RESTRICTEDWORLD TRADE
ORGANIZATIONG/SCM/Q2/ISR/12
24 July 2001
(01-3677)
Committee on Subsidies
and Countervailing MeasuresOriginal:  English
SUBSIDIES
Replies of ISRAEL to Questions Posed by
the UNITED STATES1 and the EUROPEAN COMMUNITIES2
Regarding the New and Full Notification of ISRAEL3
The following communication, dated 15 October 1997, has been received from the Permanent
Mission of Israel.
_______________
Replies to the UNITED STATES
Research and development
Research and development:  The Law for the Encouragement of Industrial Research and
Development, 5744-1984
Q1. Is the aid granted under this programme available to all industries in Israel?  Are the
results of the research for which aid is granted made public?
Reply
The grant under this programme is available to all industries in Israel.  The results of the
research for which aid is granted are usually not made public.
Q2. Under what conditions are the grants repaid?  How is the percentage of royalties used to
repay the grant determined?
Reply
Royalty payments are a specified percentage of the total annual revenues derived from the
sale for a developed product:  3 per cent of revenues during the first three years, 3.5 per cent from the
fourth year on.  In special cases an additional 1 per cent may be added by the Research Committee.
Royalty payments are linked to the US dollar with the addition of yearly interest based on the Libor
rate.
                                                     
1 G/SCM/Q2/ISR/10
2 G/SCM/Q2/ISR/11
3 G/SCM/N/3/ISR-G/SCM/N/16/ISR and G/SC M/N/25/ISR-G/SCM/N48/ISR-G/SCM/ISR/60G/SCM/Q2/ISR/12
Page 2
Q3. If no revenue is generated as a result of the aid for research, is the grant still repaid?
Reply
If no revenue is generated as a result of the aid for research, the grant is not repaid.
Q4. When was the law for this programme promulgated?
Reply
The law for this programme was promulgated in 1984.
Magnet Research and Development Programme
Q1. When did this programme begin?
Reply
This programme began in 1993.
Q2. Is the aid granted in a single instalment?  Or is it granted over a period of time?
Reply
The aid is granted throughout  the period in which the programme is being carried out
according to the progress of the project.
Q3. Are there any other limitations to receive the aid?  (i.e,. limits to the duration of the
research, limits to which companies can receive th e aid, limits to how much aid one corporation
can receive, even though it may be part of seve ral research consortia, limits to who has access to
the results of the research, or any other limits?)
Reply
A company may be part of more than one consortia.
Although, the Law does not limit the amount of the aid, the Steering Committee for budgetary
reasons usually limits the amount of aid to a maximum of $2 million per year for a particular
company.  This enables the Committee to invest in numerous and various types of industries in Israel.
The project and its expenses must be in accordance with the initial approval given.
The Incubators Programme
Q1. Under what criteria is the project deemed successful and over what amount of time
must the aid be repaid if the programme is successful?
Reply
The project is deemed commercially successful for purposes of repaying the loan if there are
sales derived from the developed project.  Royalty payments are paid out over a period of time until
the grant has been repaid.G/SCM/Q2/ISR/12
Page 3
Q2. What are the criteria under which the aid is granted?  (How are recipients selected?)
Reply
The Steering Committee on Technological Incubators approves projects based on whether the
project shows innovation in the development of new technologies and  will result in  a product  that
will create employment opportunities and exploit Israel’s highly capable technological labour force.
Q3. Is this aid available to all start-up companies in all sectors of the economy?
Reply
The aid is available to all start up companies in all sectors of the economy.
Q4. There seems to be some confusion when ex amining the “policy objective” and the “form
of the subsidy”.  Under the policy objective, it states that the purpose of the programme is to aid
“companies which are in need of infrastructure and administrative and managerial guidance.”However, under the “form of the subsidy,” it says that the programme is intended to aid
research and development expenses.  Can you please explain more fully the policy objective of
the programme?  How is the policy objective ac hieved in accordance with the form of the
subsidy?
Reply
The policy objective of the programme is to provide assistance to beginning entrepreneurs
who can present an innovative technological idea for the purpose of translating these ideas into
commercial products with marketing potential but w ho require assistance in organizing infrastructure
and administrative needs.  The incubator programme provides centralized administrative services to
aid the novice entrepreneur.  As such, the incubator provides modest facilities (a small office, office
equipment, secretarial and book-keeping services) which we referred to as “infrastructure and
administrative and managerial guidance”.  The amount of the subsidy is calculated on the basis of the
R&D expenses.
Q5. When did this programme begin?
Reply
This programme began in 1991.
Beta sites
Q1. When did this programme begin?
Reply
This programme began in 1990.
Q2. Are the ‘instructions’ under which the legal basis for the programme is established
publicly available?  Have these instructions been made into a law or official statement?G/SCM/Q2/ISR/12
Page 4
Reply
The Director General’s instructions are publicly available from the internet site of the
Ministry of Industry and Trade.  A full description of the programme appears in a brochure published
in English periodically by the Office of the Chief Scientist of the Ministry of Industry and Trade.
Q3. Is this programme equally available to all sectors of the economy?
Reply
The programme is available to all sectors of the economy.
Q4. Under what specific criteria are projects approved for grants and then deemed
successful for repayment?  Over what period of  time must repayment occur and how are the
terms of repayment determined?
Reply
The Office of the Chief Scientist considers similar criteria for the Beta Site programme as the
criteria for approving the  R&D grants.  The following general criteria are used:
1. Whether the applicant company shows innovation in the development of new technologies.2. The management, production and marketing capabilities of the firm as well as any marketing
strategy for the new product.
3. Whether the  product is economically and technologically viable.4. Whether  the product will result in the introduction of new technology or scientific
manpower.
The Beta Site grant is repaid under the same conditions as the R&D grant. (See above
response).
Feasibility studies
Q1. When did this programme begin?
Reply
The programme began in 1986.
Q2. the ‘instructions’ under which the legal basis for the programme is established publicly
available?  Have these instructions been made into a law or official statement?  If so, what is theexact name of the law or official statement or decree?
Reply
The instructions under which the programmes established are publicly available.  The Office
of the Chief Scientist publishes a brochure in which the guidelines for the programme are described in
detail.  The information is also available on the internet site of the Ministry of Industry and Trade.
Q3. If the programme is not successful, must the grant be repaid?G/SCM/Q2/ISR/12
Page 5
Reply
If the programme is not successful, the grant is not repaid.
Q4. Who absorbs the loss if the programme is not successful?
Reply
If the programme is not successful the loss is absorbed by the company and the Office of the
Chief Scientist.
Support for employment and training
Introduction of advanced managerial systems
Q1. When did this programme begin?
Reply
The programme began in 1990.
Q2. Are the “instructions” under which the legal basis for the programme is established
publicly available?  Have these instructions been made into a law or official statement?  If so,
what is the exact name of the law or official statement or decree?
Reply
The instructions for this programme are publicly available.  They appear in the Director
General’s Directives, which are found on the internet site of the Ministry of Industry and Trade.  The
exact name of the Directive is “ 4.13 Business Tutorial”.
On the job training – Aimed at aiding th e training of new employees at work site
Q1. Since the legal basis for this programme is “Criteria determined by an interministerial
committee,” do the criteria for this programme ch ange often?  Are the criteria specific for
specific industries?
Reply
The criteria for this programme do not change often.  The criteria are not specific for specific
industries.
Q2. What are the necessary requirements that employees must meet in order to be eligible
for this programme?
Reply
Eligibility for  this programme is contingent on the fact that the candidate be unemployed.
Q3. Is this programme available to all industries and all parts of the economy on an equal
basis?G/SCM/Q2/ISR/12
Page 6
Reply
This programme is available to all industries and all parts of the economy on an equal basis.
Enhancement of human resources
Q1. When did this programme begin?
Reply
The programme began at the end of 1997.
Q2. Are the “instructions” under which the legal basis for the programme is established
publicly available?  Have these instructions been made into a law or official statement?  If so,
what is the exact name of the law or official statement or decree?
Reply
The instructions for this programme are publicly available.  They appear in the Director
General’s Directives, which are found on the internet site of the Ministry of Industry and Trade.  In
May 2000, the Ministry also  published a brochure describing the programme in detail.  The exact
name of the Directive is ‘4.10 Financial Assistance of the Ministry of Industry and Trade for theEnhancement of Human Resources’.
Q3. Can you please provide more information on  what is determined to be a “development
area”?
Reply
A development area is determined by the Law on Encouragement  of Capital Investments
Law 5719-1959.  The Government of Israel has desi gnated two Development Zones: Zone A and
Zone B.  These Zones are located outside of the Central Zone.  Zone A covers the least developed
parts of the country such as the Negev desert area in southern Israel, the Upper Galilee, and the Israeli
settlements in the West Bank  and Gaza regions.  Zone B covers the Lower Galilee, and Jerusalemand its surroundings.
Q4. Is the only criteria for the programme that industries must be located in the so-called
“development areas”?
Reply
The location of the plant is not the sole criteria for receiving aid.  The plant must be a
manufacturing facility which employs at least 5 em ployees.  A minimum of 50 per cent of the training
course must be  provided by outside institutions not connected with the plant.
Q5. You stated that the rate of refund for the industry is determined by the size of the plant.
If the rates are determined on a proportion basis, what are those proportions?  How,
specifically, are the rates affected by the size of the plant?
Reply
The rate of refund of costs of training is determined by the size of the plant according to the
following percentages:G/SCM/Q2/ISR/12
Page 7
Large plant (over 100 employees)- 40 per cent
Medium plant (51 to 100 employees)- 50 per cent
Small plant (5 to 50 employees)-60 per cent
Environment
Assistance for the financing of investment aimed at the reduction of
environmental hazards at existing industrial plants
Q1. Are funds still being paid to companies who made investments before the programme
was discontinued?
Other Forms of Subsidies
The Encouragement of Marketing Fund
Q1. Are the “instructions” under which the legal basis for the programme is established
publicly available?  Have these instructions been made into a law or official statement?  If so,
what is the exact name of the law or official statement or decree?
Reply
The instructions concerning the Fund are published as part of the Director General’s
Directives and their exact name is ‘5.9 The Fund for Encouragement of Marketing Abroad’.  They can
be found on the Ministry of Industry and Trade’s Internet site.
Q2. Are all grants received repaid by the exporter?
Reply
All grants received by exporters whose turnover exceeds $4M, must be repaid.
Q3. When did this programme begin?
Reply
The present programme began in 1992.
The Import Liberalization Fund
You stated in your notification that this pr ogramme was going to be abolished at the end
of 2000.  Was this programme abolished?
Reply
This programme was abolished.
Q2. If the subsidy is granted to businesses who formed rehabilitation plans, does this mean
that these businesses, without this aid, would potentially have been bankrupt?G/SCM/Q2/ISR/12
Page 8
Reply
The criteria which was used in order to grant aid was whether the manufacturer could show
that his firm was being affected negatively by the imports.
Q3. How was it decided whether a grant or a st ate guaranteed loan would be provided to a
recipient?
Reply
Since the state guarantee loan under this programme was actually never issued, it is not
possible to give a full answer to this question.
Q4. What were the terms under which the state guaranteed loans were provided?
Reply
To the best of our knowledge, a state guarantee loan under this programme was actually never
granted.
The encouragement of capital investment
Q1. What are determined to be “approved investments”?  What procedures must a
company or industry follow to obtain “approved” status?  What are the criteria that must be
met for a company/industry to be “approved”?
Reply
The procedures for obtaining approved enterprise status include the submission of an
application form, together with a detailed feasibility study and a business plan.  After an application is
submitted, the project is evaluated by the Profession al Division of the Ministry of Industry and Trade,
the Investment Centre and the Industrial Development Bank of Israel Ltd.
The Investment Centre grants approved inve stment status based on the following criteria:
ability to compete; use of state-of-the-art-t echnology; creation of employment opportunities.
Q2. Within the disadvantaged regions to which the aid is granted, are there specific
industries which receive this aid?  Are there differences between regions in the amount of aid
granted?
Reply
There are no specific industries which receive benefits within the disadvantaged regions.  The
amount of aid granted varies between the two designated zones. Zone A, which receives the highestgrants, covers the least developed parts of the country. Zone B covers all the other areas outside of the
central zone of Israel not included in Zone A and receives a lower level of grant.  The level of the
benefits does not differ within a Zone.
Unreported subsidies
Israel failed to notify (1) the Exchange Rate Risk Insurance Scheme (also called
Insurance from Israel Foreign Trade Risk Insura nce Corporation), (2) the Infrastructure Grant
Programme, (3) the Long-Term Industrial Development Loans Programme, and (4) the RebateG/SCM/Q2/ISR/12
Page 9
of Wharfage Fees programme.  Please explain why these programmes were not notified.  If
these programmes have been eliminated, please in dicate the date of elimination or termination
as well as the corresponding legislation whic h eliminated or terminated the programmes.
Reply
1. Exchange Rate Risk Insurance Scheme (“EIS”) was not notified since the programme was
terminated in 1993.
2. The Infrastructure Grant Programme was translated and notified as  the Cost of Land
Development Programme.
3. The Long Term Industrial Development Loans Programme was terminated in 1985.
4. Rebate of Wharfage Fees Programme was terminated in the middle of 1994.
Replies to the EUROPEAN COMMUNITIES
I. Research and Development
Q1. Research and Development
(a) Does the repayment in the form of royalties  provide for the addition of interest on the
grant amount?
Reply
See reply to Q2 of the US questions regarding R&D.
(b) How long is the repayment period for the royalties?
Reply
See reply to Q2 of the US questions regarding R&D.
(c) Could Israel indicate when th e programme came into existence?
Reply
See reply to Q4 of the US questions regarding R&D.
(d) Does the programme have an unlimited duration? If not, please indicate the duration of
the programme.
Reply
This programme is ongoing.G/SCM/Q2/ISR/12
Page 10
Q2. Magnet
(a) Is there any limitation to the industrial a pplications eligible under this programme by
industry category?
Reply
The programme supports a broad spectrum of industries.
(b) Could Israel indica te when the programme came into existence?
Reply
See reply to Q1 of US questions regarding the Magnet R&D Programme.
(c) Does the programme have an unlimited duration? If not, please indicate the duration of
the programme.
Reply
The programme is ongoing.
Q3. The Incubators Programme
(a) Could Israel explain in which circumstances the grant is repaid (in part or in full) and in
which circumstances it can be retained by the firm?
Reply
See replies to Q1 and Q2 of the US questions referring to the Incubators Programme.
(b) If the grant is fully repaid, does the repa yment include the payment of interest on the
grant amount?
Reply
Repayment is linked to the US dollar and includes yearly based on the Libor rate.
(c) Could Israel indicate when th e programme came into existence?
Reply
See reply to Q5 of the US questions referring to the Incubators Programme.
(d) Does the programme have an unlimited duration? If not, please indicate the duration of
the programme.
Reply
The programme is an ongoing programme.G/SCM/Q2/ISR/12
Page 11
Q4. Beta Sites
(a) Could Israel explain how the determinatio n of whether a programme is successful is
made?
Reply
See reply to Q4 of the US questions referring to Beta Sites.
(b) If the grant is fully repaid, does the repa yment include the payment of interest on the
grant amount?
Reply
The Beta Site grant is repaid under the same terms as the R&D grant.
(c) How long is the repayment period for the royalties?
Reply
Royalty payments are paid out over a period of time until the grant has been repaid.
(d) Could Israel indica te when the programme came into existence?
Reply
See reply to Q1 of the US questions regarding Beta Sites.
(e) Does the programme have an unlimited duration? If not, please indicate the duration of
the programme.
Reply
The programme is an ongoing programme.
II. Aid to Small and Medium-sized Companies
Q5. Small Business Authority
(a) Could Israel explain the terms and conditions of the loans granted under this
programme, in particular concerning interest rate and repayment period?
Reply
The Government serves as a guarantor for a commercial bank loan given to small businesses.
The loan is given for a period of up to five years for the purchase of equipment or one year for
operating capital.  The credit limit for a single business is about $125,000.
(b) Could Israel indica te when the programme came into existence?
Reply
The Authority was established in 1994.G/SCM/Q2/ISR/12
Page 12
(c) Does the programme have an unlimited duration? If not, please indicate the duration of
the programme.
Reply
The programme is an ongoing programme.
III. Support for employment and training
Q6. Business tutorial programme
(a) Could Israel explain in which areas the company has to be located in order to benefit
from the programme?
Reply
Although this programme is not related to the ECIL, eligible areas are those defined as
disadvantaged zones under the ECIL.
(b) Could Israel indica te when the programme came into existence?
Reply
1991.
(c) Does the programme have an unlimited duration? If not, please indicate the duration of
the programme.
Reply
The programme is ongoing.
Q7. Enhancement of human resources
(a) Could Israel explain how a "development ar ea" in which the company has to be located
in order to benefit from the programme, is defined?
Reply
See reply to Q4 of the US questions regarding the Enhancement of Human Resources.
(b) Could Israel list the development areas relevant under this programme?
Reply
See reply to Q4 of the US questions regarding the Enhancement of Human Resources.
IV. Other Forms of Subsidies
Q8. The Encouragement of Marketing FundG/SCM/Q2/ISR/12
Page 13
(a) Could Israel elaborate on how the commerci al evaluation of applicants is in practice
conducted? Do applicants have to submit information on projected exports?
Reply
Applicants are evaluated based on a business plan which is submitted and proof of
expenditures according to the approved plan.  A business plan would contain all projected sales.
(b) Are all grants repaid under this programme?
Reply
See reply to Q2 of the US questions regarding the Encouragement of Marketing Fund.
(c) Could Israel clarify how the actual inte rest rate on the royalties is calculated?
Reply
Royalty payments are linked to the US dollar with the addition of a yearly interest based on
the Libor rate.
Q9. The Import Liberalization Fund
(a) Could Israel explain on the basis of which criteria it is decided whether the company
receives either a grant or a state guarante ed loan, in what amounts, and under which
conditions (e.g. interest rate, repayment period)?
Reply
See replies to Q2 and Q3  of the US questions regarding the Import Liberalization
programme.
(b) Is Israel's import liberalisation programme limited to certain sectors?
Reply
This programme has been terminated.  It was not limited to certain sectors.
(c) What are the eligibility criteria for receiving the subsidy?
Reply
See reply to Q2 of the US questions regarding the Import Liberalization Programme.
Q10. The Encouragement of Capital Investment
(a) Could Israel list the "development areas" as defined during the period covered by the
notification?
Reply
See reply to Q2 of the US questions regarding the Encouragement of Capital Investment and
Q3 of the US questions regarding the Enhancement of Human Resources programme.G/SCM/Q2/ISR/12
Page 14
(b) Please explain the criteria for "approved capital investment".
Reply
See reply to Q1 of the US questions regarding the Encouragement of Capital Investment.
(c) Could Israel elaborate on the subsidy given in form of reduced rates of taxation?  Please
identify the type of tax and the rate of the tax reduction.
Reply
A full tax exemption from corporate tax for a ten-year period on its undistributed income is
possible if the right to receive grants is waived for an approved enterprise.  This path is available for
enterprises located in Zone A, for a shorter period (six years) in Zone B and for two years in the
Central Zone.
(d) Could Israel indica te when the programme came into existence?
Reply
Amendment No. 4 to the Encouragement of Cap ital Investment Law (ECIL) authorized grants
in 1967.
(e) Does the programme have an unlimited duration? If not, please indicate the duration of
the programme.
Reply
The programme is ongoing.
Q11. Cost of Land Development
(a) Could Israel indicate how a "disadvantaged region" is defined? How are "industrial
areas" in disadvantaged regions defined?
Reply
A disadvantaged region is defined in accordance with the Law on Encouragement of Capital
Investments.  See reply to Q3 of the US ques tions regarding Enhancement of Human Resources.
(b) How is the subsidy granted and in what form?
Reply
The subsidy is granted in the form of par ticipation in the cost of land development to
compensate for the lack of necessary infrastructure in those areas (water, sewage, etc.).
(c) Could Israel indicate when th e programme came into existence?
Reply
We are still checking this.G/SCM/Q2/ISR/12
Page 15
(d) Does the programme have an unlimited duration? If not, please indicate the duration of
the programme.
Reply
The programme is ongoing.
__________