RESTRICTED  WORLD TRADE  
ORGANIZATION  WT/TPR/G/157 
22 December 2005 
 
 (05-5978) 
Trade Policy Review Body Original: English 
 
 
 
 
 
 
 
TRADE POLICY REVIEW 
 
Report by 
 
ISRAEL 
 
   
Pursuant to the Agreement Establishing the Trade Policy Review Mechanism 
(Annex 3 of the Marrakesh Agreemen t Establishing the World Trade 
Organization), the policy statement by Israel is attached. 
 
 
Note: This report is subject to restricted circ ulation and press embargo until the end of the first 
session of the meeting of the Trade Policy Review Body on Israel. Israel WT/TPR/G/157 
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CONTENTS 
 
Page 
I. THE ISRAELI ECONOMY: RECENT DEVELOPMENTS 4 II. ISRAEL'S MONETARY POLICY 5 
III. FOREIGN INVESTMENTS   6 
IV. STRUCTURAL REFORMS   6 
(1) P
RIVATIZATION    7 
(2) L OWERING TAX RATES    7 
(3) B ANKING INSTITUTION    8 
(4) F OREIGN EXCHANGE    8 
(5) E MPLOYMENT AND LABOR    8 
V. SECTORS OF THE ECONOMY    9 
 (1) I SRAEL 'S AGRICULTURE POLICY  9 
 (2) I SRAELI INDUSTRY AND SERVICES  9 
VI. INTELLECTUAL PROPERTY POLICY AND LEGISLATION   10 
VII. ISRAEL'S FOREIGN TRADE POLICY   11 
 (1) I NTRODUCTION   11 
 (2) D EVELOPMENTS IN THE BALANCE OF TRADE SINCE THE LAST REVIEW   12 
 (3) T RADE POLICY   12 
 (4) WTO   13 
 (5) D OHA DEVELOPMENT AGENDA   14 
 (6) B ILATERAL TRADE AGREEMENTS   14 
 (7) U NILATERAL TRADE LIBERALIZATION   15 
 (8) C ONCLUSION   15 
 
 WT/TPR/G/157 Trade Policy Review 
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I. THE ISRAELI ECONOMY: RECENT DEVELOPMENTS  
1. The State of Israel (the "State" or "Israel") is  an open, industrialized democracy. Since 1990, 
Israel has seen improvements in most econom ic indicators. Gross Do mestic Product ("GDP") 
increased on average by 5.2% annually from 1990 through 2000.  
2. A number of negative factors converged in the last quarter of 2000 and during 2001 and 2002, 
including the security unrest in the region which negatively affected tourism, the global technology 
slump, which slowed investments in high-tech co mpanies, and the global economic slowdown, which 
affected Israeli exports. As a result, GDP decreased by 0.9% in 2001 and 0.7% in 2002.  
3. An economic recovery began in 2003 and acceler ated in 2004. In 2004, GDP increased by 
4.3%, following an increase of 1.3% in 2003. This  accelerated growth rate was the result of several 
factors, including increased ma croeconomic stability, which resu lted from restrained government 
expenditures, a recovery of the global economy, the implementation of structural changes aimed at 
enhancing the economy’s overall efficiency and comp etitiveness a relatively calm security situation, 
and a less restrictive monetary policy. GDP per Capita stood at a level of $17,270. 
4. In the first half of 2005, the Israeli economy grew at a rapid pace of 4.8% on an annual basis, 
with activity in the business and export sectors risi ng significantly. According to assessments made by 
the Ministry of Finance, GDP growth is expected to reach 4.6% and 3.9% in the years 2005 and 2006 
respectively, implying per Capita growth of 2.7% and 2.1% in the years 2005 and 2006 respectively. 
5. The Israeli economy is export-oriented. Expo rts constituted 42.9% of GDP in 2004. Exports 
recovered in 2003 and continued to grow in 20 04, following two years of recession which was 
manifested, amongst others, in a decrease in exports . The increase in exports of both high-tech and 
traditional industries during 2003 and 2004 was led by th e depreciation of the Israeli currency in real 
effective terms during 2002 and 2003, the global ec onomic recovery, the expansion of global trade 
and the increase in demand for high-tech products, the decrease in real domestic wages in 2002 and 
2003, and corporate efficiency measures. During this period, exports of services increased as well, 
especially tourism, which recovered from a slump that began in late 2000.  
6. The composition of Israel’s trade sector reflec ts the industrialized nature of its economy. 
Exports consist primarily of manufactured goods, in particular high-tech goods, while raw materials 
and investment goods comprised 82% of imported goods in 2004.  Exports have played a significant 
role in Israel’s economic growth, especially since 1992. Exports of industrialized goods (excluding 
diamonds) grew by an annual average of 16.2% (i n volume terms) during the period from 1992 to 
2004. 
7. In recent years, Israel has made substantial pr ogress in integrating its economy into the global 
trading system and liberalizing its markets, and majo r trade barriers and tariffs have been removed.  
Israel has concluded free trade agreements with its major trading partners, and is one of the few 
nations that is a party to free trade agreements with both the United States and the European Union ("EU"). Israel has also signed free trade agreements with the European Free Trade Association ("EFTA") countries, Canada, Turkey, Mexico, Bu lgaria and Romania. In addition, Israel has 
concluded regional trade initiatives, known as Qualifyi ng Industrial Zones ("QIZ's"), aiming to boost  
economic and business cooperation with its neighbouring countries – Jordan and Egypt .Furthermore, 
as part of its unilateral process of trade liberalization, the Government of Israel has continued 
removing trade barriers and decreasing tariff duties.  
8. Since 1990, Israel’s fiscal and monetary policies have been formulated and coordinated with 
the goals of reducing Israel’s high tax burden, na rrowing the Government’s fi scal deficit, attaining Israel WT/TPR/G/157 
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levels of inflation similar to those in other i ndustrialized countries and enhancing economic growth. 
As part of its economic policies, the Government  has pursued a policy of privatizing State-owned 
enterprises, including banks. In contrast to periods of high inflation in the early 1980s, inflation has 
been reduced and stabilized. The annual average in flation rate was 9.5% between 1992 and 1999, 
representing a gradual decrease over that period.  Since 1999 the annual average inflation rate has been close to zero, with the exception of 2002 when th e annual average inflation rate rose to 5.7% as a 
result of a one-time increase in prices due to currency depreciation, which adjusted the currency rate 
to domestic and external events. The annual average inflation rate was 0.7% in 2003 and dropped to 
negative 0.4% in 2004. 
9. The total budget deficit (excluding net lending a nd the realized profits of the Bank of Israel) 
averaged 3.7% of GDP per year between 1995 and 1999, and dropped to 0.7% of GDP in 2000. The 
total budget deficit increased to 4.5% of GDP in 2001 and 3.8% of GDP in 2002, mainly as a result of 
a decline in GDP and an increase in defence expenditures. The growth in the budgetary deficit in 2003 
to 5.6% of GDP originated from the continuing economic slowdown, especially steep decreases in 
wages and private consumption, and the considerable downward deviation of the inflation rate from 
its target.  As a result, actual revenues from taxes and other sources did not grow at the rate that was 
originally anticipated when the budget was drafted. Expenditures, on the other hand, grew in 
accordance with the budgetary plan. The 2004 total budget deficit was 3.9% of GDP.  The 2004 
decline in the total budget deficit reflects the 1.9% fall in public consumption in 2004 as a result of 
spending cutbacks in both the civilian and de fence sectors and the growth in GDP. 
10. The implementation of a decisive fiscal policy in 2003 and 2004 and the loan guarantees 
provided by the United States Government during these years contributed significantly to 
macroeconomic stability, raisin g fiscal credibility and lowering economic uncertainty. 
11. The current account deficit averaged $3.1 billion per year between 1995 and 2000, $1.9 
billion in 2001, and $1.5 billion in 2002.  The current account had surpluses of $578 million in 2003 
and $504 million in 2004. These surpluses reflect a high degree of external stability both by international standards and relative to the situation that existed in Israel in the mid-1990s. 
II. ISRAEL'S MONETARY POLICY 
12. Since 1985, when the Economic Stabilization Plan  was adopted, Israel has made significant 
progress in stabilizing inflation through effective im plementation of monetary policy by the Bank of 
Israel, and fiscal restraint and trade liberalization by the Government. In recent years, the primary objective of Israel’s monetary and exchange rate policy has been to gradually reduce inflation to 
levels similar to those prevailing in other industrialized countries.  
13. The focus of macroeconomic policy on financial stability during the past few years paid off 
handsomely between 1999 and 2001, as most financia l indicators suggest a degree of stability despite 
the very significant shocks that hit the economy during this period. These shocks include the end of the high-tech boom, the sharp decline of the NASDAQ and the uncertain security situation. 
14. Monetary policy since 1997 has emphasized the inflation-targeting regime, with exchange 
rate policy effectively having evolved to a free fl oat policy. Until June 1997, the parameters of the 
upwardly sloping exchange rate band were such that  the Bank of Israel was required to intervene 
frequently in the foreign exchange market to prevent appreciation. At that point, continued 
intervention was viewed as untenable and the band was widened considerably with provisions enacted 
for further gradual widening. These measures have thus far effectively removed the exchange rate 
constraints on monetary policy and the Bank of Israel ha s been able to adjust its key interest rate as WT/TPR/G/157 Trade Policy Review 
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required to meet the inflation target, without having to intervene in the foreign exchange market.  The 
perception of risk in the foreign exchange market is now centered on small, day-to-day fluctuations 
rather than the larger, less frequent ones typical of a more tightly managed exchange rate regime.  
15. The Government’s budgetary policy was a major f actor that contributed to the exchange rate 
and price stability in 2004, and which facilitated a furt her reduction in the monetary interest rate. This 
policy was reflected in a decrease in domestic public consumption, and in a reduction in the budget 
deficit and Government borrowing to  finance the deficit. The budget deficit amounted to 3.9% of 
GDP in 2004, close to the target of 4.0% of GDP and less than a deficit of 5.6% of GDP in 2003. 
III. FOREIGN INVESTMENTS 
16. Net foreign investment in Israel totalled $6.6 billion in 2004, higher than the $6.0 billion 
invested in 2003.  These figures include direct foreign investment, investment in Israeli securities traded on the TASE and on foreign exchanges, direct credit to the public sector and to residents 
(excluding trade finance and credit to suppliers), and deposits by non-residents in Israeli banks. Net 
portfolio investment increased by $3.4 billion to a total of $5.4 billion, whereas net direct foreign 
investment decreased from $3.9 billion to $1.6 billion. 
17. The increase in portfolio investment in Israel  was in line with global trends, including the 
recovery of the high-tech industry securities issu ances, and the continuing reduction in the risk 
aversion of the international investors. By contra st, the decrease in direct foreign investment, which 
mainly affected the hi-tech sector, was not consistent with global trends, which includes the 
continuing recovery in the demand for hi-tech products, and occurred despite the improving 
macroeconomic background in Israel: growth acceleration; enhancement of the macroeconomic 
policy credibility; and a reduction in the perception of risk, in part resulting from a better geo-political 
environment. 
18. The decrease in direct foreign investment was primarily due to an increase in investment 
realization, while the decrease in incoming investment was moderate.  The reduction in direct foreign 
investment is a result of several positive domestic and global developments, including (i) profit-taking 
(totalling $0.5 billion) by direct foreign investor s due to the high share price of some Israeli 
companies traded abroad during 2004 and (ii) the privatization process in the communication sector in Israel, which made it possible for a large domestic  communication company to purchase shares of a 
foreign investor in another communication co mpany totalling in $0.7 billion realization. 
19. Foreign investment in the non-banking private sector totalled $6.6 billion in 2004 compared 
with $4.6 billion in 2003. These investments reflect foreign investors’ confidence in the economy. 
20. Economy-wide investment is primarily affected by the long-term real interest rate and the 
economy’s risk premium. An increase in investment  is the key to sustainable growth as well as the 
continued decline in the rate of unemployment. In li ght of the falling interest rate over the last year 
and the decline in the country’s risk premium in general, and the successful implementation of the 
disengagement plan in particular, fixed asset inve stment in the Israeli economy can be expected to 
grow by 1.5 percent in 2005 and by 3.6 percent in 2006 , in contrast to decreases in the last few years. 
IV. STRUCTURAL REFORMS 
21. In recent years, the Government of Israel (" GOI") has introduced major structural reforms 
with the view to enhancing transparency and efficiency in the Israeli economy .More specifically, 
these reforms aim at the lowering of price of goods and services, incr easing competition in the Israel WT/TPR/G/157 
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domestic market, encouraging more people to ente r the labor force and fostering higher levels of 
investment throughout the economy. 
(1) PRIVATIZATION  
22. The Government has made significant progress in  the privatization of State-owned enterprises 
and the reduction of its subsidization of industry. From 1986 through May 2005, 89 companies ceased 
to be Government Companies. Some of the major privatization accomplished during the recent years 
includes El Al Israel Airlines Ltd., ("El Al") Zim Israel Navigation Company Ltd. ("Zim"), Bezeq – 
The Israeli Telecommunication Corp. ("Bezeq"), Israel Electric Corporation (IEC) and more. 
23. El Al used to be the Israeli national air carri er. In 2003, after cancellin g a prior privatization 
plan, the Government began the privatizing process and offered shares and options of El Al in the stock exchange. As of the middle of 2005, a majori ty of the options have been exercised. Upon the 
exercise of all long term options El Al should become a fully privatized company. 
24. Zim is the largest shipping company in Israel. Until 2003, Zim was a Mixed Company in 
which the State held 48.6% and the Israel Corporat ion – a public company held the rest. During 2003 
the State sold the balance of its holdings to the Is rael Corporation Ltd., and no longer hold any shares 
in Zim. 
25. Bezeq – The control of Bezeq was passed to the private sector during 2005. The privatization 
process took many years and various arrangements were made since 1994. Since 2000, steps have 
been taken to introduce competitio n into the supply of fixed teleco m services and other internal 
communication services. Since 1997, the State sold in terests in Bezeq to private investors in various 
rounds and in public offering. After the completi on of the last sale (in 2005) the controlling 
shareholder of Bezeq is a foreign group, and if all options are exercised, the State's ownership in 
Bezeq will be 1% (fully diluted). 
26. IEC is a legal monopoly with responsibility for th e entire Israeli electricity industry. In 1999, 
the Government decided to implement structural ch anges in the electricity sectors and open up the 
industry to competition. The Government goal is to  achieve a decentralized competitive industry 
divided into various segments. 
27. The GOI intends to continue its privatization policy in the years 2005-6: The reforms focus on 
such issues as splitting up and privatizing Bazan (the oil refineries in Ashdod and Haifa); privatizing 
Bank Leumi; splitting up IMI and merging parts of it with RAFAEL (A rmament Development 
Authority Ltd.) while carrying out the second part of the privatization plan; completing reforms in the 
electricity sector; carrying out reforms in the real estate sector, including the planning and 
construction processes; setting up a water au thority as well as water and sewage utilities. 
(2) L
OWERING OF TAX RATES  
28. Tax rates in Israel are high relative to those in  developed Western nations. A high tax rate on 
labor-generated income reduces incentives in the labor market and negatively impacts the economy’s 
growth potential. As of 2003 the GOI has implemen ted a comprehensive multiyear reform in its tax 
system. Tax reforms, which commenced in January 2003, are designed to reduce the tax burden on 
labor and expand the tax base on capital-generated income and income originating from overseas. 
29. In 2004, additional income tax re ductions were introduced aimed at increasing the incentive 
to join the work force. Today Israel has a progressive personal income tax with a top rate of 49%, WT/TPR/G/157 Trade Policy Review 
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supplemented by a 15% health and social security tax (including the employer’s contribution) and a 
34% corporate tax rate, to be reduced gradually to 30% in 2007. 
(3) BANKING INSTITUTIONS  
30. Israel has a highly developed banking system. At the end of 2004 there were 34 banking 
corporations operating in Israel, including 18 comm ercial banks, six mortgage  banks, five financial 
institutions, one merchant bank, two joint-service companies and two foreign banks.  
31. All Israeli banking groups and every banking corporation must satisfy the minimum capital 
adequacy requirement of 9% prescribed by the Ba nk of Israel in accordan ce with international 
standards prescribed by the Basel Committee for Banking Supervision. 
32. The banking reforms included the reduction of reserve requirements to which the public’s 
deposits are subject. Currently, the reserve requir ement on these deposits is only the primary reserve 
requirement.  In addition, banking  reforms have included the elimination of most restrictions on 
interest rates and minimum terms of indexed depos its and credit, and the removal of the prohibition 
against the issuance and trading of certain types of derivatives. The deregulation of bank activity, 
together with the liberalization of foreign exchange, helped to reduce the segmentation between 
different types of financial intermediation and au gmented the substitutability between different types 
of credit. 
33. In 2004, an inter-ministerial committee publis hed its recommendations for capital market 
structural reforms.  Among those reforms are the re structuring of banks’ holdings and management of 
provident and mutual funds. These recommendations were adopted by the Government in November 2004 and are still pending Knesset approval. 
34. The Anti-Money Laundering Law was enacted in August 2000 and the sections that pertain to 
the obligations imposed on financial entities took effect on February 17, 2002.  
35. Another important aspect of banking reform is  the privatization pro cess, which received 
special emphasis in recent years. 
(4) F
OREIGN EXCHANGE  
36. The liberalization of foreign ex change narrowed the gaps between domestic interest rates on 
foreign-currency denominated instruments and inte rest rates prevailing abroad, and also worked 
indirectly to lower interest rate spreads in the lo cal currency sectors. As of January 1, 2003, all 
activities and transactions in foreign currency between resident  individuals and businesses and non-
residents are permitted. 
37. As is common in Western economies, the expansion and enhancement of reporting 
procedures regarding external transactions accompanied the removal of foreign exchange controls in 
Israel. The freedom to engage in transactions with non-residents is subject to the obligation of either 
the person carrying out the transaction or the financia l intermediary through whic h it is carried out to 
report the transaction in detail to the Bank of Israel. 
(5) EMPLOYMENT AND LABOR  
38. One of Israel’s most important resources is its experienced and highly educated work force. In 
2003, approximately 39% of the Israeli population over age 15 had 13 or more years of schooling.  
With this highly educated population, Israel has developed an export-oriented, technology-based Israel WT/TPR/G/157 
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industrialized economy. In 2003, 29% of the Israeli wo rk force consisted of sc ientific, academic and 
other professional, technical and related worker s, while 24% consisted of administrative or 
managerial workers. These percentages compare favourably with the percentages of such workers 
found internationally. From 1990 through 2004, approximately 1.1 million immigrants arrived, increasing Israel’s population by 25%. The employment qualifications of recent immigrants have been consistent with the high quality of the Israeli work  force, with two-thirds of immigrants from the 
former Soviet Union having been employed there as professionals, scientists, engineers and technical 
staff. Although this wave of immigration initially placed strains on the economy by raising the budget 
and trade deficits and contributing to a relatively hi gh level of unemployment, these immigrants have 
been successfully integrated into the economy. Toda y, the employment rate of immigrants who came 
to Israel in the first half of the 1990s is  similar to that of native-born Israelis. 
39. The wave of immigrants since 1990 has led to si gnificant growth in the Israeli labor force.  In 
2004, Israel’s civilian labor force averaged a to tal of 2.7 million people compared to 1.9 million in 
1992. 
40. The recession that began in late 2000 caused the unemployment rate to increase from 8.8% in 
2000 to 10.3% in 2002.  Despite the economic recovery that began in 2003, the unemployment rate continued to climb, to 10.7% in 2003.  In 2004, the unemployment rate decreased to 10.4% on an 
annual average basis and to 9.8% in the last quarter of the year. The increase in the participation rate 
and the number of Israeli employed is attribut ed, among other factors, to the successful 
implementation of government policy of cutting transfer payments and reducing the number of 
foreign workers. 
V. SECTORS OF THE ECONOMY 
(1) I
SRAEL 'S AGRICULTURE POLICY  
41. The agriculture sector, although small (1.5% of GNP), is impressive.  
42. As a sector which operates in the peripheral  areas under harsh climatic conditions and 
consists of many small family farms, it plays an important role in Israel's domestic policy as an 
instrument to distribute the population to the rural areas, in protecting the natural environment, 
landscape and land and providing the growing population with   fresh produce of a very high quality. 
43. Difficult weather conditions, water scarcity an d unique topography, have all led to the 
development of a very effective and efficient agriculture sector, state of the art technology and 
advanced knowledge which are recognized and exported throughout the world.           
44. Israel, a net-food importing country with an agricultural import that has reached 60% of the 
total agriculture production value, retains a very ba lanced agricultural policy in order to secure the 
sustainability of this sector and cope with the many  challenges it is facing, using customs tariffs as the 
main policy tool. 
(2) ISRAELI INDUSTRY AND SERVICES  
45. In the beginning of the nineties Israel's most important industries were agriculture, light 
industry and labor-intensive production. During the nineties, Israel has capitalized on its highly 
skilled, educated and innovative workforce. The resu lts reveal a knowledge-based, technologically 
advanced market economy with first-class high -tech capabilities in the telecommunications, IT, 
electronics, and life sciences industries. Industrial output has made international-level strides in the WT/TPR/G/157 Trade Policy Review 
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fields of medical electronics, agro-technology, telecommunications, fine chemicals, computer 
hardware and software, and diamond cutting and polishing. 
46. Services have grown in importance in the Isr aeli economy. In 2003, the sector accounted for 
almost 77% of both NDP and employment. The main services include finance and business services (representing about 21% of the sector's output);  commerce, restaurants and hotels (11%); housing 
services (8%); transport (4%) ; and communication (2.3%).  
47. Israel invests strongly in research and develo pment. The percentage of high-tech production 
in the overall GDP is the highest in the world. 90% of venture capital investments are channelled to 
start-up companies, with the largest number of star t-up companies in the world in proportion to its 
population. These start-ups contribute to about 35% of the growth in the ICT and software fields in Israel - the main contributors to the high-tech in dustry. Venture capital investment, which finances 
approximately 50% of Israel's high-tech industry, is the highest in the world in ratio to its GDP . 
VI. INTELLECTUAL PROPERTY POLICY AND LEGISLATION 
48. Israel, among the world leaders in patenting act ivity and high tech industries generally, has a 
prime interest in maintaining an in tellectual property law system that is transparent, conforms to all 
relevant international obligations and that promotes trade and industrial growth. Further, there can be 
no doubt that the Israeli legal system provides  adequate and effective means for the creation, 
maintenance and enforcement of intellectual property rights. Indeed, by way of example, a recent 
study made by the Business Software Alliance ranked Israel in the top 20 countries in the world for 
having the lowest rates of business software piracy.
1 A recent study published by the World 
Intellectual Property Organization found that Israel ranks 15th in the number of patent applications 
filed annually through the Patent Cooperation Treaty.2 Hence, maintaining a strong intellectual 
property system in Israel is of high interest to us as well.  
49. Intellectual property rights in Israel are protected through a comprehensive system of 
statutory law and common law covering acquisition , maintenance, and enforcement of rights in 
patents, designs, registered and unregistered trademarks, geographical indications, copyright and 
related rights, trade secrets, topographies of integrat ed circuits, and new plant varieties. It should be 
noted that the protection of intellectual property rights is not only through specific intellectual 
property law legislation, but also additional and ov erlapping protection can be obtained, in appropriate 
circumstances, pursuant to other legislation such as the Commercial Wrongs Law, the Civil Torts 
Ordinance, the Law Against Unjust Enrichment and the Consumer Protection Law. 
50. Enforcement of intellectual property rights is provided for through a comprehensive statutory 
and common law system of civil, administrative and criminal mechanisms as detailed in this 
document. Moreover, Israel is committed to effectiv ely fight intellectual prope rty piracy and to this 
end steps have been taken by the Ministry of Justice,  the Attorney General, the Police, the Ministry of 
Industry and Trade, the Tax Authority, the Ministry of the Treasury, the Commissioner of Consumer Protection, the Ministry of Education and others  to jointly combat piracy and counterfeiting.  
51. During the transition period to TRIPS compliance several legislative instruments were 
enacted in order to conform existing legislation to  the requirements of TRIPS. Even prior to 2000 
Israeli intellectual property law met most of the TRIPS requirements and at times exceeded those 
minimal standards, such as with regard to term  of copyright protection and the availability of 
                                                     
 
1http://www.bsa.org/globalstudy/loader.cfm?url=/commonspot/security/getfile.cfm&pageid=24342&hi
tboxdone=yes. 
2 http://www.wipo.int/ipstats/en/statistics/patents/pdf/yearly_report_2004.pdf. Israel WT/TPR/G/157 
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obtaining patent term extensions in appropriate case s. Since, implementation of TRIPS in 1999, Israel 
has enacted additional changes to its intellectual property legislation. For example: 
• In November 2002, the penal sections of the Copyright Ordinance, the Performers' 
and Broadcasters' Rights Law, and the Trademark Ordinance were revised, raising the 
penalties for manufacturing or importing in fringing goods on a commercial scale to 
imprisonment of up to 5 years and a fine of up to 2 million NIS (approximately 400,000 Euro); 
• setting a strict liability regime to impose liability on corporate management in the 
case of an offence committed by the corporation or by its employees and doubling the 
fines for corporate infringers; 
•  raising the penalty for the criminal infringement of performers’ rights, such as 
making, for purposes of commerce, an una uthorized, "bootleg", recording of a live 
performance, to a maximum of 3 years imprisonment and a fine of up to 1.5 million NIS (approximately 300,000 Euro); 
• extending performers, phonogram producers' and broadcasters' rights protection to 
eligible right holders from Rome Convention Members; 
• extending the term of protection for performances from 25 to 50 years; 
• In 2005 Israel enacted new legislation to further enhance existing levels of protection 
accorded to confidential test data filed in  connection with the approval of new drugs 
by the Health Authorities. The recent le gislation was intended to provide drug 
innovators with TRIPS "Plus" protectio n for new chemical entities. Hence, the 
amended law sets a level of protection th at significantly exceeds that which is 
required pursuant to Article 39(3) of the TRIPS Agreement; 
• increasing trademark counterf eiting penalties to a maximum imprisonment of up to 3 
years and a maximum fine of up to 1.5 million NIS (approximately 300,000 Euro) 
and doubling the fines for corporate infringers; 
• setting a strict liability regime to impose liability on corporate management in the 
case of a trademark offence committed by the corporation or by its employees; 
• enactment of legislation to enable accession to the Madrid Protocol on the 
International Registration of Trademarks;  and 
• Presentation of a Bill in 2005 to enact a new and comprehensive copyright law, which 
will consolidate and modern ize existing copyright statutory and case law. 
 
VII. ISRAEL'S FOREIGN TRADE POLICY 
(1) I
NTRODUCTION  
52. International trade plays a vital role in the econ omy of the State of Israel. Indeed, in recent 
years, the Israeli economy has integrated into the global trading system in a rapid and efficient 
manner, by implementing multilateral and bilatera l trade agreements, as well as by pursuing a 
unilateral process of trade liberalization and struct ural reforms. Internatio nal trade (exports plus 
imports) of goods and services amounted to 87.1% of GDP in 2004 (up from 78.4% in 2003). In fact, 
imports represent 31% of the resources of the Israeli economy while exports represent more than 25% 
of the uses. 
53. In harmony with the policy steps, aiming at the full integration of the Israeli economy into 
global trade trends, the Israeli economy has undergone a substantial process of structural reforms. In a 
relatively short time the Israeli economy has develo ped into a liberalized marketplace trading in a 
wide range of manufactured goods  and services worldwide. Throughout the 1990’s, mass immigration 
from the former Soviet Union, proactive economic policies, fiscal and monetary reforms pursued by WT/TPR/G/157 Trade Policy Review 
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the Israeli government, initiated a period of innova tion and growth. The Israeli economy became open 
to competition from within and without, driven by the private sector. Intense entrepreneurial activity 
became the hallmark of the business environment,  attracting the attention of foreign and local 
investors. The Israeli technological, research and knowledge based industries have gained world wide 
recognition and have served as an engine for ec onomic growth. Consequently, in less than two 
decades, export trading has risen fivefold, industrial exports sevenfold and exports of machinery, 
electronics and IT products have risen over tenfold. 
(2) DEVELOPMENTS IN THE BALANCE OF TRADE SINCE THE LAST REVIEW  
54. Export growth has played a significant part in Israel’s overall economic growth and 
demonstrates the growing competitiveness of the Isra eli economy.  In 2000, industrial exports grew 
by 25.8% in dollar terms (27.9% excluding diamonds) due to fast economic growth in the U.S. and 
the EU and a worldwide technology boom.  In 2001, as a result of the slowdown in economic activity 
in the EU and the U.S. and the global crisis in the high-tech sector, industrial exports decreased by 
9.2% in dollar terms (6.8% excluding diamonds).  In  2002, industrial exports remained unchanged in 
dollar terms, but industrial exports when calculated  excluding diamonds continued to contract, falling 
by 6.5% in dollar terms, despite global trade acceleration in 2002 relative to 2001.  The main reason for this contraction was the character of growth in the United States and other countries, which 
focused more on traditional industries than on the high-tech industries that account for much of 
Israel’s exports. 
55. Exports recovered in 2003 and 2004 as exports grew by 10.0% and 18.9% (in dollar terms), 
respectively.  In 2004, industrial exports grew by 20.9% in dollar terms (22.0% excluding diamonds).  
This rate of growth refl ects the effect of the real depreciation of the NIS in 2002 through 2004, the 
global economic recovery, the expansion of global tr ade and high-tech activity, the decrease in real 
domestic wages in 2002 and 2003, and gains in corporate efficiency.  In 2004, exports of both high-
tech and traditional industries, as well as exports of services, participated in the recovery of exports.  
The tourism sector grew by 40% over 2003 as a result of the improved security situation, following the severe downturn in the tourism sector since 2000.  Exports of goods to European Union countries (as denominated in dollars, including diamonds retu rned by importers abroad and other returns to 
exporters in Israel) increased by 20%, exports of goods to the United States increased by 17%, and 
exports to the rest of the world grew by 26%. 
56. The United States is Israel's prime export des tination with 37% of the total exports to the 
world. The EU (27%) and Asia (18. 5%) follow suit. In terms of Imports, the EU countries constitute 
the main source of imports (with 41% of total im ports from the world) while the Asian countries 
(17%) and the US (16%) follow thereafter. 
(3) T
RADE POLICY  
57. Israel's trade policy objectives are as follows:  
• Continued integration of the Israeli economy into the global trading system, through 
the use of policy instruments that relate to trade in goods, services, investments, 
competition, environment, intellectua l property, development and others. 
• Promoting and maintaining Israel's exports competitiveness by expanding and 
updating the network of international agreemen ts designed to promote trade, facilitate 
market access, neutralize non-tariff barriers and achieve sustainable economic 
growth. Israel WT/TPR/G/157 
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• Increasing the efficiency of resources' a llocation, by enhancing reforms that aim at 
the introduction of greater competition and in creased transparency in the domestic 
market.  
• Creating an attractive climate for investors, businesspeople, consumers and the public 
as a whole. 
58. Israel's trade policy is enhanced by a wide range of international agreements and commercial 
arrangements with countries and in ternational bodies. In recent years, the Government of Israel has 
been pursuing its international trade policies in  a well coordinated effort, along three paths in parallel: 
multilateral, bilateral and unilateral. Israel be lieves in the primacy of the multilateral trade 
negotiations as the prime tool for the expansion of  trade and global prosperity. At the same time, 
Israel believes that its regional and bilateral Agreements, concluded within the framework of 
Article XXIV of GATT 1994, complement the mu ltilateral obligations an d allow further trade 
liberalization and enhancement of political ties. Indeed, exposure to foreign competition through 
bilateral agreements has paved the way to the extension of greater liberalization vis-à-vis other WTO 
member countries. 
(4) WTO 
59. Israel is a founding and active member of the WT O. Israel has full respect to the fundamental  
principles and norms of the WTO i.e. Non-discrimination, rule based system, transparency, consensus 
in decision-making, fair trade, progressive liber alization and special& differential treatment for 
Developing countries and LDC's. Israel believe s that full observation of the above-mentioned 
principles and norms is imperative for the functioning of the WTO. As such, they should be respected 
by all existing WTO Members and acceding countries. 
60. Israel has faithfully implemented its Uruguay Round obligations. In fact, most of its 
commitments had been implemented, prior to the date of the last review (which took place in 1999). 
Israel fully implemented the TRIP's Agreement as of 1.1.2000. In some areas, Israel took voluntary 
liberalization measures beyond the level of its commitments. 
61. Israel took an active part in the negotiati ons on basic telecommunications and financial 
services. Its commitments under the Forth and Fifth Protocols of GATS reflect an open and liberal 
policies, as well as its willingness to achieve even greater liberalization. 
62. Not only committed to the multilateral agreements, Israel has also been actively participating 
in plurilateral trade arrangements initiat ed under the framework of the WTO: 
63. Israel was among the first group of countrie s that joined the Government Procurement 
Agreement (GPA) upon the establishment of the WTO. However, experience shows that Israel, being an economy pre-dominated by small to medium size enterprises, is still facing difficulties in participating in other GPA member countries' public tenders. Since only 37 Members of the WTO, 
have so far signed on the GPA, Israel is of the view that this Agreement should be amended in a 
manner that takes into account the interests of all WTO Members, particularly developing country 
Members, so as to make it more balanced and attrac tive. Bearing this in mind, Israel is of the view 
that  specific attention should be  given to the development dimensio n which is essential for needs of 
developing countries and small economies.  
64. As an economy which is a world class leader in the development of technologies and 
innovations in the telecommunications and information technology industries, Israel was among the first group of WTO Member countries who signed on the Information Technology Agreement (ITA), WT/TPR/G/157 Trade Policy Review 
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in 1997. That Agreement called for the elimination of tariff duties on telecommunications equipment, 
computers and related equipment on an MFN basis. 
(5) DOHA DEVELOPMENT AGENDA  
65. Israel attaches great importance to the current multilateral negotiations mandated by the Doha 
Development Agenda (DDA). Israel is  of the view that it is imperative  to reach timely and successful 
conclusion of these negotiations, so as to preserve  the relevance of the WTO and its ability to respond 
to global economic developments as well as the needs of its Members. 
66. Israel is committed to contribute its part towards the realization of this end. 
67. Israel recognizes the long-term objective of es tablishing a market-oriented trading system 
through reform in order to prevent distortions in th e world agriculture markets. Israel re-iterate its 
commitment to this reform, while emphasizing  the si gnificance of the Agriculture sector in today's 
life, economy, culture and as an instrument for rural and regional development. Therefore, non-trade 
concerns are an essential element of this sector and should be an integral part of any future agreement 
on agriculture.  As we work towards further reform in agricultural markets, we should take account of 
the direct link between levels of support in the agriculture sector and new market access 
commitments, so as to allow fair trade. 
68. Israel is highly interested in the negotiations on the liberalization of Non-Agricultural goods 
(NAMA). Indeed, Israel is of the view that a ll WTO Member countries, developed, as well as 
developing Members, should be ready to accept up on themselves new and meaningful market access 
commitments for Non-Agricultural goods, as well as to eliminate Non-Tariff Barriers.  
69. Israel is also committed to further liberalization of the world services markets. Israel was one 
of the Members that submitted their initial offer in time and is now ready to negotiate further 
commitments, in the light of developments in DDA as whole. 
(6) BILATERAL TRADE AGREEMENTS  
70. Sufficient unilateral liberalizatio n is a prerequisite for an effective trade policy.  However, 
unilaterally opening up is not enough in itself to achieve all of the trade policy objectives pursued, in that it does not provide access to other markets.  The be st way to attain that obj ective, in the case of a 
small and open economy like Israel, is through multil ateral negotiations.  However, that alternative is 
not always available.  Similarly, because of the ac tual nature of any interaction among large numbers 
of participants with varying inte rests, negotiations tend to be slow and their results do not always 
match our expectations and needs.  A small countr y like Israel has a limited capacity to exert any 
influence in the resolution of these problems.  Co nsequently, bilateral initiatives are useful as a 
supplementary way of achieving substantial results more rapidly than would be possible at the 
multilateral level.  Bilateral negotiations provide a particularly effective al ternative when they are 
conducted, as in the case of Israel, with the country's main markets. Israel’s bilateral trade agreements 
cover substantial portion of Is rael’s international trade.  
71. Israel has had free trade agreements with its major trading partners for many years - with the 
European Union since 1975, with the United States since 1985, as well as with the EFTA States since 
1993.  In November 1995, Israel and the European Union concluded a more comprehensive 
agreement to cover wide aspects of economic re lations beyond trade in goods, enabling Israel’s 
participation in the European Union’s Research and Development Framework Programs.  Israel WT/TPR/G/157 
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72. The political changes in Eastern and Central Eu rope have had a marked impact on trade 
relations and have led Israel to conclude MF N agreements for some non-WTO members and free 
trade agreements with some WTO members.    Th e purpose of these agreements is to further open 
markets and to maintain Israel's exports competitiven ess in European and North-American markets, in 
the light of regional trade agreements signed by th e countries in those regions. In keeping with this 
strategy, free trade agreements have since been  signed with Canada (1996), Turkey (1997), 
Mexico (2000) , Romania (2001) and Bulgaria (2001). 
73. Israel continues to explore new initiatives to expand its market access to other countries 
through either multilateral or regional agreements. R ecently, Israel has been focusing its attention on 
Asia and Latin America, in the light of the growing importance of these region in world trade. Israel 
and MERCOSUR are currently negotiating a Fram ework Agreement on Trade which is aimed at 
creating the conditions and mechanism to negotiate a free trade area agreement. 
74. Economic relations with its neighbours in the Mi ddle East are of particular importance to 
Israel.  Israel has also initiated and signed region al trade arrangements; Qualified Industrial Zone 
(QIZ) Agreements, operating under the framework of the Israel-US free trade area agreement, have 
been concluded with Jordan (1997) and Egypt (2004). The QIZ Agreements have contributed enormously to the bilateral growth of trade between Israel and Jordan on the one hand and Israel and 
Egypt on the other hand. Israel is confident that re gional economic cooperation will contribute to the 
peace process and to well-being of all peoples in the region. 
(7) U
NILATERAL TRADE LIBERALIZATION  
75. In recent years, Israel has adopted a more liberal and open trade policy.  Import Policy 
department has been established within the Forei gn Trade Administration. Its mandate is to explore 
ways to further facilitate the flow of trade into, and out of, the Israel market as well as to carry out 
liberalization steps. In the framework of the above- mentioned policy objectives, Israel has unilaterally 
liberalized its import policy from relatively a large number of Countries whic h were subject to import 
licensing mechanism at the time the last review was written. Since July 2003, via notifications in the 
official gazette, Israel has gradually lifted its im port licensing requirement  from WTO Members that 
have no diplomatic relations with it or that proh ibit imports from Israel into their markets, i.e. 
Bahrain, Bangladesh, Kuwait, Pakistan, Tunisia, Indonesia, Malaysia, Moroc co, Oman, Cuba, Brunei, 
Chad, and the United Arab Emirates. As such, Israel does not apply any restrictions on imports from 
any WTO member country and has aligned its policies with the non-discrimination rules of the WTO.  
76. Israel hopes that this unilateral step will be a ppreciated, recognized and reciprocated by those 
countries. 
77. In addition Israel has reviewed and liberalized  the Free Import Order of 1978 dealing with 
free import of goods into Israel subject to import licensing requirements and/or standards, so as to 
ensure the safety and security of consumers and the public as a whole. As a result, since the last review, the Government of Isr ael has introduced more transparency into the import licensing 
procedures, thereby removing bureaucratic barriers to trade.  
(8) C
ONCLUSION  
78. Since its inception, Israel has been highly de pendant on international trade as a means for 
economic growth and development. Throughout the year s, and particularly in the last twenty years, 
Israel has developed an integrated network of in ternational trade agreemen ts, in which bilateral, 
regional and multilateral trade agreements work in ha rmony and in a joint effort to promote trade and WT/TPR/G/157 Trade Policy Review 
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facilitate market access in Israel’s export markets, as well as to increase competition and efficiency in 
the allocation of resources in the Israeli economy. 
 
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