Israel WT/TPR/S/272 
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IV. TRADE POLICIES BY SECTOR 
(1) AGRICULTURE  
(i) Main features 
1. Israel has a small and dynamic agriculture sector .  Agriculture's share in GDP was about 1.9% 
in 2010 and accounted for 2% of employment, roughly unchanged since the last Review of Israel.  
Productivity has increased strongly in agriculture over  the past two decades, ma inly due to technical 
progress.1   
2. With its mild climate allowing around-the-year production2, and advanced technologies, Israel 
has been exploiting its comparative advantage in labour-and-capital-intensive horticulture and flower 
production, with fruit and vegetables accounting for more than half of the agricultural production 
value (totalling NIS 26.1 billion in 2010).  During the last decade, citrus orchar ds have spread due to 
increased demand for "easy peeler" fruit.  Production of  wheat and cotton has declined, mainly due to 
water scarcity. 
3. Israel has traditionally been a net-importer of  agricultural products.  Land-intensive crops 
(wheat, fodder, sugar, oilseeds) are mostly importe d.  About two thirds of imports of agricultural 
products enter Israel duty free, mainly under preferential agreements.3  Exports are mostly fruit and 
vegetables, and flowers.  In the livestock sector, Isra el is more or less self-sufficient in milk, poultry, 
and table eggs as a result of targeted support fo r the sector.  As a net-food importer, Israel is 
vulnerable to export restrictions imposed by other countries.4  Imports of non-kos her meat and meat 
products are prohibited (Chapter III(1)(iv)).  
4. The Government influences the productivity an d competitiveness of the agriculture sector, 
inter alia , through its control over the allocation of, and assistance for, basic factors of production 
(land, water, and foreign labour).  Most agricu ltural land is state-owned (about 94%).  Land is 
allocated to farmers by the Israel Lands Administration for a nominal fee; there is no market pricing mechanism for state-owned land.  A feature of Israe li agriculture is its cooperative organization, i.e. 
the kibbutz and the moshav (together these c ooperatives account for about 80% of output).
5  Over the 
last two decades, most of the kibbutzim have underg one some privatization.  Its members now receive 
differentiated salaries and the level of shared co mmitment has given way to preference for privacy 
and profit-orientation.  Many kibbutzim now derive  most of their income from tourism and other 
activities.  The kibbutzim subsector continues to benefit from debt restructuring and write-off for debts incurred largely following Israel's Economic Stabilisation Programme in the 1980s to combat 
hyperinflation.  According to the authorities, ther e are no government loan programmes for farmers or 
special repayment terms for agriculture.  
                                                      
1 Growth of total factor productivity in agriculture , which measures GDP per combined unit of labour 
and capital, almost doubled  between 1990 and 2008, and significantly exceeded the increase in the rest of the 
economy (OECD, 2010b, p.57). 
2 But damaging frost spells are not unusual (for example in 2008).  Israel has a Disaster Fund. 
3 WTO tariff profiles.  Viewed at:  http ://stat.wto.org/TariffProfile/WSDBTariffPF 
View.aspx?Language=E&Country=IL. 
4 See WTO document G/AG/R/60, 19 January 2011. 
5 A kibbutz is a cooperativ e originally characterized, inter alia , by collective ownership of land and 
other production assets.  A moshav is an agricultural village cooperative with some 60-100 family farms that are operated individually.   WT/TPR/S/272 Trade Policy Review 
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5. Israel is well-known for its highly-developed deser t agriculture and irrigation technologies.  It 
is at the forefront of promoting water conserva tion and efficient irrigation techniques (e.g. drip 
irrigation), water reclamation for agricultural use,  rain enhancement, and the development of salt-
tolerant crop varieties (e.g. desert sweet tomatoes).  Nonetheless, chronic water shortage is a serious 
environmental and economic problem, and a binding constraint on agricultural production.  About 
55% of the arable land is irrigated.  Agriculture  receives a 45% share of the national fresh water 
quota, with individual water quotas being tied to land.   Water tariffs are stil l cross-subsidized but 
according to a 2006 agreement between the farmers and the Government, water tariffs are to cover the 
average cost of production by 2015.6  The Government also provides assistance for on-farm irrigation 
facilities, and payments to compensate income losses resulting from water cuts.7  The reduction of the 
agricultural fresh water quota from 530 million m3 in 2007 to 450 million m3 in 2015 is compensated 
financially to the extent that farmers provide ev idence that they have in vested in water-saving 
technologies and practices. 
6. Agricultural labour costs are influenced by th e number of foreign farm workers (mostly from 
Thailand) allowed into the country.8  Their numbers are limited by an annual quota, which is to be 
reduced from 25,900 in 2008 to 18,900 by 2015.  Th e quota cut is compensated by incentive schemes 
that encourage employment of Israeli worker s and subsidize 40% of labour-substituting capital 
investment (mechanization).  
(ii) Policy framework 
7. The Government has a strong regulatory role in agriculture, particularly in the dairy 
subsector.  Israel's main agricultural policy objec tives are food security, and self-sufficiency for fresh 
dairy products, poultry, a nd eggs;  export expansion;  rural development;  and preservation of the 
environment.  The Government's rationale for self-su fficiency is that liquid milk is considered an 
essential nutrition for infants and children but there is  no trade in liquid milk.  Poultry and eggs are 
traditionally produced in the Galilee and along the northern borders;  self-sufficiency is aimed at 
supporting these rural areas and helping to spread th e population to less populated areas.  Government 
assistance to the agriculture sector is regionalized, with peripheral regions receiving higher levels of 
support.  
8. There are plans to modernize agriculture's le gal framework, which dates largely from the 
1950s and 1960s.  New or amende d legislation is under consider ation regarding the Law for 
Encouragement of Investment in Agriculture (1980);   the Control of Animal  Feeds Law;  and the 
Standards (Fruit and Vegetables) Law to regul ate production, marketing, and imports.  
9. Production and marketing boards, which operate at arm's length from the Government, still 
play an important role in agricultural markets (dairy, poultry, horticulture, honey, cotton, and groundnuts).  They are generally involved in the implementation of agricultural policy, including price support, and some have regulatory functions.  The marketing boards are exempt from generally 
applicable competition rules on restrictive arrangements (Chapter III(3)(ii)). 
                                                      
6 Water tariffs vary according to the type of water s upplied to farms (i.e. fresh or treated water) and the 
amount used.  Tariffs charged by the National Water Company (Mekorot) are NIS 1.792 per m3 (for 
consumption less than 50% of quota), NIS 2.05 per m3 (for consumption between 50% and 80% of quota);  and 
NIS 2.56 per m3 (for consumption between 80% and 100% of quota).  The tariff is NIS 2.85 per m3 for urban 
consumption.  
7 WTO document G/AG/N/ISR/17, 20 October 2000. 
8 Agriculture also benefits from preferential permit fees for foreign workers (NIS 1,000).   Israel WT/TPR/S/272 
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(iii) Domestic programmes 
Milk and eggs  
10. The dairy sector is tightly regulated and c ontrolled throughout the production chain, with 
measures ranging from milk production quotas, to reta il price controls of some basic dairy products 
(Table III.11)).  There are about 950 dairy farms in Israel. 
11. The reform programme for the dairy subsector initiated in 2004 to increase the 
competitiveness and address environmental concerns  was completed end-2007.  Measures included 
grants of up to 30% for investments to improve the e fficiency of dairy farms (larger herds) and grants 
of up to 50% for investments to comply with envi ronmental criteria, which were based on guidelines 
developed by the Ministry of Environmental Protection.9  Similar reforms for the egg subsector are to 
be launched in the near future, and, with a more  limited scope, for aquaculture and calf-feeding.   
12. In March 2011, the Knesset passed the Da iry Sector Planning Law (5771-2011) which 
replaces the Milk Market Planning Law of 1992.  The new law governs the entire dairy industry, from 
milk producers and dairies to the consumer.  Th e new law has two objectives: the development and 
improvement of the milk industry in Israel, to ensu re quality and safety in production and distribution; 
and to ensure a steady supply of milk and milk  products, while guaranteeing appropriate working 
conditions for manufacturing plants and dairies, as well as fair prices for farmers, dairies, and 
consumers.  
13. Israel has notified market price support for milk and eggs to the WTO Committee on 
Agriculture.10  The target price for milk is based on a formula approach (involving a survey of the 
average cost of production plus a certain return on  labour and capital, to ensure profitability of dairy 
farming).  It is adjusted every two months, and is   currently (May 2012) at NIS 2.09 per litre.  Over-
quota production receives about 20% of the guaranteed price.   
14. For table eggs, the Ministry of Agriculture  and Rural Development (MARD) publishes a 
recommended farm gate price once a year, based, inter alia , on cost of production.  The authorities 
note that the recommended price is not mandatory but is more-or-less respected by buyers.  The 
recommended price for table eggs (currently averaging NIS 0.42 per egg) is used as a basis to 
establish the "supervised price" for table eggs at retail level (currently NIS 1.20 per egg). 
15. Price support for milk and table eggs is comp lemented by national and farm-level production 
quotas for milk and eggs, to ensure market balance.  Goat and sheep milk (about 1-2% of total milk 
production) are covered by the quota system.  Milk quotas are announced annually through Milk 
Orders.  As part of the dairy reforms, farmer s may trade milk quotas, allowing them to increase 
efficiency by purchasing milk quota.  Milk-quota a llocations are also used by the Government to 
encourage settlement in peripheral regions.  The price and quota policies are implemented by the 
Israel Dairy Board, and the Egg and Poultry Board.  
16. Poultry producers (broilers and eggs) along th e Lebanese and Syrian borders have received 
government assistance under the Galilee Law (1988).  The direct payments are based on an historical 
quota (in the case of table eggs, payments do not require  production).11  The subsidy, which is to be 
                                                      
9 See WTO documents G/AG/N/ISR/42/Rev.1, 14 Oc tober 2010, G/AG/N/ISR/45, 14 October 2010, 
G/AG/N/ISR/47, 15 March 2011, and G/AG/W/80, 11 January 2011. 
10 WTO documents G/AG/N/ISR/45, 14 October 2010 and G/AG/N/ISR/47, 15 March 2011. 
11 WTO document G/AG/N/ISR/17, 20 October 2000. WT/TPR/S/272 Trade Policy Review 
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phased out by 2017, amounts to about 17% of prod uction costs for eggs, and 13% for poultry meat.  
Quotas for broiler production were eliminated in 2007. 
Other commodities 
17. Israel has applied an administered pr ice for wheat, according to the OECD.12  The minimum 
prices are implemented by the MARD through purch ases of wheat for human consumption into the 
public food security reserve for emergency purpo ses (operated by the private sector).  The entire 
domestic wheat production, accounting for about 5-20% of domestic consumption, has been for public 
procurement.  Israel also maintains a reserve of imported fodder grains.   
18. Fruit and vegetables are zero-rated for VAT (Table III.5).  Surplus removal schemes for 
vegetables have been terminated.  Registered  companies benefit from full tax exemption on 
investments in fruit, subject to certain conditions.  
19. Under the Law for Encouragement of Investment  in Agriculture, farm ers are eligible for 
investments grants of up to 25% of approved expe nditures, depending on the region; investments also 
benefit from accelerated depreciation.  While all farm ers are eligible, most of the investment aid has 
been targeted at modernizing dairy production duri ng the reform period.  The MARD's current annual 
policy priorities are investments in water-saving and labour-saving technologi es. Annual expenditures 
are about NIS 35 million. 
20. Agricultural insurance is partially provided un der the Natural Disasters Law, and programmes 
are managed mainly by the state-owned Fund fo r Natural Damages in Ag riculture (KANAT).  
Premium subsidies amount to 35% for insurance ag ainst natural disasters in seasonal crops, and 80% 
for multi-risk insurance, which covers mainly perennial crops.  
21. As noted, agriculture's productivity advances ha ve been driven to a large extent by 
technological improvements.  This is underpinned by Israel's prioritization of research and development (about 17% of the agricultural budget in recent years) to lay the foundation for a more 
efficient and market-oriented sector.  Research is  carried out mainly by the Agricultural Research 
Organization of the MARD and is supported by bi -national funds for (agricultural) research and 
development with the United States and other count ries.  Research areas in clude the development of 
new plant varieties, biotechnology, and food conserva tion;  water recycling;  and mechanization.  
(iv) Border measures 
22. Border measures remain Israel's  main instrument of support to agriculture.  The average 
applied MFN tariff is 24.5% for agricultural products (WTO definition) in 2012, compared with 4.2%, 
for non-agricultural products (Table III.3).  Ag ricultural tariffs are relatively complex and non-
transparent because a substantial share is non- ad valorem  (specific, compound or mixed) (Table III.4).  
In addition, a number of fresh fruits and vegetabl es are subject to seasonally higher tariffs during the 
harvest period (20-30 tariff lines).  On the othe r hand, market access for agricultural products is 
facilitated through MFN duty-free access (about one third of the MFN tariffs are zero), tariff 
preferences, and tariff quotas.   
23. Tariff protection is highest for dairy products (averaging 109.9%, and up to 212%), animals 
and related products (42.3% ), and fruits and vegetables (35.2%), i.e. precisely those commodities that 
are most important in Israel's agricultural pr oduction (Table III.4).  High tariffs on fruits and 
vegetables are not conducive to the sector's export competitiveness, which is evident from the use of 
                                                      
12 OECD (2010b), p. 89. Israel WT/TPR/S/272 
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export subsidies (section (v) below).  Israel did not apply the Special Agricultural Safeguard (SSG) 
during 2005-08.13 
Tariff quotas 
24. Israel has WTO tariff quotas for 12 product groups (Table AIV.1).  All preferential 
agreements (with the exception of the agreemen t with EFTA) contain tariff-quota commitments for 
agricultural products.  Israel implemen ts over 100 MFN and preferential TRQs. 
25. The MARD is responsible for tariff-quota admi nistration for fresh agricultural products and 
cheese;  the MOITAL is responsible for milk powde rs and yogurts.  Several of the WTO tariff quotas 
have not been implemented, since the applied MFN tariffs were equal to or lower than the bound in-
quota tariffs.14  The remaining WTO tariff quotas and the preferential tariff quotas are implemented 
through licensing procedures as provided for unde r the Customs Tariff and Exemptions and Tax 
Order of 2006.   
26. The allocation method for processed food TRQs de pends on the number of applicants.  For 
oversubscribed TRQs, the MOITAL organizes two lotteries:  one is based on importers' past performance, i.e. actual imports (minimum 1 tonne ) under tariff quota, preferential or MFN regimes 
in two of the previous five years;  the other is for new entrants (a minimum 10% share of the total 
TRQ).  New entrants usually receive smaller TRQ shares than the experienced importers but still 
commercially viable quantities (a minimum of 1 c ontainer).  Allocations for undersubscribed tariff 
quotas are made according to demand.  For fresh pr oducts/cheese TRQs, first-come-first served with 
licensing is used, as a general rule.  Oversubscrib ed TRQs are allocated by lottery (this concerns 
about 4 to 5 out of 50 to 60 fresh products/cheese TRQs). 
27. TRQ levels and conditions are announced annually by the ministries on their websites and in 
two domestic newspapers.  The a nnouncement includes information on source countries, HS codes, 
and quota volumes.  All import licences issued by  the MOITAL and most licences issued by the 
MARD are valid from 1 January to 31 July.
15  In August, the ministries publish another notice, 
inviting importers to submit requests for quantities not utilized in the first seven months of the year.  
Those licences are valid from 1 September to 25 Dece mber.  Unused allocations must be returned.  
Importers that fail to use or return their alloca tions are excluded from eligibility in the subsequent 
quota year.  Allocations are not tradeable or transfer able.  Applications are free of charge.  Imports 
under MFN tariff quotas continue to exceed WTO tariff- quota volumes, except for edible fats and oils 
(Table AIV.1). 
(v) Export measures 
28. Israel has export subsidy reduction commitments for six product groups.16  Israel has notified 
that it did not use export subsidies in the 2006/07 ma rketing year.  Export subsidies were reintroduced 
for some deciduous fruit (other than citrus) in the 2007/08 marketing year .  They were part of a three-
year marketing programme, which is no longer in  place, to assist producers of high quality fruit.17  
                                                      
13 WTO document G/AG/N/ISR/43, 14 December 2009. 
14 WTO document G/AG/N/ISR/44, 23 April 2010.  
15 The validity of some licences issued by the Minist ry of Agriculture is shorter.  In these cases, 
importers may submit requests throughout the year. 
16 Fresh cut flowers, and fresh foliage;  vegetables;  fru its (not citrus);  citrus fruits;  goose liver;  and 
cotton. 
17 WTO document G/AG/W/83, 29 April 2011. WT/TPR/S/272 Trade Policy Review 
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Outlays totalled US$190,000 in 2007/08 and US$1 .36 million in 2008/09.  The export subsidy 
programme was notified in terms of producer-financed subsidies.18  
29. The Israel Groundnuts Production and Marketing Board operates as an export state-trading 
enterprise.  Certain agricultural products are subject to export licensing or authorization 
(Chapter III(2)(iii)).  The licensing/permit procedur es are implemented by the MARD for statistical 
purposes; to monitor compliance with health and qua lity requirements;  to examine financial solvency 
of exporters;  and to ensure compliance with in ternational commitments and intellectual property 
rights.  Exports of fruit and vegetables are license d by the Plant Production and Marketing Board.  
Agricultural exporters have access to export insura nce from the Israel Export Insurance Corp. Ltd. 
(ASHR'A) (Chapter III(2)(v)).  
(vi) Evolution of support and protection 
30. Members have expressed concern in the Committe e on Agriculture about Israel's breach of its 
total AMS commitment in 2008 (US$569.98 million).19  According to authorities, this was due mainly 
to a higher domestic support price for milk (applied ad ministered price) in re sponse to the increase of 
prices for imported fodder during the international f ood-price crisis in 2008;  a low fixed external 
reference price for 1986-88 (US$157/t of milk) used for the price-gap calculation; and the 
appreciation of the shekel vis-à-vis  the dollar in 2008.  Israel's 2009 notification on domestic support 
shows compliance with its total AMS commitment level.20 
31. According to the OECD, Israel's PSE (measured as a percentage of gross farm revenues) 
decreased from 20% in 1995-97 to 12% in 2008-10, wh ich means that 12% of farmers' revenues were 
due to support policies (financial suppor t, tariff and other border protection).21  The decline has been 
partly due to domestic reform, and partly thanks  to higher world market prices for agricultural 
commodities.  Israel's PSE level is significantly lowe r than the OECD average and one of the lowest 
among all OECD members (Chart IV.1).  However, cont rary to the OECD trend,  the share of Israel's 
support that is potentially most trade-distorting rema ins very high (close to 90% of the PSE is support 
tied to output or input use).  Israel has been slow in making reforms towards less trade- and 
production-distorting measures.   
32. Up to 80% of Israel's PSE, depending on the year, has been market price support.22  Market 
price support comprises all policy measures that raise the domestic price relative to the border price of the commodity concerned, including border meas ures (tariffs, tariff quotas, and other import 
restrictions); administered prices, and export subs idies.  The resulting price gap between the domestic 
and border prices is in effect a tax paid by consumer s, in a manner that is not transparent to them.  
Most support is for the livestock sector (poultry, eggs , milk, sheep meat, and beef).  Support to crops, 
                                                      
18 WTO document G/AG/N/ISR/46, 14 February 2011. 
19 WTO document G/AG/R/60, 19 January 2011. 
20 WTO document G/AG/N/ISR/47, 15 March 2011. 
21 PSE: total annual monetary transfers to farmers individually (not agriculture generally) from market 
price support, mainly through border m easures but also food aid, export s ubsidies (calculated by the price gap 
between domestic and border price), payments to farm ers, and tax/fee reductions (revenue forgone).  The 
percentage PSE is a useful indicator for comparisons over time and among countries, inter alia , because it 
eliminates the effect of inflation.  
22 The remaining 20% are budgetary payments under domestic programmes.   Israel WT/TPR/S/272 
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in particular fruit and vegetables,  is relatively low although this doe s not include the tax expenditures 
(revenue forgone), resulting from the VAT exemption.23   
0102030405060708090100
0 1 02 03 04 05 06 07 08 09 0 1 0 0Chart IV.1
Level and composition of support to agricultural producers
The level of support is presented by the percentage PSE. The composition of support is presented by the share 
in gross farm receipts of market price support, payments based on output and payments based on non-
constrained variable input use.Note: Israel
OECD
2008-101997-99Share of support based on commodity 
output and non-constrained variable 
input use in the PSE
PSEPer cent
OECD (2011) Agricultural Policy Monitoring and Evaluation , Paris. Source : 
(2) ENERGY  
Overview 
33. Israel remains dependent on imports for its energy and fuel needs.  However, large-scale 
offshore discoveries of natural gas have prompted a re view and reform of energy policy, taxation, and 
legislation.  Over time these discoveries may have  profound implications for the economy in terms of, 
amongst other things, energy security, energy-related infrastructure, or tax re venues.  At the same 
time, the Government is trying to strike a bala nce between the exploitation of fossil fuels and 
encouraging the development of less competitive re newable energies, in particular solar power.  
Natural gas and oil 
34. The overall use of primary energy in Israel am ounted to 20,657 tons of oil equivalents in 
2010, of which about half was used to generate electricity.  Energy was sourced from liquid fuels 
(47%), coal (34%) and natural gas (17%).  Israel  is using natural gas from its small capacity and 
depleting Yam Thetis field. Since 2009, major disc overies of natural gas deposits have been made off 
Israel's Mediterranean coast (Tamar and Leviatha n fields).  Production from the Tamar field by a 
consortium led by Nobel Energy Inc. of the United States is expected to be on-stream in 2013.   
                                                      
23 Tax expenditures are estimated at NIS 2.04 million in 2011 and NIS 2.12 million in 2012.  See 
Ministry of Finance (2010b) p. 18. WT/TPR/S/272 Trade Policy Review 
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35. The fiscal policy with respect to Israel's oil and gas resources has recently been reviewed 
(Sheshinski Committee).  The reco mmendations were adopted by the Government and took effect on 
10 April 2011 in the form of the new Taxation of Oil Profits Law, 2011.  A new oil and gas profits 
levy was introduced, thereby raising overall taxation to 52%-62% of ne t profits after repayment of the 
investments, while the depletion allowance was cancelled.24  
36. The Natural Gas Authority within the Ministry of Energy and Water Resources regulates the 
natural gas industry (Natural Gas Act, 2002).  The pipeline system from the gas wells to the national 
transmission system is owned and operated by the private sector..  Israel Natural Gas Lines Ltd. 
(100% state-owned) holds a licence to operate and develop the natural gas transmission system.  The 
regional distribution networks ar e operated by the private sector; distribution licences are issued by 
government tender.  To encourage a competitive do mestic market for natural gas, the regulator 
requires the national or regional licensees (monopolists) to provi de open access without 
discrimination to all consumers and marketers of natural gas.25  Service fees for infrastructure services 
(transmission and distribution) requi re approval from the regulator; cons umer prices of natural gas are 
not regulated.26  Anti-competitive practices in the gas market  (gas cartel) have been pursued by the 
Israel Antitrust Authority, resulting in a prison sentence in one case.27   
37. Israel has no domestic oil production.  The state-owned monopoly Oil Refineries Ltd. at 
Ashdod and Haifa was restructured into two compan ies to enhance competition, and privatized in 
2007; and prices of refined petroleum products have  been deregulated.  Refined products may be 
imported without quantitative restrictions.  Tariffs for short-term storage and transport services of 
refined products are regulated by the Fuel Aut hority within the Ministry of Energy and Water 
Resources.  Gasoline prices at petrol retail stati ons are also regulated (Table III.11).  Petroleum 
products are subject to VAT and excise tax (revised quarterly in line with inflation).  
Electricity and renewable energy 
38. Israel's electricity generation capacity barely  meets current demand and, although supply 
reliability has generally been high, shortages are expected in the fu ture.  There is no international 
trade in electricity to offset shortages, since Is rael is not connected to the grids of neighbouring 
countries.  In 2008, the Government launched an emergency plan to expand production capacity.  
Conversion from coal/oil-fired to gas-fired power pl ants is under way (Table IV.1), and resulted in 
substantial cuts in electricity tariffs in Febr uary 2010 (9.6% for consumers, and 16.3% for the 
commercial sector).  Israel's electricity tariffs have been among the lowest among OECD countries, 
thereby discouraging the necessary investments in ge neration, transmission, an d distribution facilities 
by the Israel Electric Company.  
39. Reform of the electricity market is under way to end the monopoly of the Israel Electric 
Corporation (IEC), mainly through the  licensing of independent power producers.  The Government pursues the objective of fostering a competitive mark et structure in electricity generation, while 
maintaining a natural monopoly in transmission,  and regional monopolies in distribution.   
                                                      
24 Previously, the Government's take of hydrocarbon rents was relatively low, with royalties levied at 
the rate of 12.5% of profits, and overall taxation of about one third of net profits (including a depletion 
allowance of 27.5%).   
25 Marketers are not required to establish a natural gas infrastructure. 
26 Ministry of National Infrastructures:  Natural Gas Authority (undated). 
27 Israel Antitrust Authority Press Release "The Gas Cartel: The Court Convicts the Previous Director-
General of Dorgaz", 26 October 2008.  Viewed at:  http://eng-archive.antitrust.gov.il/ANTItem. 
aspx?ID=156&FromSubject=100223&FromYear=2011&FromPage=0. Israel WT/TPR/S/272 
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40. The regulatory framework for electricity remains fragmented.  The principal regulators are the 
Ministry of Energy and Water Resources, the P ublic Utilities Authority - Electricity (PUA), the 
Government-owned Companies Aut hority, and various other government institutions in the case of 
projects by independent power producers (IPPs).  Th e regulatory authority (PUA) is responsible for, 
inter alia , setting tariffs, issuing licences, and supervising the Israel Electric Corporation.  
41. Israel produces only 0.4% of its electricity from renewable sources, excluding solar energy 
for heating water (corresponding to about 3% of the national use of primary energy sources).  The 
government target is to generate 10% of electri city from renewable sources by 2020 (Decision 4450 
of 2009).  The Government has established a target of increasing the generation of electricity by IPPs 
to 20% of the country’s installed generating capacity. 
Table IV.1 
Israel Electric Corporation generating capacitya, by type of fuel 
(%) 
 2005 2010 
Gas 11.6 36.6 
Coal 74.6 61.0 
Fuel oil 8.5 0.9 
Diesel oil 5.3 1.5 
 
a There are only a few private electricity generating companies.  
Source : Israel Electric Corporation, Statistical Report, 2010.  
(3) MANUFACTURING  
(i) Industrial policy developments 
Overview 
42. Manufacturing contributed 13.6% to GDP and 12. 3% to employment in 2010.  The relatively 
labour-intensive traditional industries, such as food a nd textiles, have continued to declined as a share 
of manufacturing GDP, reflecting Israel's comparativ e advantage in capital-intensive high-tech goods.  
Israel's manufacturing sector is export-oriented  and thus highly depe ndent on global economic 
developments.  On average, over 40% of total manuf acturing output is exported but the export share 
exceeds 70% for the high-tech indu stry.  Leading exports include electronics, pharmaceuticals, 
chemicals, and diamonds (Table AI.1).28  In 2009, 96% of manufacturing exports originated from 840 
export-intensive enterprises (7.2% of all manufacturing establishments).29   
43. The Government's main policy initiatives to strengthen the competitiveness of the 
manufacturing sector include establishing a more favourable tax environment for manufacturers 
within the framework of the reform of the Law on Encouragement of Capital Investment, and a 
substantial increase in assistance for R&D.  Other policy developments include the sector's greater 
openness to (duty-free) manufacturing imports, r esulting from unilateral trade liberalization and 
Israel's enlarged network of FTAs.  The Govern ment's commitment, within the framework of the 
                                                      
28 Israel is one of the world's major trading centres for rough diamonds and one of the largest exporters 
of polished diamonds, earning about US$800  million in foreign currency (net).   However, trade in diamonds is 
excluded from Israel's trade statistics.   
29 Central Bureau of Statistics (2011). WT/TPR/S/272 Trade Policy Review 
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renegotiated GPA to phase out its offset policy fo r government tenders covered by the GPA also 
signifies a change in Israel's industrial policy (Box III.1).   
Tariffs 
44. Applied MFN manufacturing tariffs average 5.8% in 2012 (Table III.4), with over half of the 
tariffs at zero.  The food industry aside, average tari ff protection is highest in the textiles and clothing 
sector (Table AIII.I).   
Incentives  
45. Israel has established a more favourab le tax environment for manufacturers 
(Chapter III(3)(i)).  Since its last TPR, the standard  corporate tax rate has been reduced from 34% to 
24%.  Tax rates may be as low as 5% for investment s eligible for preferential tax treatment under the 
Law on Encouragement of Capital Investment.  Th e fruit and vegetable processing industry benefits 
from an exemption from VAT. 
46. Since its adoption in 1959, the Law on Encour agement of Capital Investment has undergone 
various reforms.  In 2011, the objectives of the law were revised to focus on growth in the business 
sector, achieving international competitiveness, and pr omoting employment and development.  In the 
recent reform of the law, its incentives structure was amended to address criticism and evidence that 
the previous scheme distorted the allocation of resources by encouraging capital-intensive investments at the expense of labour and existing capital;  that th e tax benefits were conc entrated among a limited 
number of (high-tech) companies in the centre of th e country;  that the structure of the tax incentives 
was stacked in favour of foreign investors; and that there was no market failure to justify tax 
incentives to encourage the exploita tion of natural resources.  The modified incentives structure is 
aimed at shifting assistance from high-tech companies in central Israel to the periphery.  However, it 
remains to be seen whether this change will be su ccessful, as past reform efforts have been largely 
ineffective in promoting economic de velopment in the peripheral regions.
30  The law's incentives 
remain conditional on export performance (25% of sales must be exported), although Israel has been 
running a current account surplus since 2003.  Acco rding to the authorities, the export criterion 
promotes, and is consistent with, one of the law's objectives, namely to strengthen firms' competitive 
capabilities in the global markets.  They note that resear ch by the Bank of Israel suggests that there is 
a strong correlation between export capabilities and highe r productivity, which is reflected in higher 
wage levels. 
(ii) High-tech industries  
47. The high-tech sector is one of the main drivers of growth and competitiveness of the 
economy.  Its comparative advantage is based on many factors, notably an innovation culture and infrastructure that benefits from the world's highest  expenditures as a share of civilian R&D (4.4% in 
2010).
31  From 2007 to 2009, the sector contribute d about 45%, 42%, and 52%, respectively, to 
Israel's GDP.32  High-tech activities account for around 218,000 jobs (6.8% of total employment).  
                                                      
30 Ministry of Finance (2010b). 
 31 Central Bureau of Statistics online inforrmation. Viewed at: 
http://www.cbs.gov.il/reader /newhodaot/hodaa_ template.html?hodaa=201112208. 
32 The high-tech sector includes: office and compu ting equipment, electroni c components, aircraft, 
electronic communication equipment, e quipment for control and supervision,  and pharmaceutical products.  The 
high-tech sector (ICT only) accounted for about 15 .7% of GDP in 2010 (c omprising communications, 
semiconductors, innovation centres, security technology, software/hardware, and the internet).   Israel WT/TPR/S/272 
 Page 67 
 
 
Exports of high-tech products amounted to 47.3% of total exports of goods and services (excluding 
diamonds) in 2011.33 
48. In 2010, the Ministry of Finance launched the Competitive Advantage National Plan: 
Promoting Israeli High-tech Industries, with the aim to support and strengthen the high-tech sector 
following the global financial crisis.  The main objec tives of the plan are:  to encourage creation of 
big high-tech firms; focus on governmental R&D;  strengthen academia-industry relations;  adapt the 
Office of the Chief Scientist's schemes;  promot e mutual R&D between the civilian and defence-
related industries; expand into new technological branches; enhance new funding sources to the 
industry; strengthen into scientific and technologi cal education, and "bringing back brains".   
49. Bio-technology is one of the Govern ment's priority sectors, with a view to developing it into a 
larger bio-technology industry.  Targeted assistance  includes a Biotech Investment fund, established 
in 2010 (NIS 250 million) to assist bio-tech compani es in the process of clinical development.  Some 
of the R&D funds administered by the Office of th e Chief Scientist also provide targeted assistance 
for bio-tech innovation (Table AIII.3). 
50. Israel's venture capital industry has been adve rsely affected by a decline in the flow of 
investment following the global financial crisis (Cha rt IV.2).  In 2010, the Government announced a 
programme to mobilize venture capital by local instit utional investors to reduce the industry's reliance 
on foreign capital.  The programme, funded with about NIS 200 million, provides a safety net for 
institutional investors, guaranteeing up to 25% of th eir investments in case of commercial failure.  
There are currently about 4,000 start-up companie s in Israel and 250 foreign R&D centres of 
multinational companies. 
 
                                                      
33 Central Bureau of Statistics  online information.  Viewed  at:  http://www.cbs.gov.il/www/ 
indicators/ind_tab24.pdf. WT/TPR/S/272 Trade Policy Review 
Page 68 
  
02004006008001,0001,2001,4001,6001,8002,000
2006 2007 2008 2009 2010Chart IV.2
Capital raised by vent ure capital and private equity funds, 2006-10
US$ million
Source:   The Israeli authorities.Private equity Venture capital
44%30%
35%
84%
56%70% 65%
16%1,3311,777
1,479 1,444
84
 
 
(iii) Automotive industry 
51. Israel has no significant domestic automobile industry.  Maximum MFN tariffs on cars are 
7% and imports from Israel's FTA partners ente r duty free (purchase taxes apply).  To enhance 
competition in the domestic automobile market, para llel imports from overseas car dealerships have 
been allowed since 2010.34  However, so far there have been no parallel imports of vehicles.  
52. Automobiles are subject to purchase tax and VAT .  Since 2009, car purchase taxes have been 
reformed based on emission levels (Green Tax Re form).  Electric and hybrid cars qualify for reduced 
purchase taxes of 10% and 30%, respectively, co mpared with a maximum of 83% for the most 
polluting petrol-driven cars.  The purchase tax for some petrol-driven models may be as low as 25%, 
depending on the emission level.  The Government 's strategy to reduce greenhouse gas emissions 
includes the promotion of a nationwide electric car infrastructure.  A countrywide charging network 
for electric cars is being developed and operate d by the company Better Place, while its partner 
Renault-Nissan started selling electric cars in Israel in 2011.  
(4) SERVICES  
53. Israel's specific commitments under the GATS cove r 58 subsectors, while the average is some 
40 for developing economies and over 100 for develope d economies, out of a total of close to 160 
subsectors.   Israel is a signatory of the Fourth Protocol (on telecommunications services) and the 
                                                      
34 Control of Commodities and Services Order (Import of Vehicles and Vehicle Servicing), as amended 
in 2010. Israel WT/TPR/S/272 
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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 co-production and distribution; and 
banking.35  For the first group, Israel grants differen tial treatment to persons from countries with 
which it has co-production arrangements or is engage d in film and video distribution.  In banking, 
Israel retains the right to grant licences only to su ppliers from countries that grant Israeli suppliers 
similar access.  
(i) Financial services 
Overview 
54. Financial services accounted for 7.3% of GDP and 4% of employment in 2010, suggesting 
that labour productivity is almost twice as high as in th e rest of the economy.  Israel's financial system 
has weathered the global financial crisis comparatively well.36  While the Bank of Israel (BOI) used 
monetary and interest-rate policy to restore liquidity  in the financial system, the Ministry of Finance 
provided government guarantees to the banking system  to help alleviate the credit squeeze.  The 
resilience and stability of the financial system has al so been attributed to th e conservative supervisory 
approach by the BOI, which limited banks' expos ure to various risks, including housing loans.  
Institutional investors have had limited expos ure to sub-prime mortgage-backed bonds.  
55. Since Israel's last TPR, far-reaching structural re forms have been carried out in its financial 
services sector to promote competition and enhance th e efficiency of financial intermediation.  The 
capital market reform (Bachar reform) has fundame ntally transformed the landscape of Israel's 
financial system by requiring banks to sell their hol dings in mutual and provident funds, in order to 
break up the high level of concentration in the sector .  Insurers and other intermediaries, including 
foreign enterprises, have entered the market for fina ncial services that were traditionally controlled by 
banks.  The Israeli market has been opened to fore ign underwriters, investment advisers, and portfolio 
managers.  
Institutional framework 
56. The supervisory framework was not changed durin g the review period.  Banks are supervised 
by the Banking Supervisory Department at the Bank of Israel (BOI).  The Commissioner of the 
Capital Market, Insurance and Savings at the Mini stry of Finance is responsible for supervising 
insurance companies (life and general), pension fund s, and provident funds.  The Israel Securities 
Authority is responsible for supervising the equity market, in particular the Tel Aviv Stock Exchange 
(TASE), mutual funds, brokers, securities firms, investment advisers, and portfolio managers.  
According to the IMF, given the fragmented supervis ory structure, "the capital market reforms would 
require the supervisory and regulator y functions to be enhanced to mitigate systemic risk that could 
arise from the transfer of mutual and provident funds to the non-bank sector".37 
57. The new Bank of Israel Law 5770 of 2010 stre ngthens the Central Bank's independence, 
aligning it with developments in other major jurisdictions.38  The main objectives of the Bank are 
listed and prioritized in the law:  to maintain  price stability;  to support other objectives of the 
Government's economic policy, especially growth, employment, and reducing social gaps provided 
that this support does not prejudice the attainment  of price stability over time;  and to support the 
                                                      
35 WTO document GATS/EL/44, April 1994.  
36 IMF (2010),  p. 75. 
37 IMF (2010), p. 4. 
38 BOI online information.  Viewed at:  http://www.bankisrae l.gov.il/deptdata/ 
pikuah/bank_hakika/eng/new_law_2010_eng.pdf. WT/TPR/S/272 Trade Policy Review 
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stability and orderly activity of the financial syst em.  The new law provides for the establishment of 
two new bodies in the Bank (the Monetary Committee and Supervisory Council), which are 
authorized to make decisions on monetary policy an d the management of the Bank, and are obliged to 
report their decisions to the Knesset , the Government, and the public. 
Structural reforms 
58. In 2005, Israel adopted legislation to reform the structure of its capital market, based on the 
recommendations of the inter-minister ial Bachar committee (Bachar reform).39  The reform of the 
capital market was motivated by the high degree of concentration within the banking sector and banks' 
domination of the capital market  (mutual funds, pension and prov ident funds, underwriting), which 
gave rise to conflicts between their business interest s and the interests of customers.  For example, 
there were material benefits for banks to advise customers to invest in the financial products under 
their ownership/management.  A regulatory approach to  control such conflicts of interest had failed.  
Therefore, the Government decided to restructur e the financial system, with the aim to increase 
competition in capital markets, reduce the cost of financial intermediation, and thereby enhance the 
efficiency and performance of the Israeli economy.  Capital market reform legislation entered into 
force in May 2005.40  The principal reforms include: 
 Market restructuring :  banks were required to divest (in st ages) their interests in mutual funds 
and long-term savings (provident funds, and advance study funds).  The restructuring was 
completed by 2007, with assets being sold to insurance companies and other institutions 
(brokers).  The legislation limits concentra tion among non-bank financ ial intermediaries, by 
establishing maximum market shares through acqui sition of 15% for pension funds and life 
insurance, and 20% for mutual funds. 
 Regulation of securitie s-related activities :  financial intermediari es were required to choose 
between financial and pension c onsulting, on the one hand, and marketing, on the other hand, 
to avoid conflicts of interest.41 
59. The Bachar reforms were not, per se , designed to reduce concentration within the banking 
sector, which remains fairly high by international st andards.  The banking sector is composed of five 
Israeli banking groups that togeth er controlled 93% of bank assets at  end 2011 (Bank Leumi (29%), 
Bank Hapoalim (28%), Israel Discount Bank (16% ), Mizrahi-Tefahot Bank (12%), and First 
International Bank (8%)).  The Israel Anti-trust Authority (IAA) has become more active in recent 
years on competition in the banking industry.  In 20 09, the IAA issued a decision that the five Israeli 
banking groups were invol ved in restrictive arrangements duri ng the 1990s and until 2004, concerning 
the exchange of information on bank fees.   
60. A lack of competition vis-à-vis  households remains a concern.  In July 2008, the Government 
reformed bank fees, to promote competition throug h better transparency on bank fees and charges, 
                                                      
39 Bachar Inter-ministerial Committee Report (2004). 
40 Regulation of Financial Services (Provident Funds) Law 5765-2005;  Regulation of Financial 
Services (Pension Counselling and Pension Marketing) Law 5765-2005;  and Enhancement of Competition and Mitigation of Concentration and Conflicts of Interest in the Capital Market Law.  The new laws involved 
amendments, inter alia , to the Regulation of Insurance Law, the Banking (Licensing) Law, the Banking 
Ordinance, and the Banking (Customers Service) Law. 
41 "Pension counseling" means counseling an individual on the value of saving by means of a pension 
product to which the counselor has no connection.  "Pension agent" is a person authorized to engage in pension 
marketing, meaning counseling an individual on the value of saving by means of a pension product to which the counselor has a connection. Israel WT/TPR/S/272 
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which were relatively high.  Banks were required by the Supervisor of Banks to rationalize their fee 
structure and post a uniform and intelligible list of charges for banking services.  Seven types of 
banking fees remain subject to price control by the Supervisor of Banks (Table III.11).42  As a result 
of the reform, bank fees decreased by about one thir d.   To provide househol ds access to alternative 
sources of credit, the Israel Postal Company has b een licensed to provide loan and credit-card services 
(see section (ii) below).   
61. In line with the recommendations by the Trajtenberg Committee (Box I.1), the Ministry of 
Finance and the Governor of the Bank of Israel established an inter-ministerial task force, in December 2011 (Shani Committee), to examine the e ffect of the existing structure of the economy on 
the level of competition in the various sectors, a nd the financial stability and efficiency of the 
economy.  The Committee was asked to recommend po licy measures with emphasis on the control of 
real companies over financial companies, the cont rol of a public company using a pyramid holding 
structure, and the manner of the allocation of public assets.
43   
62. There are no restrictions on the establishment (through local incorporation) of banks or on 
their acquisition by foreign residents, provided prude ntial requirements by the Supervisor of Banks on 
ownership and management are respected.44  There are no restrictions on the opening of branches of 
foreign banks and, in accordance with its GATS commitments, Israel does not limit activities of 
foreign providers of banking services.  Nonetheless, the presence of foreign banks in Israel remains 
limited due to high entry barriers, which can be a ttributed to geopolitical conditions and a relatively 
developed banking market.  The five branches of  foreign banks (BNP Paribas, HSBC, Citibank, 
Barclays Bank P.L.C., and State Bank of India) together held less than 2% of bank assets in 2009 and 
operate mainly in niche markets (e.g. diamond industr y, mergers and acquisitions).  However, there is 
a large presence of foreign banks that are not deposit takers (underwriters, etc). 
63. Licensing and supervision of Israeli branches or subsidiaries of foreign banks are based on the 
"Concordat and Minimum Standards" agreed by the Basle Committee on Banking Supervision.  The 
criteria for licensing foreign banks to establish a banking subsidiary in Israel include:  stability with 
respect to capital, and financial s oundness of the parent bank;  high international rating;  supervision 
on a consolidated basis, and supervisory and contro l mechanisms for its international operations;  
compliance with the laws and regulations;  consent of the home bank supervisor, and consent of the 
foreign bank to transfer information;  and fit and proper checks on identifiable controllers.  The BOI 
also checks the level of control and regulation in the home country of the foreign bank.  These criteria 
also apply to the establishment of a foreign bank branch in Israel. In this case, the bank provides 
"endowment capital" to the branch to enable stability restrictions to be applied.  The minimum capital 
requirement for banks is NIS 10 million.  Permitted banking activities include classic banking 
intermediation, with a focus on commercial banking, e.g. mortgage banking, banking abroad (subsidiaries and branches);  credit-card activities;   pension consulting;  trading of securities, 
                                                      
42 Fees for regular cheque books; information car ds;  housing loans; agreements to create a lien 
(collateral) with another bank;  tran sfers of securities to the customers de posit in another bank;  transfers to 
foreign currency in Israel to  the same customer's account. 
43 For the Committee's final recommendations, see Ministry of Finance online information, "Committee 
on Increasing Competitiveness in the Economy.  Viewed at:  
http://www.financeisrael.mof.g ov.il/FinanceIsrael/Docs/En/publications/Appendix.pdf. 
44 In terms of management, at least two thirds of the board of directors of a banking corporation must 
have permanent resident status in Israel.  A foreign resident may not be chairperson of the board of directors of a 
banking corporation, unless (s)he participates regularly in  meetings of the board.  The chief executive officer 
and the compliance officer should be permanent Israeli residents.   WT/TPR/S/272 Trade Policy Review 
Page 72 
  
including derivative products, exchange-rate and interest-rate instruments and other negotiable 
instruments;  and underwriting.45 
64. Israel has no deposit insurance scheme.  The IM F observes that the Government's policy may 
be "treating almost all banks as too important to  fail", and consequently supervises them very 
closely.46  In June 2010, the Banking Supervision Depart ment required banks to adjust the ratio of 
core capital to risk assets to at least 7.5% by the e nd of 2010;  9% by 1 Ja nuary 2015, and 10% for the 
two largest banks by January 2017.  A new directive entered into force in January 2011, on the Measurement and Disclosure of Impaired Loans and Debt Securities, Credit Risk, and the Allowance 
for Credit Losses.   
65. In 2010, the Government launched a Financia l R&D Centers Support Programme to promote 
R&D by foreign financial institutions in Israel.  The programme provides grants over five years 
(Table AIII.3).  The grants are non-repayable and are not subject to royalty payments. 
66. The Government has further reduced state-owners hip in banks since the last TPR of Israel.  
Discount Bank has been fully privatized and the St ate's stake in Bank Leumi has been reduced to 
currently 6.03% of capital and 6.46% of voting rights (April 2012).   
Insurance 
67. The Bachar reforms have resulted in some dive rsification of control of the financial assets 
from the banking to the non-banking sector.  Insurance companies have extended their scope of business considerably through subsidiaries, which now c ontrol most of Israel's financial assets in the 
form of pension and provident funds, as well as mutual  funds.  In 2010, the top five insurers (Migdal, 
Harel, Clal, Phoenix, Menorah) controlled about 90% of the life insurance market and about 63% of 
the non-life insurance markets.
47  As of 2011, 23 insurance companies were established in Israel, of 
which 3 were foreign-owned (Migdal, AIG Israel, and ICICI).  Insurance premiums totalled about 
NIS 43 billion in 2010 (up from about NIS 35 billi on in 2006), split fairly evenly between life and 
non-life premiums.  The Israeli insurance market is  fairly significant by international comparison, 
both in absolute and relative terms (with an insurance penetration of about 5% of GDP).48  
68. The regulatory framework for insurance service s is based on the Supervision of Insurance 
Services Law, the Insurance Contracts Law, and the Insurance Business Supervision Law of 1981.  
The licence defines the insuran ce subsector in which the insurer may operate.  Minimum capital 
requirements are NIS 35 million for life insu rance, NIS 40 million for non-life insurance, 
NIS 60 million for life and non-life insurance combined , and NIS 20 million for credit insurance only.  
In recent years, capital requirements for licensed insu rers have become more risk-based and have been 
increased significantly (by 40% on average), while  corporate governance requirements have been 
strengthened.  In future, insurance companies will  be required to comply with a risk-based capital 
standard based on the "Solvency II" directive princi ples of the EU.  Foreign-based reinsurers may sell 
reinsurance directly or via brokers in Israel, and are not subject to licensing requirements in Israel.  
Cross-border supply of insurance services is not pe rmitted; individual policies may only be sold by 
licensed insurance companies.  In the case of Lloyds ' authorized underwriters, the agents may place 
business with Lloyds.  With the exception of autom obile insurance premiums, which are subject to 
                                                      
45 The list of allowed activities of commercial bank s is set out in Article 10-11 of the Banking 
(Licensing) Law, 5741-1981.  See BOI online information.   Viewed at:  http://www.b ankisrael.gov.il/deptdata/ 
pikuah/bank_hakika/eng/124.pdf. 
46 IMF (2010), p. 71. 
47 IMF (2012b).  
48 IMF (2012b). Israel WT/TPR/S/272 
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approval by the Commissioner, and mortgage in surance premiums, for which a maximum is set, 
premiums are market-determined.49 
Other capital market developments   
69. An underwriting reform entered into force in July 2007 to facilitate the process of public 
stock issues and encourage foreign investment.  The main element of the reform is to provide an 
option for foreign underwriters to operate through co mmercial presence in Israel , but there are Israeli 
nationality requirements for underwriters and boa rds.  A second mode of operation for foreign 
underwriters is pending before the Knesset:  Israel  would regulate foreign-based operators, except 
those subject to regulatory supervision on designa ted exchanges in the United States and the United 
Kingdom.50 
70. In 2010, due to the strong inflow of foreign funds, temporary capital restrictions were 
imposed and some tax incentives were removed.  By 2010, about 19% of the market capitalization on 
the TASE was accounted for by foreign companies.    
71. Competition in the credit market has increased fo llowing the Bachar reforms.  Businesses that 
were largely dependent on banks to provide credit have shifted from bank loans to corporate bonds.  
In 2010, the Commissioner published new procedures  for institutional investors in corporate bonds 
(based on the Hodek Committee recommendations).  
72. In March 2010, the law regulating investme nt advice was amended to allow foreign 
investment advisers and portfolio managers to pr ovide services in Israel.  The amendment opened the 
Israeli market for foreign investment adviser s in joint ventures with Israeli advisors. 
(ii) Telecommunications and postal services 
Overview 
73. The Government has introduced further refo rms in the telecommunications market to 
stimulate price competition and innovation among operat ors.  Reforms include a substantial reduction 
of mandatory interconnection fees;  improved portability; an incen tives-based regulatory regime to 
encourage the establishment of wholesale markets for fixed-line and mobile telephone services 
(mandated access to fixed networks, mobile vi rtual network operators ), and promotion of 
infrastructure-based competition by granting two additional UMTS network licences.  The 
establishment of an independent regulatory au thority for telecommunications is still under 
consideration by the Government.   
Telecommunications 
74. Telecoms revenues reached NIS 30.1 billion in 2010, over half of which was from mobile 
telecommunications (Table IV.2).  Israel's penetr ation rate for mobile telephone services is high by 
international standards (129% in 2009).  The rate for broadband subscriptions in 2009 was 
approximately 24%, in line with the OECD average. 
                                                      
49 Ministry of Finance online information.  Viewed at:  http://ozar.mof.gov.il/ 
hon/bituah/docs/circulars01.pdf. 
50 New York Stock Exchange (NYSE);  American Stock Exchange (AMEX); National Association of 
Securities Dealers Automated Quotation - National Market (NASDAQ-N M); and London Stock Exchange's 
Main Market. WT/TPR/S/272 Trade Policy Review 
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Table.IV.2 
Distribution of revenues in the communication market, 2007-10 
(%) 
 2007 2008 2009 2010 
Land line 15 14 14 14 
Mobile 55 55 56 56 
International operator 6 6 5.5 5.5 
Television:  cable/satellite 12 13 13 13 
Internet 9 10 11 11.5 
Other 2 2 0.5 0 
Total (NIS million) 27, 989 28,720 29, 036 30,108 
Source : Information provided by the Israeli authorities. 
75. Progressive liberalization of the Israeli teleco ms market began in 1994 with the entry of 
Cellcom to compete with Bezeq (the incumbent) in mobile telephony.51  As of January 2012, there 
were seven domestic fixed services operators (Bezeq;  HOT;  Smile, Cellcom;  Partner; Veidan Conferencing Solutions;  and  B.I.P.);  five infrast ructure-based mobile services operators (Cellcom;  
Pelephone;  Partner;  MIRS;  Golan Telecom);  five  operators providing international services (Bezeq-
International, Netvision, Smile, Te lzar, and Hilat);  and three mobile  virtual network operators (Rami 
Levy Shivuk Hashikma Telecom, youPhone, homeCe llular).  Bezeq and the cable company HOT are 
required to provide telephony a nd broadband nationwide under a universal service obligation.  There 
are three large internet service providers (Bezeq  International, Smile, and Netvision), and about 
70 smaller ISPs. Foreign ownership restrictions continue to apply for domestic, international, and 
wireless telecommunications services, considered  to be essential infrastructure (Table AII.2). 
76. The institutional framework for telecoms remains unchanged.  The Ministry of 
Communications is responsible, inter alia , for telecommunications policy, regulation, and supervision 
of the incumbent (Bezeq).  Is rael still has no independent regulatory authority for telecoms.
52  The 
Israel Antitrust Authority is responsible for enforcing competition in the sector (Chapter III(3)(ii)). 
77. The licensing scheme is based on seven types of "general" licences for the provision of 
telecommunications or broadcasting services: do mestic telephony provider (DTP) for fixed-line 
services, including universal service obligation (USO);  specialized domestic telephony provider 
(SDTP) for fixed line without USO;  mobile te lephony provider (MTP);  international telephony 
provider (ITP);  broadcasting licence (B) for cable a nd satellite subscriber, multi-channel  television;  
and mobile virtual telephone provide r (MVNO).  "Special" licences are i ssued for the provision of, for 
example, internet access (ISP licence); the CPE lic ence allows for the resale of landline services, 
aimed mainly at businesses. 
78. Tariffs for telecom services are not regulated in competitive market segments, e.g. outgoing 
domestic calls for operators other than the incumben t, outgoing cellular calls, and international calls.  
In markets with high concentration the tariff structure is controlled by the Minister of 
Communications:  this includes domestic telephony,  where Bezeq has approximately 70% of the 
market share;  and multichannel TV broadcasting, where HOT has more than 60%.  Prices of 
broadband access are not under tariff control.  The Mi nister of Communications sets prices for fixed-
line services to private and business consumers by incu mbent Bezeq (but not for its competitors).  The 
Minister, after consultation with the Minister of Fina nce, sets termination rates. Cross-subsidization of 
competitive services with monopoly services (as defined by market share only) is not permitted. All 
                                                      
51 International telephone services were opened to competition in 1997 and fixed domestic services in 
1999. 
52 Draft legislation to establish a communications au thority was submitted in 2004 but the process has 
been suspended.  Israel WT/TPR/S/272 
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tariffs by all operators are required to be "r easonable" and are subject to ex-post regulatory 
intervention if they fail to meet reasonableness criteria.53 
79. The Government launched a number of telecom reforms during the review period, aimed at 
enhancing competition, stim ulating innovation, and increasing the supply of services:54 
 the Government is currently promoting a  wholesale market for fixed communications , based 
on mandated wholesale access to the Bezeq a nd HOT networks (lo cal loop unbundling).55  
The procedure is to let access seekers negotiate for 6 months; if there is no agreement, the Minister will mandate the terms of access, including tariffs, to the infrastructure of Bezeq and HOT.  Price controls would then be lifted.   A mobile virtual network operator (MVNO) 
licensing regime, introduced in 2009, allows ma rket entrants to lease and resell mobile 
network capacity of another ope rator.  Eight such licences have been granted and one 
provider has begun commercial operations (see above).  MVNO licensing regulations entered 
into force in January 2010.
56 
 
 number portability  was introduced in 2007 for both fixed and mobile services (Portability 
Law of 1 September 2006).  Number portabilit y eliminates one of the main barriers for 
customers to switch from one operator to another (" churn").  Israel's churn rate of 1.5% per 
year remains relatively low by international standards.57  Since 2010, the Government has 
regulated the exit fines that mobile companies charge customers leaving before the end of 
their contract and these are currently being phased out.  
 interconnection tariffs are fixed by the Government and not subject to negotiation between 
operators.  In August 2011, after a new cost model was prepared (covering third-generation 
technologies and increased levels of use), the Government reduced interconnection charges 
between operators to bring them into line with costs;  charges are to fall  by about 80% (from 
the 2010 level of NIS 0.251/minute) by 2014, to NIS 0.0687 from January 2011 and NIS 0.0555 from 2014.    
 
 two additional cellular operator licences  were tendered by the Government in 2010, due to 
weakening competition in the mobile telephon y market among the three main operators 
(Cellcom, Pelephone, and Partner Or ange), mainly in the private-customer segment.  The new 
licensees, MIRS (an existing smaller player in the market) and Golan Telecom, have undertaken to develop countrywide advanced cellular broadband (UMTS-3).  To reduce entry 
barriers during roll-out, the three main operators will be required to provide roaming services 
to enable the new operators to offer countrywide  services.  The Government is also offering 
                                                      
53 "Reasonableness" is a general clause whereby conditions differ, depending on the situation, which 
allows the regulator some discretion. 
54 The reforms are based, inter alia , on the recommendations of the Report of the Committee for 
Detailed Recommendations regarding Policy and Competition Rules in the Telecommunications Industry in Israel 2008 (Gronau Committee).  Ministry of Communications online information.  Viewed at:  
http://www.moc.gov.il/sip_s torage/FILES/9/1519.pdf. 
55 Based on the Ministerial Policy Paper regarding Increasing Competition in the Fixed Communication 
Sector – Wholesale Markets (2 May 2012). 
56 Administrative regulations setting out terms and procedures are available on the Ministry of 
Communications' website. 
57 Bank of Israel (2010), p.93. WT/TPR/S/272 Trade Policy Review 
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financial incentives (licence fee exemption) that are linked to market performance.58  A tender 
committee has been establi shed to allocate fourth-generation spectrum.  
 
 the Government plans to licence the Israel Electric Corporation as a third communications 
infrastructure operator to promote competition with Bezeq and HOT.  A process was 
launched in 2011 to establish a joint venture betwee n the IEC and a private investor to build a 
fibre-optic-broadband infrastructure to homes  (covering 65% of the country within seven 
years).  Licensing will include a prohibition on cross-subsidization between electricity and communications activities, and a requirement that the joint venture provide infrastructure to service providers in a "carrier's carrier" model (i.e. the company will make its infrastructure 
available to other operators and provide transmission services).   
 
Postal services 
80. The Israel Postal Company (IPC) had annua l revenue of approximately US$453 million in 
2011.  The IPC dominates the market in most se gments, excluding courier and expedited delivery 
services.  The company's exclusive privilege (monopoly)  is the transfer of postal items of less than 
500 g (not including bulk mail).  It is also require d to provide universal postal services.  Plans to 
privatize the company have been shelved. 
81. The IPC operates under a licence issued by the Minister of Communications, which allows 
the IPC, via the Postal Bank Ltd (a subsidiary of IPC), to provide a wider range of services, credit 
products and services, and to issue VISA credit cards (prepaid cards only).  In addition, the IPC may 
offer insurance and other services through a subsid iary.  Tariffs for the IPC's central services are 
controlled, on the basis of the recommendations of a public committee, and other tariffs are subject to 
a reasonableness condition.  The IPC may not cro ss-subsidize between services and segments.   
82. The market for courier services and international mail has been deregulated for many years.  
Bulk mail services have been open to competition since 2006/07.  At the beginning of 2012, the 
Ministry of Communications began a hearing to allow alternative bulk mail operators access to the 
IPC's distribution centres, allowing them to transfer  postal items to the IPC for delivery to customers 
that do not get postal items delivered to their home. 
(iii) Transport 
(a) Maritime transport 
Overview 
83. Israel is a net-importer of transport services.
59  Most of Israel's trade is by sea or air.  Israel's 
seaports at Ashdod, Eilat, and Haifa handle about 98 % of the volume of the country's imports and 
exports.  Since its last Review, Israel has further reformed its port sector to stimulate competition and 
increase lagging productivity.  A new port-user fee scheme is being phased in from October 2011, to 
put an end to imports effectively cross-subsidizi ng exports, and to base the fees on costs.  The new 
scheme also encourages cargo handling at night.  Th e privatization of Israel's state-owned port 
companies also began in 2010.  
                                                      
58 The companies will be exempt from licence fees when they reach a market  share of 7% of new 
private customers within five years af ter the issuance of the licence.   
59 WTO online information, "Israel Se rvices Profile".  Viewed at:   
http://stat.wto.org/ServiceProfile/WSDBSer vicePFView.aspx?Language=E&Country=IL. Israel WT/TPR/S/272 
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Port reform 
84. Reforms of the port sector began in 2004 to break the monopoly of the Ports Authority.  The 
reforms encompassed the establishment of:  three state-owned companies to operate the Israel's 
commercial seaports (Ashdod Port Company, Haifa Port Company, and Eilat Port Company);  a state-
owned company for management, maintenance, and de velopment of port infrastructure and real estate 
(Israel Ports Development and Assets Company);  and the Shipping and Ports Authority in the 
Ministry of Transport as the regulator of ports an d maritime shipping services.  The privatization of 
the Eilat Port Company is planned to be complete d by end of 2012.  According to an agreement 
between the Government and the trade union, the gra dual privatization of the ports was due to begin 
in February 2010 but, so far, privatization of the Ports of Haifa and Ashdod has not been 
implemented. 
85. Competition between ports tends to be limited fo r geographic or logistical reasons.  All three 
ports have several terminal operators:  (i) at the Port of Haifa, container throughput totalled 
1.24 million TEUs in 2011.  A new NIS 1.5 billion c ontainer terminal was opened in 2011 (Haifa 
Carmel terminal) operated by Haifa Port Company.  The cereal terminal is operated by Dagon;  the 
chemical terminal is operated by several operators , including Gadot and Haifa Chemicals;  the fuel 
terminal is operated by TASHAN.  Israel Shipyard s is competing with other ports on general cargo;  
(ii) at the Port of Ashdod, container throughput  totalled 1.16 million TEU s in 2011.  The cereal 
terminal is operated by Dagon;  the chemical terminal is operated by Israel Chemical Company;  and the cement terminal is operated by a private company;   and (iii) at the Port of Eilat, the chemical 
terminal is operated by Israel Chemical Company. 
86. After past unsuccessful attempts to reform por t user fees, a new scheme was introduced in 
October 2010 and will be implemente d gradually over ten years (Regul ation Act of the Supervision on 
Prices of Goods and Services (Port Services) 2010) .  The main change involves abolishing the 
wharfage fees that were charged as a percentage of  the value of the consignment (1.02% of the c.i.f 
import value and 0.2% of the f.o.b. export value), rather than reflecting the actual cost of cargo 
handling.  The new fees are based on operational costs of various services. The new infrastructure 
fees charged by the Israel Ports Development a nd Assets Company are determined according to the 
needs of developing the port infrastructure.  These infrastructure fees are set at NIS 510 
(January 2012) per 20-foot container and NIS 585 pe r 40-foot container, and will decrease to NIS 142 
and NIS 154, respectively, by 2019.
60  The reform will end the cross-subsidization of exports through 
imports (i.e. lower wharfage fees for exports than imports), and of low-value freight by high-value 
freight.  However, exporters are exempt from the new fees during a three-year transition period.  
Container-handling charges have been combined in to a single fee to be paid by the shipping 
companies.  Israel has had a very low rate of ni ght-time cargo handling (4% at Haifa), one of the main 
reasons for its relatively low port productivity.   The new fee structure provides incentives for ports to 
operate at night (NIS 75 reduction per container for trucks entering and exiting the ports between 10 
p.m. and 6 a.m.).  However, it remains to be seen wh ether this will be sufficient to encourage changes 
in the logistics chain towards night-time work. 
Shipping services 
87. All merchant shipping and transportation lines are owned and operated by private local and 
foreign shipping entities.  There are no restrictions on foreign investors for the supply of auxiliary port 
and maritime shipping services.  Foreign companie s are present in the supply of most auxiliary 
                                                      
60 For general cargo the infrastructure fees depend on the type of cargo. WT/TPR/S/272 Trade Policy Review 
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shipping services, including maritime agency services and maritime freight-forwarding services.  All 
services are available to users on an equal basis. 
88. In 2004, the Government started granting annu al financial aid of up to NIS 20 million to 
Israeli flag ships, and up to NIS 4 million to energy  ships (tankers, coal carriers, etc.) for employing 
Israeli nationals on board.  This policy is to be implemented until end 2013.  Israel imposes no 
limitations on foreign direct investment in maritime  transport.  To fly the Israeli flag, a vessel is 
required to be at least 50% owned by an Israeli enti ty.  However, exemptions are allowed.  Israel has 
no restrictions on maritime cabotage;  however, the authorities are considering cabotage measures based on the principle of reciprocity with third countries.  
89. The Minister of Finance is authorized to pe rmit conference agreements every six months.  
The Minister has used his authority and allowed conference agreements for a transitional period until 
a block exemption is approved (Chapter III(3(ii)).  
(b) Air transport 
Overview 
90. Since the last Review of Israel, the Government has reformed its air transport policies to 
encourage more competition between airlines.  Fi rstly, the Antitrust Law was amended to remove 
airlines' immunity from legal scrutiny of comme rcial arrangements that are likely to harm 
competition.  A number of anti-competitive code-share  agreements have since been disallowed by the 
Israel Antitrust Authority.  Secondly, the Gove rnment has concluded more liberal air services 
agreements with the United States, Colombia, and the EU, as well as with other aviation partners, to 
allow for multiple designation of airlines on schedul ed routes and carriers' freedom to determine 
frequency and capacity of flights. 
Reform of the competition law 
91. The air and maritime transport industries' immun ity from antitrust supervision has been lifted.  
One of the implications for airlines is that they can  no longer engage with impunity in price-fixing, 
market-sharing, and other arrangements that are pot entially harmful to comp etition.  In 2008, the 
Restrictive Trade Practices Law was amended to provide for a block exemption for restrictive 
arrangements between air carriers, which in effe ct cancels the airlines' exemption from antitrust 
scrutiny.
61  Subject to compliance with certain conditi ons, the block exemption specifies arrangements 
between airlines where cooperation is not considered  to undermine competition, and is likely to be 
efficient and for the benefit of consumers.  Tolera ted arrangement are:  technical arrangements (e.g. 
on aircraft maintenance and repair);  arrangements on aircraft leasing;  frequent flyer arrangements;  
connection arrangements (e.g. to allow an airline to  offer passengers continuing flights with another 
airline to destinations where it is not flying itsel f);  and marketing arrangements of flight capacity 
(e.g. an airline may sell some of its seats on a f light to another company).  However, code-share 
agreements that have the effect of reducing co mpetition on routes to and from Israel, or between 
Israeli airlines, require prior approval from the IAA.  The block exemption applies to new and 
existing arrangements.  Sixteen commercial agreem ents between El Al and foreign airlines, which 
cover matters such as code-sharing, coordination of flight frequencies, and r oyalty arrangement, have 
been examined by the IAA (six were disallowed,  five allowed, and the remainder withdrawn by 
                                                      
61 Antitrust Rules (Group Exemption for Arrangem ents between Aircraft Carriers 5769-2008). Israel WT/TPR/S/272 
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El Al).  The IAA noted that in some instances "the sole purpose of these agreements was to reduce 
competition".62    
92. The Government provides a subsidy of US$130 million annually for security expenses in 
foreign airports to enable Israeli airlines to comp ete with other airlines on a level playing field.  
According to the authorities, there are no other tax or non-tax incentives for airlines. 
Air services 
93. The Government pursues an open skies policy with the objective, inter alia , of enabling the 
designated carriers to determine capacity and frequ ency of scheduled flights without government 
approval, up to the third and fourth freedom right s (passengers and cargo).  In 2008, the U.S. Federal 
Aviation Administration (FAA) downgraded its rating of Israel's civil aviation standards, administered 
by Israel's Civil Aviation Authority.63  An open skies agreement with the United States entered into 
force on 29 March 2011.  Under the 2008 FAA decision, Israel's airlines are not allowed to establish new services to the United States and cannot fully be nefit from the liberalized air policy (open skies) 
with the United States.  The Israeli Civil Aviati on Authority is anticipating that civil aviation 
standards will be upgraded during 2013.  In April 2011, Israel signed an open skies agreement with 
Colombia.  Negotiations on a new aviation agreemen t with the European Union were concluded in 
March 2012;  the agreement will gradually open up  the bilateral air transport market, with no 
restrictions on the number of weekly flights between Israel and the EU. 
94. Since Israel's last Review, a number of bilatera l air services agreements have been liberalized 
to allow multiple carriers on scheduled routes and allow carriers to determine capacity and frequency 
of flights without government a pproval.  In 2008, the Government opened the market for competition 
with El Al by revoking its 2003 decision that restricted licences for new designated carriers on routes where El Al was operating until Ben Gurion Airport reached 10.7 million passengers.  The level of airline competition on scheduled routes at Ben Gurion Airport increased during the review period (Table IV.3).  Domestic flights between Ben Gurion  Airport and Eilat Airport are subject to a price 
cap based on a basket of inputs (fuel, wages, et c. minus 2% efficiency gains) (Table III.11). 
95. There are currently four designated Israeli air lines:  El Al, Israir Airlines, Arkia Israel 
Airlines, and C.A.L. Cargo Airlines.  The criteria for approving domestic carriers include  national 
ownership (a minimum of 66% of equity, except for El Al, for which the minimum is 51%), a 
minimum aircraft fleet (two aircraft owned or leased through a long-term financial arrangement), 
insurance coverage, access to sufficient financ ial resources (minimum equity of US$3 million for 
companies operating international routes, and lowe r requirements from companies operating domestic 
routes), and compliance with ICAO safety standards.   The share of passengers carried by foreign 
airlines in and out of the country was 59% in 2010.  No approval by the CAA is required for passenger and cargo fares, except for domestic flights (Table III.11). 
                                                      
62 For example, according to the IAA, in the El Al - Air India agreemen t it had been agreed that "El Al 
would pay Air India part of its revenues for the route, in exchange Air India refrained from operating flights on 
the same route …" IAA Press Release, "IAA publishe s grounds for decision not to exempt restrictive 
arrangements between El Al and se veral foreign airlines", 4 November 2009.  Viewed at:  http://eng-
archive.antitrust. gov.il/files/199/045-2009English.pdf. 
63 A downgrading to "Category 2" may be due to a lack of laws or regulations necessary to oversee air 
carriers in accordance with international standards, or because the civil aviation authority does not meet 
international standards in one or more areas such as technical expertise, trained personnel, record keeping, or 
inspection procedures (U.S. Federal Aviation Administration online information.  Viewed at:  http://www.faa.gov/about/initia tives/iasa/definitions/). WT/TPR/S/272 Trade Policy Review 
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96. The Israeli Airports Authority (IAA), a public co rporation, operates seven airports in Israel, 
provides air navigation services, and allocates slot s.  Some airport services, including ground 
handling, are operated by private companies license d by the IAA.  The cargo terminals are operated 
by private companies, which are also licensed by the IAA.  Ther e are no restrictions for foreign 
companies to provide ground-handling or self-handling services.  In the event of operational 
difficulties at Ben-Gurion International Airport in  Tel Aviv, the designated alternative airport is 
Larnaca, Cyprus, as the existing civil airports are not able to serve aircraft that are operating at Ben Gurion airport.  The new airport near the city of Eilat (Timna) is planned to serve as an alternate 
airport.  Charter operators may be diverted to Isra el's other international airport at Ovda, north of 
Eilat. 
Table IV.3 
Passenger volumes and market shares  at Ben Gurion Airport, 2006-10 
Year 2006 2007 2008 2009 2010 
Total passenger traffic ('000) 8,796 10,076 11,033 10,479 11,463 
Passenger traffic, domestic airlines ('000) 4,373 4,565 4,649 4,580 5,024 
Arkia, Israir, Sundor ('000)a 925 979 1,077 1,010 1,193 
El Al ('000) 3,448 3,587 3,572 3,570 3,831 
Market share of domestic airlines (passengers) (%) 50 45 42 44 44 
Routes served by three or more airlines  1 1 6 8 9 
a Sundor, a subsidiary of El Al, is currently not operating. 
Source : Israeli authorities. 
(iv) Tourism 
97. The direct contribution of travel and tourism to Israel's GDP is comparatively small (2.3% of 
GDP in 2010 with receipts totalling about NIS 34.6 b illion).  The Ministry of Tourism is responsible 
for planning, development, and marketing tourism.   Its target is 5 million international incoming 
tourists by 2015 (from 3.4 million tour ists in 2011).  To reach this goal, the Ministry plans to take 
measures including: marketing activities in new emer ging markets;  providing incentives for investors 
to increase the number of hotel rooms, starting with 2,500 rooms in 2012 (Israel has currently about 
45,000 hotel rooms); concentrati ng on advantageous markets and de veloping niche tourism (such as 
medical tourism, bird-watching, wine, and gast ronomy);  development of air links with new 
companies and destinations in targeted countries. 
98. The main incentives for the tourism sector in clude:  (i) Law on Encouragement of Capital 
Investment.  Hotels benefit from a 20% grant for i nvestments in the priority region in the periphery 
(Chapter III(3)(i)).  The grant is provided for the est ablishment, expansion or renovation of hotels. In 
addition, in 2011, the Ministry of Tourism, in c oordination with the Ministry of Finance, renewed a 
grant of 10% for the establishment of tourist attracti ons in the priority area;  (ii) A Hotel Renovations 
Fund was established in 2010 and extended for 2011-12.   The Ministry of Tourism provides grants of 
up to 20% of eligible expenditures.  Given Jerusalem 's place as Israel's premier tourism destination, 
and due to high demand for overnight accommodation w ith an insufficient number of hotel rooms, an 
additional grant of 8% is provided for investments in new hotels or expansions;  and (iii) Exemption 
from VAT.  The tax expenditures (revenue forgone)  for the exemption of tourism services are 
estimated at NIS 660 million in 2011 and NIS 690 m illion in 2012 (Table III.5).  Additionally, in 
Eilat, the Tax Authority provides an income tax cred it of 10% for revenue up to NIS 230,000.  Israeli 
tour guides receive significant discount on customs duties, and purchase tax when inporting specially 
designed vehicles ("Eshkol" type).   Israel WT/TPR/S/272 
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99. Tour guides are licensed by the Ministry of Tourism and must be Israeli citizens 
(Table AII.2), for employment protection reasons.  Ho wever, there are special permits for foreign tour 
guides with special language skills. 
 Israel WT/TPR/S/272 
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