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