RESTRICTEDWORLD  TRADE
ORGANIZATIONWT/TPR/S/58
13 August 1999
(99-2986)
Trade Policy Review Body
TRADE POLICY REVIEW
ISRAEL
Report by the Secretariat
This report, prepared for the  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 the Government of Israel on its trade
policies and practices.
Document WT/TPR/G/58 contains the policy statement submitted by the
Government of Israel
Note: This report is subject to restricted circulation and press embargo until the end of the meeting
of the Trade Policy Review Body on Israel.Israel WT/TPR/S/58
Page iii
CONTENTS
Page
SUMMARY OBSERVATIONS ix
(1) ECONOMIC ENVIRONMENT ix(2) TRADE POLICY FRAMEWORK x(3) TRADE AND TRADE-RELATED MEASURES x
(i) Border measures x(ii) Internal measures xi
(4) SECTORAL POLICIES xii
(i) Services xii(ii) Manufacturing xii(iii) Agriculture xiii
(5) TRADE POLICIES AND FOREIGN TRADE PARTNERS xiii
I. ECONOMIC ENVIRONMENT 1
(1) I
NTRODUCTION 1
(2) R ECENT ECONOMIC PERFORMANCE 1
(3) I SRAEL 'S ECONOMIC REFORMS 6
(i) Monetary area 6(ii) Fiscal and related area 7
(iii) Exchange rate and foreign exchange controls 8
(4) T
RADE AND FOREIGN INVESTMENT PERFORMANCE 8
(i) Trade patterns 8(ii) Foreign direct investment and portfolio investment 12
(5) O
UTLOOK 14
II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES 15
(1) O VERVIEW 15
(2) T HE INSTITUTIONAL FRAMEWORK 15
(i) General framework 15(ii) Economic and trade policy formulation 16(iii) Main trade laws 16
(3) E
XTERNAL POLICY -MAKING 18
(i) Israel and the WTO 18
(ii) Plurilateral agreements 19(iii) Other agreements 22(iv) Generalized System of Preferences (GSP) 23
(4) F
OREIGN INVESTMENT POLICIES 24
(i) Domestic regime and incentives 24
(ii) International initiatives and agreements 27
III. TRADE POLICIES AND PRACTICES BY MEASURE 27
(1) O VERVIEW 27
(2) M EASURES DIRECTLY AFFECTING IMPORTS 29
(i) Customs procedures 29WT/TPR/S/58 Trade Policy Review
Page iv
Page
(ii) Tariffs and other border levies 32
(iii) Non-tariff border measures 43
(3) M EASURES DIRECTLY AFFECTING EXPORTS 53
(i) Export duties and other charges 53(ii) Minimum export prices 53
(iii) Export restraints and licensing requirements 53
(iv) Export assistance 55(v) State trading 57(vi) Measures maintained by importing countries 58
(4) I
NTERNAL MEASURES 58
(i) Competition policy and related issues 58
(ii) State aid 62(iii) Technical regulations and standards 67(iv) Government procurement 72(v) Protection of intellectual property rights 75(vi) Price and distribution control 78
(vii) Performance and local-content requirements 80
(viii) Special economic zones 80
IV. TRADE POLICIES AND PRACTICES BY SECTOR 81
(1) O
VERVIEW 81
(2) A GRICULTURE 82
(i) Overview of output and trade 82
(ii) Domestic support measures 83
(iii) Export measures 85(iv) Import regime 86
(3) M
ANUFACTURING 91
(i) Main features 91
(ii) Expansion in high-tech industries 95
(iii) Adjustments in traditional industries 97
(4) SERVICES 100
(i) Overview 100(ii) Financial services 100(iii) Transportation 108
(iv) Telecommunications 111
(v) Tourism 114
REFERENCES 116
APPENDIX TABLES 119Israel WT/TPR/S/58
Page v
CHARTS
Page
I. ECONOMIC ENVIRONMENT
I.1 Fiscal position, 1992-98 5
I.2 Intensity of Israel's intra-industry trade with selected regions, 1994 and 1997 12
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES
II.1 Israel's trade with free-trade agreement partners, 1998 21
III. TRADE POLICIES AND PRACTICES BY MEASUREIII.1 Applied MFN tariffs 1993 and 1999 and bound rates, by HS section 35
III.2 Share of bound tariff lines by HS section, 1999 36III.3 Tariff structure by cumulative frequency distribution, 1993 and 1999 37
III.4 Tariff escalation by 2-digit ISIC industry, 1999 38
III.5 Import licensing by HS section, 1999 48III.6 Anti-dumping cases, 1 January 1993 to 23 December 1998 51III.7 Share of government financing in total industrial research and development
expenditure, 1996 67
III.8 Technical regulations on imports by HS section, 1999 70
IV. TRADE POLICIES AND PRACTICES BY SECTOR
IV.1 Value of farm produce by main branch of activity, 1998 83
IV.2 Domestic support to agriculture, 1995-99 84IV.3 Average tariff rates on agricultural products by HS chapter, 1999 89IV.4 Industrial production index- selected industries, 1995-98 92IV.5 Tariffs on manufactured products, 1999 94
IV.6 Directed Israeli currency credit, 1990-97 105
IV.7 Evolution of telecommunication services in Israel 112WT/TPR/S/58 Trade Policy Review
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TABLES
Page
I. ECONOMIC ENVIRONMENT
I.1 Israel at a glance, 1980-98 2
I.2 Selected economic indicators, 1985-98 4
I.3 Exports by groups of products, 1980-97 9I.4 Imports by groups of products, 1980-97 10I.5 Exports by destination, 1980-97 11I.6 Imports by country of purchase, 1980-97 11
I.7 Foreign investment, 1990-98 13
I.8 Distribution of non-resident's gross direct investment in Israel by industry, 1996-98 14
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES
II.1 Israel's main legislation related to trade, June 1999 17
II.2 Israel's preferential trade agreements, June 1999 20
II.3 Rates of taxation applicable to approved foreign investors, 1994 and 1999 27
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Rules of origin 32
III.2 Summary of the Israeli MFN tariff structure, 1993 and 1999 34
III.3 MFN tariff (simple average) by stage of processing, 1993 and 1999 38III.4 Concessional entry schemes in Israel, 1999 39III.5 Tariff quotas applied to agricultural MFN imports 40III.6 Israeli tariff preferences by agreement and import volumes, 1999 42III.7 Taxes levied on imported and domestic goods and services 43
III.8 Import prohibitions, as at June 1999 44
III.9 Imports requiring a licence, April 1999 46III.10 Anti-dumping measures in force, April 1999 52III.11 Exports where offset has been a requirement, 1994-98 52III.12 Export prohibitions, 1999 54
III.13 Export licensing, 1999 55
III.14 Exports restricted to State trading agencies, 1999 58III.15 Key features of Israel's competition law 59III.16 Privatization receipts, 1991-99 61III.17 Key features of the Israeli state aid programmes, June 1999 63III.18 Regional aid programme:  investment grants or tax exemption, 1994 and 1999 65
III.19 Regional aid programme:  rates of taxation, 1994 and 1999 65
III.20 Israeli standards and their equivalence with international standards, April 1999 69III.21 Key features of Israel's procedures on government procurement 74III.22 Summary of intellectual property protection in Israel, June 1999 77III.23 Regulated prices in the consumer price index, 1994 and April 1999 79
IV. TRADE POLICIES AND PRACTICES BY SECTOR
IV.1 Indicators of agricultural production, 1990-98 82
IV.2 Actual exports and export subsidies commitments, 1996-98 85IV.3 Tariff quotas applied to imports 87IV.4 Composition of manufacturing industry 93
IV.5 Evolution of the electrical and electronic equipment industries, 1992-98 96
IV.6 Selected average MFN tariffs in the transport equipment industry, 1993 and 1999 98IV.7 Selected average tariffs for the food, be verages and tobacco industries, 1993 and 1999 98
IV.8 Overview of the Israeli capital market, end of 1997 101IV.9 Overview of the tourism sector, 1985-98 114Israel WT/TPR/S/58
Page vii
APPENDIX TABLES
Page
I. ECONOMIC ENVIRONMENT
AI.1 Balance-of-payments, 1990-98 121II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVESAII.1 Selected Israeli notifications to the WTO, June 1999 122
III. TRADE POLICIES AND PRACTICES BY MEASURE
AIII.1 Average tariff and bindings, by HS chapter 124
AIII.2 End-use concessional entry schemes in Israel, 1999 128AIII.3 Seasonal tariffs in Israel, 1999 131AIII.4 Tariff quotas on agricultural products within  the framework of preferential trade agreements 134
AIII.5 Selected safeguard levies, 1999 148
AIII.6 Direct government outlays on state aid and financial assistance, 1990-99 149AIII.7 Israel's status in international IPR-related agreements, conventions and treaties 150
IV. TRADE POLICIES AND PRACTICES BY SECTORAIV.1 Selected indicators of the Israeli industrial sector, 1994 and 1998 151
AIV.2 Israel's MFN tariff by ISIC category, 1993 and 1999 152
AIV.3 Standards and licensing on imports by ISIC group, 1999 156
AIV.4 Summary of Israel's specific commitments in services 157Israel WT/TPR/S/58
Page ix
SUMMARY OBSERVATIONS
1. Since its previous Trade Policy
Review conducted in 1994, Israel has
continued to move towards a more open trade
policy regime, while, at the same time, Israeliexporters have benefitted from greater market
access abroad.  The continued liberal and
open foreign direct investment regime, with
foreigners facing very few restrictions, has
also contributed to Israel's economicdevelopment.  As a result of an increasing
number of preferential trade agreements, the
actual average customs duty paid has halved
since 1993 from an already low level to 1%, in
tandem with a reduction of the MFN tariffrates.  Israel has demonstrated its commitment
to the multilateral trading system through
active participation in the WTO.  Israel has
modernized its customs valuation legislation
and its procedures have been streamlined.
Another noteworthy development is mandatory
standards that are increasingly being alignedwith international standards.  Competition
issues have received increased emphasis as
border protection has gone down and
privatization has moved ahead.  However, the
role of the State continues to be extensive inmany areas.  Israel's state aid system remains
complex and costly.  Several elements of
preferences on government procurement have
become subject to regulations since 1994.
Some retail prices are still under governmentcontrol, and parts of the agricultural sector
remain subject to government intervention and
relatively high import protection.
(1) ECONOMIC ENVIRONMENT
2. Economic growth in Israel has slowed
in recent years, after an impressive
performance in 1994-95.  While GDP
expanded at an annual average rate of 6%
during the first half of the 1990s, it grew by
only 2% in 1998.  Over the same period, the
structure of the economy continued to shift
towards services, away from agriculture andmanufacturing.  The sl owdown in growth is
attributed to several factors, including
disciplined financial policies to address rising
macroeconomic imbalances, lower exportgrowth, which was somewhat affected by the
slowdown in world growth, and the ebbing of
the stimulative effects of the immigration wave
of the first half of the 1990s.
3. An expansionary fiscal policy
contributed to an overheating of the economyin 1995-96.  The current account deficit
widened sharply (from 5.5% of GDP in 1994
to 7.4% of GDP in 1995).  Initially, monetary
policy was the main instrument used to
address excess demand, but beginning in 1997there was progress on the fiscal front,
alleviating some pressure on the current
account.  The financial discipline helped
moderate inflation.  Recently, against the
backdrop of the extension of the Asianfinancial crisis, private sector flows in the
balance of payments (except foreign direct
investment) reversed directions to an out-flow
in the second half of 1998 and the exchange
rate of the Israeli currency, the shekel,
depreciated in real terms.  While growth
remained sluggish and unemployment rosein 1998, progress has been made in reducing
macroeconomic imbalanc es and implementing
structural reforms.  Preliminary estimates
indicate that GDP growth in 1999 will remain
at around 2%.  Continued pursuit of structuralreforms will make the economy more flexible
and more attractive to foreign investment.
Such reforms could include enhanced efforts
to increase competition, including through
further privatization, labour market reformand further liberalization of the trade regime,
in particular in agriculture.  Recent efforts in
this direction are positive steps.
4. Foreign trade has continued to play a
vital role in Israel.  Merchandise trade(exports and imports) is the equivalent of
about half of GDP and there is significant
trade in commercial services. Israel exports
close to US$10 billion of services a year as
well as more than US$22 billion of goods.
The structure of Israel's trade is that of an
advanced economy:  exports are mainlymanufactured goods, while imports show a
predominance of intermediate and investment
goods.  High-tech industries account for an
increasing share of total exports.  The recentWT/TPR/S/58 Trade Policy Review
Page x
slowdown in world growth negatively affected
Israel's export performance; real exchange
rate appreciation, which was maintained until
the latter part of 1998, may also have had
implications for the competitiveness of
exports.  Import levels have recently fallen asa result of both a slowdown in domestic
demand and a decline in import prices.
Foreign investment has also played a role in
exposing the Israeli economy to increased
competition and transfer of new technology.
(2) TRADE POLICY FRAMEWORK
5. Since Israel's previous Review, the
institutional and legal structures for trade
policy formulation a nd implementation in
Israel have remained broadly the same.  Themain changes in trade and related legislation
since 1994 have been pertinent to Israel's
implementation of its WTO commitments.  To
bring legislation into conformity with the
obligations it took under the Uruguay Round,
Israel has amended legislation in areas such
as customs valuation and standards.  Otherlegislative changes are in the process of being
implemented or are expected to be soon
considered.  Israel's commitments under the
General Agreement on Trade in Services
(GATS), which are quite extensive particularlyin the financial services area, provide legal
security for market access in the form of
assurances not to increase the level of
restrictions covered by the GATS Schedule.
Israel is a party to the 1997 Agreement onTelecommunications Services (the Fourth
Protocol), the 1997 Information Technology
Agreement (ITA), and the 1997 Agreement on
Financial Services (the Fifth Protocol).
During the period under review, Israel alsodisinvoked the GATT 1994 provisions on the
use of import restrictions for
balance-of-payments reasons.  Israel is in the
process of amending its laws to comply with
its obligations under the WTO Agreement on
Trade-Related Aspects of Intellectual Property
Rights (TRIPs);  it has invoked developing-country status with respect to the TRIPs
Agreement, which  means a transition period
up to 1 January 2000 to bring its legislation
into conformity.  Adequate enforcement oflegislation in this area has been a matter of
concern to some of Israel's trading partners.
Israel is a signatory to the WTO Government
Procurement Agreement (GPA);  in
government procurement it maintains off-set
provisions of up to 35% of the contract, whichare to decline to 20% in January 2005.
6. Israel's continued moves towards a
liberal and open foreign direct investment
regime, in tandem with its well educated work
force, have been important factors inattracting foreign investment.  During the
period under review, the amount of foreign
direct investment into Israel has steadily
increased.  Israel maintains its longstanding
policy of encouraging foreign directinvestment.  Most sectors are open to foreign
investors.  The exceptions include the defence
industry, international telecommunications (up
to 74% foreign equity participation is
allowed), wireless telecommunications
services (up to 80% foreign equity
participation), and tourism (ownership ofhotels, travel agencies and tour operators is
restricted to Israeli-registered companies,
while tourist guide services are restricted to
Israeli residents or citizens).  The Government
encourages foreign investment by providinggenerous incentives which are positively
related to the percentage of foreign
participation.  Incentive schemes can be costly
not only from a fiscal point of view, but may
also introduce considerable distortions in theeconomy, and are thus under review in Israel.
(3) TRADE AND TRADE-RELATED
MEASURES
(i) Border measures
7. Since its previous Review, Israel has
continued to move, slowly but steadily,
towards a more open trade policy regime.
Further efforts in this direction, as well as an
increase in the transparency of its tariff
system, would enhance economic efficiency
and attract foreign investment.  MFN tariffs
have been lowered from an average of 8.3% in1993 to 7.6% in 1999 (excluding ad valorem
equivalents) according to a pre-announcedIsrael WT/TPR/S/58
Page xi
unilateral trade liber alization programme.
However, as a result of the "tariffication
process", MFN tariff protection for
agricultural products has risen more than two
and a half times over the same period.  The
dispersion of applied MFN tariffs hasbroadened since the previous review, possibly
increasing their distortionary effects on the
allocation of resources.  The coverage of the
additional tariff - called the "safeguard levy",
has been substantially reduced from theequivalent of 2.7% of the tariff lines in 1992 to
0.8% in 1999.  While increases in the MFN
tariff require approval by the Parliament, the
imposition of the safeguard levy does not,
adding a possible element of uncertainty totariff protection.  As a result of the Uruguay
Round and the more recently concluded
Information Technology Agreement (ITA),
Israel bound the rates on just over half of its
tariff lines.  The bound rates are often above
the applied MFN rates, giving Israel the
flexibility to unilaterally raise its appliedtariffs, but introducing an element of
uncertainty for importers and investors.  The
predictability of Israel's tariff regime might
well be enhanced by narrowing the gap
between bound and applied rates, as well asby increasing the coverage of tariff bindings.
8. In practice, most importers do not pay
the MFN applied tariff.  Only about a quarter
of Israel's total imports are subject to MFN
applied rates.  Israel's major trading partners,the European Union and the United States, as
well as many other countries, receive duty-free
status for their exports onto the Israeli market
under a number of trade agreements.
Preferences under these agreements mainlyconcern industrial products.  The importance
of preferential trade is also indicated by the
difference between the average applied tariff
and the collection duty rate (i.e. customs duty
revenue divided by imports); while the simple
average applied 1999 MFN rate (including ad
valorem equivalents) is 8.8%, the collectionrate was 1% in 1998.  This difference is also
partly a reflection of various tariff concessions
and exemptions.9. Seasonal tariffs and (MFN and
preferential) tariff quotas have been
introduced in Israel in recent years, somewhat
detracting from transparency as does a wide
range of end-use provisions (granting tariff
reduction for specified end-users).  At thesame time, with respect to some of the MFN
tariff quotas, the concessional rate is higher
than the applied MFN rate, thereby making
them effectively redundant.
10. Progress has been made in reducing
the incidence of non-tariff measures on
imports, over the past years.  Remaining
measures, such as import licensing which
covers 8.5% of the tariff lines, are mainly
related to safety and security concerns.  Israelhas not been an active user of its anti-dumping
legislation, nor has any countervailing or
safeguard measures been taken during the
period under Review.
11. Within the framework of its WTO
commitments, Israel has modernized its
customs valuation legislation since itsprevious Review.  The customs valuation
method has been changed from the Brussels
Definition of Value to the transaction value
method.  Israel has also abolished the
"harama" system, which in the past increasedthe value of most imports by 2 to 10% before
tariffs were imposed.  Clearance procedures
for imports have also been improved.
(ii) Internal measures
12. Changes in a number of internal
measures have the potential of facilitating
foreign trade in Israel.  A noteworthy
development is mandatory standards that are
increasingly being aligned with international
standards.  Currently, about one-quarter ofthe mandatory standards are equivalent to
international standards.  Competition issues
have received increased emphasis as border
protection has been reduced and privatization
has moved ahead.  An independent anti-trust
authority has been established, while the
legislation has been amended to deal with theabuse of dominant position and provisions on
private class action have been enacted.WT/TPR/S/58 Trade Policy Review
Page xii
13. The privatization programme has
gained momentum with notable recent
progress in the banking and
telecommunications sectors.  Nevertheless, the
role of the State continues to be extensive in
many areas.  Israel's state aid system, ofmainly tax exemptions and grants, remains
complex and costly, amounting to some 8.4%
of GDP.  Another area of state intervention is
prices.  Retail prices, constituting some 18%
of the consumer price index, remain undergovernment control.  Moreover, several
preferences (to domestic industries, certain
regions, and local sub-contracting) and a
requirement of business co-operation on
government procurement have become subjectto regulations since 1994; these requirements
do not apply to tenders under the GPA.
14. Most imports, as are domestic
products, are subject to purchase and
value-added taxes, while certain items (such
as fuels and tobacco) are subject to additional
taxes.  The purchase tax on imported goods isusually calculated on an average mark-up
(called TAMA), which is an estimate of the
difference between the import and wholesale
price.  An optional system, under which an
importer can declare the wholesale price, hasbeen available since 1991.  However, few
importers have used it.
(4) SECTORAL POLICIES
(i) Services
15. Services have continued to be the most
dynamic sector of the Israeli economy.  Since
Israel's last Review, the structure of the
economy has further shifted slowly towards
services, away from agriculture and
manufacturing.  The overall growth of thesector has been underpinned by rapid
expansion of activities in the area of personal,
finance and business services.  This
development reflects recent deregulation and
privatization achievements, which have
improved the private sector environment, as
well as Israel's high human capital stock.16. Barriers to foreign firms in the
services sector are generally being removed,
but some sub-sectors remain monopolized,
insulated from foreign competition, or largely
controlled by government-owned companies.
However, significant headway has been madein liberalizing the telecommunications sector
and turning it from a monopolistic to a more
competitive structure.  While the majority
government-controlled company Bezeq
operates as the exclusive provider of localtelephone services, private investors in joint-
ventures with foreign equity up to 74% provide
international services.  Most value-added
services are also open to foreign investors.  As
a result of increased competition, Israeliconsumers have benefited from a sharp drop
in prices of international telephone and
cellular services.  Substantial progress has
also recently been made in liberalizing the
financial sector.  Nevertheless, banking
remains marked by a high degree of
concentration and the Government owns mostof the assets.  The Israeli Government is
undertaking a comprehensive reform of the
banking sector, to enhance competition and
improve the regulatory framework.  Other sub-
sectors (such as insurance, air and maritimetransportation, and tourism) are generally
open to foreign competition.  Israel's
commitments in its GATS Schedule, which
covers a wide range of services, provide legal
security for market access in the form ofassurances not to increase the level of
restrictions covered by the Schedule.
(ii) Manufacturing
17. While services have prospered,
manufacturing has somewhat contracted inrecent years.  The economic performance of
manufacturing sub-sectors has, however, been
uneven as the high-tech sectors - such as
computers, communications and medical
equipment - have steadily expanded, while the
traditional labour-intensive industries have
shrunk, with the lowering of trade barriersexposing a certain lack of competitiveness;  an
additional factor has been the slowing of
demand as the immigration wave, and its
demand for products from traditional sectors,Israel WT/TPR/S/58
Page xiii
of the early 1990's became fully absorbed.
The good performance of the high-tech
industries has only partly compensated for the
strong decline in the traditional industries.
18. The Israeli manufacturing sector is
relatively more open to import competition.As a result of many free-trade agreements
concluded by Israel with its main trading
partners, most manufacturing imports enter
Israel under preferential (mostly duty-free)
rates.  For manufacturing imports from othersources, the overall tariff protection is
moderate (simple MFN average, including
ad valorem equivalents, of 6.6% for
non-agricultural goods).  Above average tariff
protection is granted to sectors such as food,beverages, clothing and footwear.  Israel has a
number of other measures affecting trade and
production of manufactured products,
including strict enforcement of technical
regulations (mandatory standards covering
most imports of food, beverages and tobacco;
and textiles, clothing and leather products),government procurement preferences (all
industries), licensing requirements
(concentrated in transport equipment;  leather
products; and other food products and animal
feeds), price regulations (electricity,refrigerators and gas, oil and fuels for
domestic use) and a generous state-aid system
(mainly benefiting the electronic and electrical
industries).
(iii) Agriculture
19. Agriculture's share in the economy
has continued to decline steadily over the
period under review.  Farming accounts for
less than 2% of GDP and employs around 3%
of the labour force.  Israel is, however, self-sufficient in some agricultural products (such
as foodstuffs), and competes successfully in
export markets for some items (including
cotton, avocados, flowers and citrus).  With
most of its production destined for export
markets, the sector contributed to about 6% of
merchandise exports in 1997.  Theagricultural sector makes extensive use of
research and development, contributing to its
export success.  A major constraint foragricultural production is the lack of rainfall
and other water resources.  About half of the
cultivated area has to be irrigated.
20. Farming remains subject to a high
degree of government intervention and
depends on subsidies, cheap water andprotected markets for products such as dairy
fruits and vegetables. However, in 1997, for
the third consecutive year, subsidies -
expressed in terms of direct subsidies, and
open and direct transfer payments - to farmingoutput declined in real terms, to slightly over
half their 1994 level.  Taking into account the
subsidy for the cost of capital in the water
system, as well as the subsidy implicit in the
protection of domestic produce againstcompeting imports, the number could be
higher.  In some cases, such as dairy (in
particular milk and cheese) and poultry meat
production, domestic support measures
provided by the Government are compounded
by the impact of relatively high levels of tariff
protection and import quotas.  On the otherhand, export subsidies appear to have been
reduced and were granted only to one product
(cut flowers) in 1997/98.
(5) TRADE POLICIES AND FOREIGN
TRADE PARTNERS
21. Israel's broad direction and objectives
of its trade and investment policies have not
changed during the period under review.
Israel continues to maintain an orientation
towards an open and liberal policy framework.Trade liberalization measures have been
implemented, either on an MFN basis or
through preferential trade agreements.
During the period, the share of imports
entering at preferential rates has increased.The bulk of Israel's trade continues to be
conducted within the framework of free-trade
agreements, which account for an increasing
share of total trade (about three-quarters of
merchandise trade by 1998).  Since the
previous review, Israel has continued to
expand its network of preferential tradeagreements (Canada, the Czech Republic,
Hungary, Jordan, Poland, the Slovak
Republic, Slovenia and Turkey), whileWT/TPR/S/58 Trade Policy Review
Page xiv
continuing liberalization within the framework
of trade agreements with its two main trading
partners, the European Union and the United
States.  Israel also maintains a free trade
agreement with EFTA countries since 1993.
The coverage of the recently concluded tradeagreements is wide;  in addition to trade
preferences, they also contain provisions on
trade- related aspects such as competition,
state aid, intellectual property rights,
safeguard, government procurement, anddispute settlement.22. Israel's large number of preferential
trade agreements is not per se contradictory to
its participation in, and commitment to, the
multilateral trading system.  It is, however,
important to avoid any risks of trade diversion
away from most efficient import sources.  Inthis connection, Israel's active participation in
a broader multilateral trade liberalization, as
envisaged in the forthcoming new trade
negotiations in the WTO, would create an
enhanced competitive environment in Israeland ensure a better resource allocation.