
appreciated and reciprocated by those
countries. Nonetheless, trade (export and
import) prohibitions remain in place for Iran,
Lebanon, and Syria. A licensing mechanism is
maintained on imports from eight non-WTO
Members. Import licences are also in place for
security and safety reasons, and for purposes
of tariff quota management.
13.
Israel maintains MFN tariff quotas on
twelve agricutural product groups, although
Israel
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Page ix
most of the quotas are redundant as the
applied MFN tariffs on most of the products
are lower than the in-quota tariffs.
In
addition, most of Israel's preferential trade
agreements include provisions on tariff quotas
on agricultural goods.
Israel's technical
regulations are increasingly based on
internationally accepted standards. Since its
last TPR in 1999, Israel has removed or made
voluntary
more
than 200 technical
regulations, deemed non-tariff trade barriers,
mostly on food products.
14.
A wide range of products is subject to
export control and licensing, mainly for
sanitary and quality control. Israel continues
to grant export subsidies, mainly on cut
flowers and citrus fruits; a public export
insurance scheme is in place. Israel also
grants substantial state support for the
promotion of research and development, small
and medium-sized enterprises (SMEs), and
regional development; state aid has gradually
shifted away from regional development and
R&D to SMEs.
15.
Israel's
public
procurement
regulations award price preferences to local
suppliers with the exception of purchases
covered by the WTO Agreement on
Government Procurement. Competition rules
provide that all restrictive arrangements must
be registered and approved. An ambitious
privatization plan aims to reduce state
ownership, which remains extensive in the
economy.
Israel has amended its IPR
legislation
and strengthened enforcement
measures.
(4)
SECTORAL POLICIES
16.
Israel's services sector has gained in
importance, accounting for almost 77% of
NDP in 2004, up from about 72% in 1998, and
for 76% of employment, up from 74%. This
performance is mainly due to a series of
reforms that led to the disengagement of the
Government from certain activities.
In
particular, the national airline company (El
Al)
has
been
privatized,
and
telecommunications services are being
liberalized, with a gradual reduction of state
involvement and of the dominant position of
the Government-owned telephone operator,
Bezeq. Nonetheless, financial services remain
dominated by few companies. Israel's specific
commitments under the GATS cover 49
activities out of 161; Israel is a signatory to
the Fourth Protocol (on telecommunications
services) and the Fifth Protocol (on financial
services) to the GATS. Under Article II of the
GATS, Israel has listed MFN exemptions on
film, video and television programme coproduction and distribution; and banking.
17.
Marked by asymmetric developments
between high-tech and traditional industries,
the manufacturing sector has contracted,
accounting for about 14% of NDP and 16% of
total employment in 2004, down from nearly
18% of each in 2000.
This performance
reflects an export-led growth of the high-tech
industry, insufficient to offset the sharp decline
in traditional industries, largely due to
increased competition from countries with
abundant and cheap labour. As a result, the
manufacturing sector has recorded a shift
towards the production of goods intensive in
high technology and skilled labour, two main
assets of the Israeli economy.
18.
Most manufactured imports (ISIC
Revision 2 definition) enter Israel under
preferential trade agreements (mostly duty
free). However, the average applied MFN
tariff rate of 7.3% on these imports hides
relatively high tariffs (of up to 340%) on, inter
alia, food, beverages, clothing, footwear, and
plastics. Tariff protection is in general higher
for traditional industries than for the highperforming high-tech industries. A large
number of manufactured products are also
subject to strict technical regulations. The
manufacturing sector is the main beneficiary
of state aid (a wide range of investment
incentives), with special attention to high-tech
companies,
small
and
medium-sized
enterprises, and R&D activities.
19.
In spite of severe constraints, such as
restricted access to water and the
predominance of desert areas, Israel still
WT/TPR/S/157
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Trade Policy Review
maintains a certain level of agricultural
production (around 2% of NDP), albeit at
relatively high cost, despite the advanced and
performing agri-technology used.
In
consequence, the sector is largely supported
through various government interventions,
including subsidies and tariff protection,
mainly in favour of commodities such as dairy
products, fruit, and vegetables. The average
applied MFN tariff in agriculture is 41%, with
high tariffs of up to 560% on certain products.
Nonetheless, domestic support to agriculture,
as measured by the current Total Aggregate
Measurement of Support (AMS), as well as
export subsidies actually granted by the
Government, has remained below Israel's
WTO commitments.
20.
Mining and quarrying activities in
Israel remain marginal, and tariff protection
for the sector is low; the average applied MFN
rate is 0.2% in 2005. The sources of energy in
Israel are primarily fossil fuels (especially
crude oil), natural gas produced from local
offshore deposits, and solar energy. Domestic
production of crude oil is insignificant and
most resources to meet Israel's energy needs
are imported. The energy subsector remains
largely state-owned and heavily regulated, but
steps are being taken towards its gradual
liberalization.
(5)
TRADE POLICY
PARTNERS
AND
TRADING
21.
Israel
has
a
long-standing
commitment to the multilateral trading system,
but it also
participates actively in various free-trade
agreements. This dual strategy reflects its
high dependence on trade, with comparative
advantages in selected areas.
Its
implementation has resulted in an Israeli
market that is open for non-agricultural
products (on a preferential and, to a lesser
extent, MFN basis) and somewhat protected
for agricultural goods.
22.
Continued structural and trade
reforms, including further privatization, MFN
tariff reductions (on agricultural goods in
particular), and reduction of the gap between
bound and applied tariff rates, would
contribute to better resource allocation in
Israel's economy, and enhance predictability
and transparency of the trade regime. Such
reforms, together with a move to ad valorem
tariffs on agricultural goods, would stabilize
the level of protection in this sector and ensure
better compliance by Israel with its binding
commitments.
23.
Subject to a favourable global
environment, Israel's economy is expected to
perform well in the mid-term. The reforms,
through their impact on resource allocation,
should enhance Israel's economic performance
and contribute to reducing unemployment.
Trading partners could help by ensuring that
their markets are fully open to goods and
services produced in Israel.