Israel WT/TPR/S/157/Rev.1 
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IV. TRADE POLICIES BY SECTOR 
(1) INTRODUCTION  
1. The structure of Israel's economy has conti nued to shift towards services, away from 
agriculture and manufacturing.  Th e importance of the services sector is growing both in terms of 
contribution to NDP and to employment.  In the mid 1990s, the sector underwent a series of reforms 
that led to the disengagement of the Governme nt from certain activities.  The national airline 
company (El Al) has been privatized and tel ecommunications services are undergoing deregulation 
and privatization to reduce state involvement in  these activities and the dominant position of the 
Government-owned telephone operator, Bezeq.  This  is making the telecommunications industry more 
competitive.  Nonetheless, the financial services subsector, in particular banking and insurance, 
remains concentrated. 
2. The manufacturing sector has contracted in recent years.  However, the sector is marked more 
than ever by asymmetric developments between high-tech (including electronics, communications, 
and medical equipment) and traditional industries.   The high-tech industry has largely grown in 
importance, in particular with regard to export cap acity.  On the contrary, traditional industries have 
declined sharply due to increased competition fro m countries with abundant, cheap labor.  This has 
contributed to the shift towards the production of goods intensive in hi gh technology and skilled 
labour, two main assets of the Israeli economy. 
3. As a result of numerous free-trade agreements with other countries, most manufactured 
imports enter Israel at preferential tariff rates (mostly duty free).  The average applied MFN tariff rate 
on manufactured products (ISIC Revision 2 definition) is moderate, at 7.3%; ho wever, industries such 
as food, beverages, clothing, footwear, and plastics i ndustries are protected by relatively high tariffs.  
Tariff protection is in general higher for traditiona l industries than for the high-performing high-tech 
industries.  Israel has a number of other measures affecting trade in and production of manufactured 
products, including strict enforcement of technical  regulations on a large number of these products. 
4. The contribution of agriculture to Israel's NDP  and employment remains limited.  However, 
the sector features advanced and performing producti on systems based on high agri-technology.   As a 
result, in spite of severe constraints, such as rest ricted access to water and the predominance of desert 
areas, Israel still maintains a certain level of agri cultural production.   The sector is largely supported 
through various government interventions, including s ubsidies and tariff protection, mainly in favour 
of products such as dairy, fruit, and vegetables.   The average applied MFN tariff on agricultural 
products (including the ad valorem equivalents of non- ad valorem  duties) is 41%, with peaks up to 
560% on certain products. 
5. Mining and quarrying activities in Israel remain marginal.  Steps are being taken to liberalize 
the energy subector, which is still under state monopoly and heavily regulated.     
(2) AGRICULTURE  
(i) Overview 
6. The share of agriculture in the Israeli economy has remained relatively constant (around 2% 
of NDP) during the period under review, although agricultural output has generally increased (Table IV.1).  In 2004, agricultural output w as worth about NIS 17.5 billion, of which  36% was 
exported.  Crops represent about 60% of total agricult ural production; vegetabl es and fruits (including 
citrus) are the most important crops.  Livestock and related products account for about 40% of total 
agricultural production, poultry and cattle re presenting respectively around 18% and 15%  WT/TPR/S/157/Rev.1 Trade Policy Review 
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(Table IV.2).  The share of employment in the sect or has declined from 2.9% of the labor force in 
1999 to 1.9% in 2004 (Table I.1).   
Table IV.1 
Indicators of agricultural production, 1999-04  
(Annual rates of change, per cent) 
Item 1995-
1998 
average 1999 2000 2001 2002 2003 2004 
Total outputa 4.0 -1.7 4.4 3.1 4.5 -4.1 9.3 
Inputs 0.2 -0.1 1.5 0.0 -0.5 1.8 2.7 
Gross product 8.6 -3.4 7.7 7.0 10.2 -11.2 17.4 
Total farm incomeb 0.7 -15.1 -5.3 15.4 -7.5 -6.5 0.6 
Real income from capital and own labour -4.2 -6.5 -17.2 41.5 -19.1 -16.4 -1.0 
a Calculated at producer prices (including price subsidies). b At constant prices, adjusted by the CPI. 
Source : Bank of Israel (2004), Annual Report 2003 ;  and data for 2004 provided by the Ministry of Agriculture. 
Table IV.2 
Distribution of agricultural pro duction, by category and purpose, 2004  
(Per cent) 
 Intermediate / 
miscellaneous Exports Domestic 
manufacturing Domestic 
consumption Total 
Total 100.0 100.0 100.0 100.0 100.0 
Crops 62.1 97.9 14.1 74.5 60.4 
 Field crops 28.7 7.7 3.7 3.0 6.7 
 Vegetables, potatoes, and melons 3.0 32.9 4.6 41.7 24.6 
 Citrus fruits  1.3 8.7 1.5 3.9 4.1 
 Plantations, excluding citrus 17.2 12.8 4.1 20.6 13.4 
 Flowers and garden plants 0.0 26.1 0.0 5.3 8.0 
 Miscellaneous crops 11.9 9.6 0.2 0.1 3.5 
Livestock and their products 37.9 2.1 85.9 25.5 39.6 
 Poultry  31.2 0.8 37.2 9.0 17.8 
 Cattle  2.4 0. 0 43.9 3.0 14.7 
 Sheep and goats  0.7 0.0 2.2 6.0 2.9 
 Fish 0.0 1.1 0.0 6.1 2.5 
 Miscellaneous 3.6 0.2 2.6 1.3 1.7 
Source : Central Bureau of Statistics (2005), Statistical Abstract of Israel 2004, Table 19.17.1 . 
7. The share of agriculture in total merchandise exports has declined steadily during the last 
decade.  While the sector accounted for nearly 16% of merchandise exports in 1980, this ratio fell to 
3.9% in 2004 (Table IV.3).  The main export products  include vegetables, fruits (e.g. citrus), flowers, 
and ornamental plants (Table IV.2).  Livestock production, heavily depende nt on imported grains, is 
destined for the domestic marke t; it accounted for only 1.5% of agricultural exports in 2004.  
Agricultural products have also declined as a share of total imports, from about 13% in 1980 to 6.2% in 2004.  The main agricultural imports are cereals, oil seeds, timber, sugar, meat, fish, and tropical 
products (such as cocoa and coffee) for further processing by the food industry. 
8. The Ministry of Agriculture and Rural Development supports and supervises the sector, 
through, inter alia , R&D
1, SPS measures, planning, and marketing.  Historically, agriculture has been 
regulated by strict production and water quotas for each  crop.  At present, such quotas are in force for 
raw milk, eggs, and broiler.  The Ministry subs idizes the provision of 'public goods' with positive 
                                                      
1 The Ministry of Agriculture and Rural Development plays a dominant role in R&D through the 
Agricultural Research Organization (ARO), which accounts for nearly 75%  of all agricultural research.  
Professional organizations and marketing boa rds also finance agricultural research. Israel WT/TPR/S/157/Rev.1 
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external effects, such as meadows, eradication of p ests, and marketing campaigns abroad.  In addition, 
the Ministry extends aid in the form of compensa tion for natural disasters and subsidies to increase 
efficiency in the use and supply of water.  There are three statutory boards covering plants, eggs and 
poultry, and groundnuts.  Their objectives are to promote marketing and R&D programmes.     
Table IV.3 
Agricultural exports, 1990-04  
 1990 1998 1999 2000 2001 2002 2003 2004
Merchandise exports (US$ million) 11,926. 6 25,793.2 23,416.9 31,403.8 29,060.9 29,347.2 31,783.3 38,618.4
Agricultural exports (US$ million) 657.2 782.3 809.1 702.1 630.4 620.4 714.7 908.3
Agricultural exports (percentage of merchandise exports) 5.5 3.0 3.5 2.2 2.2 2.1 2.2 2.4
   Field crops and vegetables 1.7 3.0 3.5 0.8 2.2 0.7 0.9 1.1
   Fruits 2.2 1.0 1.1 0.6 0.8 0.5 0.5 0.5
     Citrus fruit 1.5 0.8 1.0 0.3 0.5 0.2 0.2 0.2
   Flowers 1.4 0.5 0.6 0.6 0.3 0.6 0.6 0.6
   Animals 0.2 0.9 1.0 0.1 0.6 0.1 0.1 0.1
   Other agricultural exports 0.1 0.1 0.1 0.2 0.1 0.2 0.2 0.2
Source : Central Bureau of Statistics, Statistical Abstract of Israel, various issues. 
9. Domestic support for agriculture, as measured by the current Total Aggregate Measure of 
Support (AMS), amounted to US$282 million in 2003 (Cha rt IV.1);  it has rema ined below Israel's 
total AMS commitments.2  Total AMS amounted to approximately one fifth of the value of 
agricultural output in 1997 then decreased to ar ound one tenth as from 1999.  The decline is due to 
Israel's treatment of the AMS for meat of poultry as "de minimis"3, and to the depreciation of the 
sheqel, as AMS is notified in U.S. dollars.  In 2000, the Government established a payment 
programme for producers of poultry meat in the Galil ee area with the aim of gradually eliminating 
linkage with production.4  Support provided under this framework has since then been reported as a 
measure exempt from the reduction commitment (Green Box). 
10. In 2003, around 76% of product-specific AMS (plus "de minimis" support) was for milk 
production, while around 19% was for eggs.  Domestic  support amounts to more than half of output 
value for these two products.  Domestic support to all other products was reported as "de minimis".5  
Price support constitutes the main instrument of  income support, accounting for 88.1% of total 
product-specific AMS in 2003.  In particular, price support for milk and eggs production is 
implemented through production quotas and guaranteed  minimum price.  Direct payments, which are 
not exempt  from reduction commitments, include inv estment grants under the Law for the 
Encouragement of Investment in Agriculture, de ficiency payments, as well as re-plantation and 
investment programmes operated by the Ministry of Agriculture and Rural Development to support 
cereal, vegetables, fruit, flowers, eggs, milk, poultry, and bovine meat production.  Non-product-
specific AMS consists of support under the Law for th e Encouragement of Investment in Agriculture, 
and water supplier support.  It accounts for 2.3% of total AMS (plus suppor t within "de minimis" 
levels). 
                                                      
2 Under the commitments, domestic support to the agriculture sector was to be reduced by around 12% 
over a ten-year period (beginning in 1995), from around US$646 million in 1995 to US$569 million in 2004. 
3 For developing countries, de minimis AMS is defined as product-specific support that does not 
exceed 10% of the value of the produc t concerned, and non-product-specific  support that doe s not exceed 10% 
of the value of total agriculture production. 
4 WTO document G/AG/N/ISR/17, 12 October 2000. 
5 WTO document G/AG/N/ISR/37, 30 August 2005. WT/TPR/S/157/Rev.1 Trade Policy Review 
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0100200300400500600700
1997 1998 1999 2000 2001 2002 20030%5%10%15%20%25%30%35%Chart IV.1
Domestic support for agriculture, 1997-03
US$ million
Note:
Source:Data on total AMS for 2004 are not yet available.
 WTO Secretariat.Total AMS commitment
Current total AMSCurrent total AMS as a percenta ge of 
total production (right-hand scale) Percentage
 
 
11. Green Box expenditures, consisting of measu res exempt from the reduction commitment, 
amounted to US$256 million in 2003 compared with US$338 million in 1997.  The main expenditure 
is for specific measures to kibbutzim and mo shavim under the Rural Department Agreement6, 
expenses of the Agriculture Research Centre , general SPS and other services provided to farmers, new 
settlement infrastructure, and payments for relief from natural disasters.   
12. Israel provides export subsidies for six agricultu ral products:  cut flowers, vegetables, citrus, 
other fruit, goose liver, and cotton (Chapter III(3)(iv )).  Export subsidies have fluctuated during the 
period under review.  In the marketing year  October 1999/September 2000, no exports were 
subsidized, while in 2000/01 a nd 2001/02, subsidies amounted to  around US$5.0 million and US$5.9 
million respectively.  About two third of these subsidi es went to cut flowers (Table IV.4).   Under the 
WTO Agreement on Agriculture, Israel committed it self to reduce export subsidies to these products 
by 24% in value, from a total of around US$56 million in 1995 to US$43 million in 2004.  Export 
subsidies actually granted by the Government were  much lower (generally below 15% of commitment 
levels). 
                                                      
6 The kibbutz is a distinct socio-economic entity based on cooperative principles.  The members of a 
kibbutz own collectively the means of production, and share social, cultural, and economic activities.  The 
moshav is a village of some 60-100 family farms.  Each family maintains its own household and earns its income from what it produces, while at the same time, belonging to the moshav’s cooperative framework. Israel WT/TPR/S/157/Rev.1 
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Table IV.4 
Actual exports and export subsidies commitments, 1998-04a 
Product (HS Code) 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 
Cut flowers (0603.1000)       
Subsidized exports       
Outlays (US$ million) 1. 4 0.0 3.2 2. 3 1.8 0.4 
Quantity (million units) 244 0.0 354 526 430 430 
Annual commitment levels       
Outlays (US$ million) 10. 6 10.3 10.0 9. 7 9.5 9.2 
Quantity (million units) 739 727 716 705 694 683 
Vegetables (0701-09)       
Subsidized exports       
Outlays (US$ million) 0. 0 0.0 0.5 0. 8 1.1 0.1 
Quantity ('000 tons) 0.0 0.0 40 78.2 80 78 
Annual commitment levels       
Outlays (US$ million) 8. 1 7.9 7.7 7. 5 7.3 7.0 
Quantity ('000 tons) 85. 5 84.2 82.9 81.6 80.3 79 
Citrus fruit (0805)       
Subsidized exports       
Outlays (US$ million) 0. 0 0.0 0.6 0. 4 0.2 0.13 
Quantity ('000 tons) 0.0 0.0 50 60 38 38 
Annual commitment levels       
Outlays (US$ million) 15. 9 15.5 15.0 14. 7 14.2 13.8 
Quantity ('000 tons) 401.1 394.1 388 382 376 370 
Other fruit (0803, 04, 06-10)       
Subsidized exports       
Outlays (US$ million) 0. 0 0.0 0.6 1. 5 0.6 0.0 
Quantity ('000 tons) 0.0 0.0 35 36 15 0.0 
Annual commitment levels       
Outlays (US$ million) 5. 0 4,9 4.8 4. 6 4.5 4.4 
Quantity ('000 tons) 51.5 50.7 49.9 49. 2 48.4 47.6 
Goose liver       
Subsidized exports       
Outlays (US$ million) 0. 0 0.0 0.08 0. 03 0.07 0.0 
Quantity ('000 tons) 0.0 0.0 0.06 0. 1 0.2 0.0 
Annual commitment levels       
Outlays (US$ million) 1. 1 1.1 1.1 1. 1 1.0 1.0 
Quantity ('000 tons) 0.29 0.29 0.28 0. 28 0.27 0.27 
Cotton       
Subsidized exports       
Outlays (US$ million) 0. 0 0.0 0.0 0. 9 0.0 0.0 
Quantity ('000 tons) 0.0 0.0 0.0 0. 6 0.0 0.0 
Annual commitment levels       
Outlays (US$ million) 8. 5 8.3 8.0 7. 8 7.6 7.3 
Quantity ('000 tons) 44.4 43.8 43.1 42. 4 41.8 41.1 
Total       
Subsidized exports       
Outlays (US$ million) 1. 4 0.0 5.0 5. 9 3.8 0.6 
Quantity ('000 tons) .. .. .. .. .. .. 
Annual commitment levels       
Outlays (US$ million) 49. 2 48.0 46.6 45. 4 44.2 42.6 
Quantity ('000 tons) .. .. .. .. .. .. 
.. Not available. 
a Marketing year beginning 1 October. 
Source : Data supplied by the Israeli authorities. 
13. The main organization in charge of agricultural export activities in Israel is the national fresh 
produce export system, AGREXCO.  AGREXCO is owned 50/50  by growers and the Government, 
and operates on a fully commercial basis for both producers and potential buyers.  It takes care of the required logistics for export activities: planning,  guidelines for quality, credit allocations, sales, 
marketing, special air and sea terminals services in Israel and abroad, air cargo, and organizational 
and financial management.  Other measures benefiti ng agricultural exports include those available to 
all sectors such as export promotion and marketing assistance (Chapter III(3)(vi)).  An export licensing system is maintained for some food produc ts and fresh agricultural products for sanitary and WT/TPR/S/157/Rev.1 Trade Policy Review 
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quality control (Chapter III(3)(iii)).  A number of agri cultural products can be exported only with the 
approval of the Ministry of Agriculture, while the Plants Production and Marke ting Board  supervises 
exports of fruits and vege tables  (Chapter III(4)(iv)).7  
14. Israeli farmers benefit from relatively high tariff protection.  In 2005, the average MFN 
applied tariff (including the ad valorem  equivalents of specific, compound, and alternate duties) on 
agricultural products (ISIC Revision 2 definition) is 41% (Chapter III(2)(iv)(a)).  Around 40% of 
agricultural goods enter Israel duty free compared  with around 51% of non-agricultural products.  
MFN applied tariffs are higher than the overall averag e rate in six subsectors: live animals (with an 
average tariff of 29.0%), meat products (64.6%), dairy products (120.6%), edible vegetables (63%), 
edible fruit (87.1%), and preparations of cereals, fl our, starch or milk products (42.3%).  The average 
MFN applied tariffs on these products, and on vege table plaiting materials, sugars and sugar 
confectionery, and edible preparations have increase d since the previous TPR of Israel.  Imports of 
some products are also submitted to tariff peaks of up to 560% on some edible fruits and nuts. 
15. Tariff quotas apply to 12 product groups (Table AI V.1).  However, for most of these products 
the in-quota tariff rate is above the MFN applied ra te, thus rendering the quot a redundant.  As a result, 
these tariff quotas are in general overfilled.  All of Is rael's trade agreements, except for the agreement 
with EFTA, provide for preferential tariff quotas on agricultural goods (Chapter III(2)(v)(b)).  The tariff quota system is administered by the Ministries of Agriculture and Rural Development (for agricultural products and fresh food) and Industr y, Trade, and Labor (for processed food).  An 
administrative directive governs the administration of tariff quota. There are no licensing fees. 
16. Seasonal tariffs are applied to 21 fruit and ve getable products during their harvest seasons 
(Table III.4).  Import surcharges ("safeguard" levies)  are applied to imports of five agricultural 
product groups (Chapter III(2)(iv)(a)).  Under Artic le 5 of the WTO Agreement on Agriculture, Israel 
has reserved the right to take safeguard actions on 41 agricultural product categories;  however, it has 
not used this right.  The four items that were subj ect to "special treatment" under Annex 5 of the WTO 
Agreement on Agriculture were tariffied in 2001.
8  Israel imposes sanitary and phytosanitary controls 
on imports and exports of live animals and animal products and plant products.  The Ministry of 
Agriculture and Rural Development is in char ge of sanitary and phytosanitary measures and 
regulations (Chapter III(2)(vii)(b)).  The phytosan itary legislation is currently under revision.    
17. Imports of several agricultural products are subj ect to licences issued by the Ministry of 
Agriculture and Rural Development, the Ministry of  Health and the Ministry of Finance for sanitary, 
phytosanitary health and fiscal reasons, or in order to ensure correct classification  
(Chapter III(2)(v)(b)).  Moreover, Israel prohibits im ports of wine, spirits products and grape juice in 
case of incorrect or misleading geographi cal indications, and of non-kosher meat 
(Chapter III(2)(v)(a)).  
(ii) Key subsectors 
(a) Crops   
18. The main crops are fruit (27.4% of crop produc tion in 2004), vegetables and melons (40.8%), 
and flowers (12.6%).  Israel produces a wide range of  fruit, including citrus, avocados, apples, pears, 
cherries, kiwis, litchi, guavas, mangoes, sweet banan as, and dates.  Its varied climate enables it to 
harvest fruits throughout the year;  this gives Israel a clear comparative advantage over other 
                                                      
7 Supervision includes the issuance of licences as well as ensuring respect of intellectual property 
rights, and compliance with national laws and international rules.  
8 WTO document G/MA/TAR/RS/78, 13 March 2001. Israel WT/TPR/S/157/Rev.1 
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countries.  Production of vegetables has grown si gnificantly in recent years, due mainly to 
sophisticated cultural techniques and an increase in the share of high-value crops.  As a result, the 
share of vegetables in total crop value increased by around 22% between 2000 and 2004 (Table IV.5). 
Table IV.5 
Main crop production, 2000-04 
(Per cent unless otherwise specified) 
  2000 2001 2002 2003 2004 
 Total (NIS million) 7,769.4 8,420.3 9,268.9 9,662.3 10,572.5 
Field  crops 11.8 11.2 10.8 11.4 11.2 
Cereals and pulses for grain 2.9 3.0 3.2 4.1 3.4 
Industrial and oil crops 4.5 4.7 4.2 4.1 4.3 
Roughage and straw  4.4 3.5 3.4 3.2 3.4 
Fresh vegetables, potatoes a nd melons 33.3 36.6 34.8 37.4 40.8 
Plantations 37.9 34.8 35.0 33.1 29.0 
Fruits 34.7 33.0 32.9 31.8 27.4 
Citrus 8.9 8.0 6.5 6.9 6.6 
Fruit, excluding citrus 25.8 25.1 26.4 24.9 20.9 
Young plantations 3.3 1.7 2.1 1.3 1.6 
Flowers and garden plants 9.4 10.6 13.3 12.6 13.3 
   Flowers for exports (millions) 6.6 7.4 9.1 9.0 8.9 
   Flowers for other purposes 0.9 0.9 1.1 1.4 1.4 
   Various garden plants 1.8 2.2 3.1 2.1 3.0 
Other crops 5.2 4.8 4.4 4.2 4.6 
Afforestation 2.3 1.9 1.6 1.3 1.0 
Citron 0.1 0.1 0.1 0.1 0.1 
Source : Central Bureau of Statistics (2005), Statistical Abstract . 
19. Flowers have become Israel's leading agricultura l export.  Production units are rather small - 
but highly profitable, though depreciation of the sh eqel has sharply reduced income and profitability 
in recent years.  Progress in agri-technology allo wed the development of a wide variety of high 
quality flowers,  including cut flowers such as roses, gypsophila, carnations, solidago, limonium, gerbera, anemone, and ornamental plants.  Varie ties cultivated include "summer flowers", grown in 
Israel and exported to Europe during winter, and flowers indigenous to the southern hemisphere.  
About half of the area devoted to flower growi ng consists of advanced, computerized greenhouses; 
some 12% of the area is under protective netting.  Marketing and shipping are handled by a new 
private company - Aviv - and by AGREXCO, which has special air and sea terminals in Israel and 
Europe.     
20. Tariff rates on imports of fruit (87.1% on aver age), vegetables (63%) and related products are 
relatively high (Table AIII.1), a substantial incr ease since 1999.  Within these groups there is also 
high dispersion due to tariff peaks on certain fruit (344%) and vegetables (560%).  Imports of most 
fresh fruit and vegetables are subject to seasonal ta riffs, generally specific with relatively high AVEs 
(Chapter III(2)(iii)(a));  variable import levies are also  applied to some of th em.  Applied MFN tariffs 
range from 10% to 20% on flowers.  Imports of prun es, walnuts, sweet corn, and concentrated citrus 
fruit are subject to tariff quotas.  The quotas have been largely over-filled, except for sweet corn and 
prunes in 2001 with fill rates of 50.1% and 97.7% respectively (Table AIV.1).  The 600-tonne tariff 
quota on prunes is allocated first to imports under th e free-trade agreement with  the United States; the 
remainder is available to all supplying countries.  The out-of-quota tariff rate for walnuts equal to the 
in-quota rate, therefore the tariff quota system is re dundant and not used.  For sweet corn, the quota is 
allocated on a pro-rata basis, while for citrus, licen ces are issued according to past performance.  The 
applied MFN rate on concentrated citrus juice is 19% , which is lower than the in-quota rate of 26%;  
the tariff-quota system is therefore redundant and not used.  Imports from the U.S. are duty free.  WT/TPR/S/157/Rev.1 Trade Policy Review 
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21. Applied MFN tariffs are generally relatively lo w on cereal and oilseed products (average of 
about 10%), with the exception of wheat (50%) an d certain vegetable seeds (tariff peaks of up to 
114%).  Imports of oil are subject to variable levies and safeguard levies;  tariff quotas regulate imports of wheat and meslin, and ed ible fats and oils.  The tariff quota of 450,000 tonnes of wheat has 
been largely exceeded over the period under re view.  The in-quota rate was 100% in 1995 and 
declined to 85% by 2004; the out-of-quota rate was 150% in 1995 and 128% in 2004.  Licences are 
issued by the Ministry of Agriculture and Rural Development to all importers of feed wheat upon 
request; licences for non-feed wheat are allocate d to importers once they have purchased the 
emergency stock constituted each year for food secur ity reason (Chapter III(2)(viii)).  Alternatively, 
any type of wheat can be imported w ithout licence at the 50% tariff rate, which explains why the tariff 
quota is over-filled. 
(b) Livestock 
22. The main livestock products are animals for meat (about 47% of livestock output value in 
2004), milk (29%) and eggs and chicks (16%) (Table  IV.6).  Israel's total dairy requirements are 
supplied locally.  Until the late 1990s, production w as regulated by a strict policy of planning and 
quotas.  Since then, the Government has reduced the (regulated) prices on an annual basis, while 
encouraging small dairy companies to merge in or der to cut production costs.  The sheep and goat 
milk subsectors have developed significantly in recen t years, with a growing share of locally produced 
cheeses earmarked for export.  High automation and strict hygienic conditions contribute to 
production of huge quantities of a wide variety of pou ltry products, also exported, mainly to western 
Europe.  Israel's production of beef is much more  modest as restricted p asture severely limits its 
capacity. 
Table IV.6 
Main livestock production, 2000-03 
(Per cent, unless otherwise specified) 
 2000 2001 2002 2003 
 Total (NIS million) 6, 024.5 6,247.5 6, 365.2 6,337.1 
 Livestock for meat 44.2 46.1 45.6 46.2 
Milk 30.8 29.7 28.8 29.1 
Eggs and chicks 15.2 15.1 16.4 16.2 
Fish 7.4 6.8 7.0 6.7 
Miscellaneous 2.4 2.3 2.2 1.9 
Source:  Central Bureau of Statistics (2005), Statistical Abstract  of Israel 2004 . 
23. Tariff protection for dairy and meat products is  high and has increased during the period 
under review.  Applied MFN tariffs on meat averag e 64.6%, while those on dairy products are over 
120% (Table AIII.1).  Tariff quotas on live bovin es and their products amount to 37,250 tonnes 
annually.  However, in most cases, the applied MF N rates are lower than the bound in-quota rates of 
between 15% and 120% (Table AIV.1), actual impor ts have largely exceeded the quota volumes.  The 
products can be divided into four groups according to the import regime: 
− "breeding bovine" (HS 0102.1000) , the tariff quota system is not used because the bound in-
quota tariff rate of 15%, and the bound out-of-quo ta rate of 50% in 1995 and 43% in 2004 are 
higher than the MFN applied rate of zero during the period under review;  
 
− "other live bovine" (HS 0102.900 0), the bound in-quota rate is  50%, with licences allocated 
by the Ministry of Agriculture and Rural Deve lopment to cattle farmers, for calves weighing 
not more than 220 kg  (on average 120,000 head  are allocated on a first-come, first-served 
basis); for calves weighing more than 220 kg, licen ces are issued to all applicants (on average 
15,000 head are allocated on a pro rata  basis); the bound out-of-quota rate was 150% in 1995 Israel WT/TPR/S/157/Rev.1 
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and 128% in 2004; the applied MFN rates range from zero to 50% or NIS 1.15 per kg 
(whichever is lowest);  
 
− "fresh or chilled bovine meat" (HS 0201): licences  are allocated by the Ministry of Industry 
and Trade on a first-come-first-served basis at the bound rate of 120%; the bound out-of-
quota rate was 223% in 1995 and 190% in 2004; the average MFN applied rates during the period under review range from 100% to 120%;
 
 
− frozen bovine meat and bovine meat preparations (HS 0202, 0206.1000, 0206.2000 and 
1601-3) :  as the bound in-quota tariffs of 120%, the bound out-of-quota rates of 223%  in 1995 
and 190% in 2004 were higher than the MFN a pplied rates (from zero to 50%), the tariff 
quota system is not used. The Canada-Israel FTA  provides Canada with 2,000 tonnes of duty-
free exports of frozen beef and beef offal to Israel.  
 
24. Under the Kosher Meat Import Law, Israel pr ohibits the importation of non-kosher meat and 
meat products; stringent certification procedures are in place for foreign firms wishing to export their 
kosher meat to Israel (Chapter III(2)(v)(a)).  None theless, the Government allows limited domestic 
production, sale, and consum ption of non-kosher meat. 
25. Imports of sheep and goat meat exceeded the 1995 quota of 240 tonnes, rising to 480 tonnes 
by 2004, because the bound in-quota rate of 100% is  twice the applied MFN tariff of 50%.  Import 
licences for these products are issued by the Ministry of Industry, Trade and Labor to all applicants on a pro rata basis. As the in-quota rate exceeded th e applied MFN rate, the tariff quota system has not 
been used . 
26. Imports of milk products are still subject to high applied MFN tariffs of between zero and 
212%. The milk industry is also protected by a ta riff-quota system.  Two different tariff quotas have 
been established for milk and cream, were the fa t content exceeds 1.5% (a quota of 50 tonnes in the 
base year, rising to 100 tonnes in 2004 with an in-quota tariff of 215%) or not (a quota of 1,200 tonnes with an in-quota tariff of 85%).  Both  quotas have been considerably over-filled over the 
period under review.  For milk and cream with fat content not exceeding 1.5%, the bound out-of-
quota tariff rate was 190% in 1995 and 162% in 2004; on milk and cream with fat content exceeding 
1.5%, the 2001 tariffication led to an out-of-quota rate of 212%.   
27. Imports of cheese are subject to relatively high tariff rates and tariff quotas.  Bound rates on 
fresh, grated or blue cheese ranged between 185%  and 290% in 1995 and between 157% and 247% in 
2004.  The applied MFN tariff on imports of fresh cheese is 148%, while imports of grated or blue 
cheese are subject to specific duties (NIS 14 to NI S 15.24 per kg but not more than 247% for grated 
cheese, and NIS 14.15 to NIS 17.08 per kg but not more than 238% for blue cheese).  Imports of 
processed and other cheese are subject to a tariff quota system.  The tariff quota volume for processed 
cheese was 34 tonnes in 1995, rising to 68 tonnes in 2004 with an in-quota tariff of 150%.  The quota 
has been over-filled each year since 1999 except fo r 2001 when the fill rate was around 80%.   For 
other cheese, the quota volume was 540 tonnes in 1995, rising to 1,080 tonnes in 2004 with an 
in-quota tariff of 250%.  The quota fill rate increased steadily from around 55% in 1998 to over 100% 
since 2002. 
(3) M
INING AND ENERGY  
(i) Mining  
28. Mining and quarrying activities remain marginal  (around 0.5% of NDP in 2001);  Israel 
imports most of its raw minerals (13% of total im ports in 2004 (Table I.4).  Israel's main mineral WT/TPR/S/157/Rev.1 Trade Policy Review 
Page 66 
 
 
deposits include phosphates, potash, clay, glass, sand,  sulfur, manganese, building stone, and copper.  
The waters of the Dead Sea also contain brom ine and salt. The Israeli mining industries supply 
ingredients for the production of pharmaceuticals, fertilizers, detergents, plastics, and tyres.  Around 100 quarries are in operation with an overall annua l production of about 60-70 million tonnes.  
Aggregate and gravel production in Israel is very concentrated, with five companies  accounting for 
about 82% of production, and two for 57% of the tota l.  Tariff protection for mining and quarrying is 
low, with an average applied MFN rate of 0.2% in 2005. 
29. The Ministry of National Infrastructures a nd the Mining Commission are responsible for the 
Government's mining and quarrying policy.  Mining  and quarrying are regulated by the 1926 Mining 
Ordinance (as amended), while petroleum activities are regulated by the Petroleum Law of 1952.  
Mineral and water resources belong to the State, while quarries belong to the landowner.  Opening 
and operation of a quarry require a licence from the Mining Commissioner.    Minerals exploration 
requires a permit from the Mining Commissioner, while exploitation requires a lease or concession from the Minister of National Infrastructures.  Expl oration for and exploitati on of petroleum require a 
permit, a licence or a lease from the Petroleum Commissioner. 
(ii) Energy 
30. Production of energy in Israel is primarily based on imported fossil fuels, especially crude oil.  
However, in 2004, natural gas produced from local offshore deposits provided approximately 5.4% of 
Israel’s primary energy.  The other significant local  energy source is solar energy; domestic solar 
water heaters contribute about 3% to primary energy  supply.  Since domestic production of crude oil 
is insignificant, most resources to meet Israel's energy needs are imported. In 2004, about 9.5 million 
tonnes of crude oil were imported while domestic production amounted to around 3,500 tonnes.    
31. The sector remains largely state-owned and regulated.  In particular, the only oil refinery 
company in Israel (Bazan Oil Refineries Ltd.) is 74% owned by the Government, which also controls 
the activities of the sole provider of storage and transportation services for refined oil Petroleum and 
Energy Infrastructures (PENIN).
9  Bazan and PENIN are required to provide services to all customers 
on an equal basis. Prices of refined products as well as tariffs for services provided by PENIN are 
regulated by the Fuel Authority of the Ministry of National Infrastructures.  
32. No quantitative restrictions are imposed on imports of crude oil and refined products10;  oil 
companies may freely import refined products.  Tari ff protection is relatively low; crude oil and 
natural gas enter Israel duty free and imports of re fined products are subject to average applied MFN 
tariff rates ranging between zero and 12%.  Retail pr ices are free of Government control, except for 
96 octane and 95 octane unleaded gasoline, fo r which the Government determines maximum 
consumer prices.  Petroleum products are subject to VAT and excise taxes.  The excise tax is specific 
and updated quaterly according to the inflation rate.   
33. The production, transmission, distribution, and sale of electricity are operated by the Israel 
Electric Company Ltd. (IEC), a legal monopoly 99.8%  owned by the State.  Its exclusive concession 
from the Government expired in March 1996.  In the same year, the Electricity Industry Act was enacted and a regulatory Authority (the Public Utility Authority - Electricity (PUA))  was established.  
                                                     
 
9 PENIN provides infrastructure services for the pe troleum industry.  PENIN's subsidiaries plan, build, 
operate, and maintain systems and facilities for the transp ortation and distribution of petroleum products.  The 
State controls tariffs charged by PENIN.  Since January 2001, PENIN has been operating under a concession by 
the Government. 
10 Oil tankers must be licensed by the Maritime Auth ority (Ministry of Transpor tation) on the basis of 
international safety standards. Israel WT/TPR/S/157/Rev.1 
 Page 67 
 
 
The Act provides for separate licences for genera tion, distribution, and commercialization of 
electricity, and for a ten-year transition period during which IEC has been licensed to generate, 
transmit, distribute, and sell electricity through a system of business ("profit") centers.   
34. In 1999, the Government started preparations to open the electricity industry to competition 
by setting rules for co-generation of electricity by pr ivate companies.  In 2003, the Electricity Industry 
Act was amended to achieve a decentr alized competitive structure for electricity supply. As part of the 
reform, policies have been formulated by the PUA to encourage the introduction of independent 
power producers (IPPs).  At present, there are 17 I PP, producing 353 MW (0.4% of total generation).  
Israel’s installed generation capacity was 9,869 MW in 2004, and electricity production reached 46.9 
billion kWh.  Since the electricity grid is isolated  from those of neighbouring countries, Israel is not 
involved in regional electricity trade. 
35. In accordance with the Electricity Industry Act,  electricity tariffs are set by the PUA on the 
basis of a formula that takes into account productio n costs (e.g. fuel, operating, and capital costs), and 
addresses costs related to generation, transmission,  and distribution separately, with a view to 
preparing the industry to further competition.  Consumers have the choice between a linear and a 
time-of-use tariff.  The time-of-use tariff is base d on marginal costs and encourages consumers to 
shift consumption from on-peak periods to off-peak  periods.  Around 50% of consumption is billed on 
the time-of-use tariff, including most high-voltage and some major low vo ltage consumers.  This tariff 
is mandatory for customers whose annual consumption exceeds 60,000 kWh. 
(4) MANUFACTURING  
(i) Main features 36. In 2004, the manufacturing sector accounted for about 14% of NDP (Table I.1) and about a 
fifth of production by the business sector (i.e. all activities excluding public and housing services and non-profit organizations).  The main subsectors are electronics (electrical motors, components communication equipment, industrial, medical a nd scientific equipment), chemicals, rubber and 
plastics, food and beverages, basic metal a nd metal products, and machinery and equipment 
(Table AIV.2).
11  The share of manufacturing in total employment has decreased steadily during the 
last few decades, from about 22% in 1970 to around  16% in 2004.  Traditional industries (textiles, 
clothing, wood, non-metallic minerals, and metals) have shown the largest decline in employment, 
with their overall share falling by 50% in the last 30 years. 
37. Although annual average real growth in the manufacturing sector (around 2% between 1998 
and 2004) has generally been lower than that of the economy, some subsectors have grown 
significantly during the period under review.  This is  particularly the case of electric and electronic 
equipment, chemical and oil products, and tran sport equipment.  However, industries producing 
textiles and apparel, footwear, leather and relate d products, and non-metallic  mineral products have 
contracted (Table IV.7).    
38. Manufacturing accounted for about 65% of mercha ndise exports in 2004.  The main exports 
are electronics and communication equipment (around 33% of manufactured exports), and chemicals 
and related products (24%).  Exports of electronic industries have grown significantly as, in 1990, 
their share in Israeli's manufactured exports was only 21% (Table IV.8).  Diamonds also remain an important export item (US$10.6 billion, i.e. 31% of manufactured exports).  
                                                     
 
11 Diamonds, not included in the computation of Israel's industrial production indices since 1979, 
accounted for more than  10% of industrial output in 2004.  WT/TPR/S/157/Rev.1 Trade Policy Review 
Page 68 
 
 
Table IV.7 
Manufactured production by indus try (excluding diamonds), 1999-04 
(Indices, 1994=100) 
  1999 2000 2001 2002 2003 2004 
Mining and quarrying (13)a 119.3 116.5 118.8 128.2 124.5 120.5 
Food, beverages and tobacco (14, 15, 16) 114.7 114.8 113.6 111.9 109.4 110.8 
Textiles and wearing apparel (17,  18) 98.5 95.9 92. 3 87.7 80.1 77.9 
Footwear, leather, leather products  (19) 56.8 51.0 43.8 43.4 45.0 41.3 
Wood, wood products (incl. furniture) (20, 36) 97.2 101.6 87.1 86.9 86.1 92.5 
Paper and paper products (21)  100.5 100.4 96.6 96.9 93.6 93.7 
Printing and publishing (22) 109.6 109.2 105.8 101.5 98.6 103.5 
Chemicals and oil products (23, 24)  124.9 129.2 137.2 158.6 167.4 188.4 
Rubber and plastic products ( 25) 132.1 136.5 139.9 152.6 161.9 171.3 
Non-metallic mineral products ( 26) 99.6 91.3 84. 9 80.2 76.0 69.6 
Basic metal industry (27) 120.3 122.6 113.9 103.6 92.1 99.3 
Metal products (28) 118.8 129.4 123.7 122.0 120.5 128.1 
Machinery and equipment (29) 99.2 111.9 103.7 96.4 92.8 86.3 
Electrical motors and distribution apparatus (31) 115.4 117.7 104.9 102.1 103.2 100.1 
Electric and electronic equipment (32, 34) 139.2 199.2 180.8 166.2 173.0 185.5 
Electronic communication equipment (33) 177.5 206.0 171.3 146.4 134.1 163.2 
Transport equipment (35) 124.7 130.8 132.6 134.5 138.6 161.6 
Jewellery, goldsmiths and silversmiths articles (38) 94.8 97.5 90.1 86.0 79.9 77.5 
Miscellaneous products (39) 110.2 109.7 119.6 121.0 134.5 133.7 
a Since 1995, manufacturing establishments have been classified according to the Standard Classification of All Economic 
 Activities ,  which considers 25 major groups of activities.  Industry codes are indi cated in parenthesis. 
Source : Central Bureau of Statistics (2005), Statistical Abstract  of Israel 2004 . 
39. As a result of Israel's free-trade agreements  with the EU, the United States, Mexico, the 
Palestinian Authority, Canada, a nd several other countries (Jordan, Romania, and Turkey), most 
manufactured imports enter Israel under preferentia l tariffs (mostly duty free).  For manufactured 
imports from other sources, overall tariff protecti on is moderate (simple average of 7.3% for 
manufacturing – ISIC definition), except for the food, beverages, clothing, footwear, furniture, and 
plastics industries, which are protected by relativ ely high tariffs (Chart IV.2 and Table AIV.3).12  In 
general, the high-performing high-tech industries tend to have lower than aver age tariff protection, 
whereas the slow-growing traditional industries tend to  be protected by higher than average tariffs. 
40. Other measures affecting trade and production of manufactured products include technical 
regulations (Chapter III(2)(vii)).  The products con cerned include electrical machinery and equipment 
(HS 85); nuclear reactors, boilers, machinery,  and mechanical appliances (HS 84); optical, 
photographic, cinematographic, measuring, checking, precision, medical or surgical instruments and 
apparatus (HS 90); articles of stone, plaster, cement, asbestos, mica or similar materials (HS 68); and plastics and articles thereof (HS 39).  Vari ous licensing requirements also apply to, inter alia , 
transport equipment, chemicals, arms and ammuniti on, hides and skins, and wooden articles.  Import 
and export licences are required mainly for health, safety and security reasons, quality control, and 
compliance with international agreements (includi ng those on dangerous drugs) (Chapter III(2)(v)(b) 
and III(3)(iii)).  Prices are mostly liberalized but the Government still maintains direct price control or 
supervision (requiring approval before their incr ease) for some products, such as utilities (water and 
electricity), school books, fuel and pharmaceuticals.   Since 1999, the Government has not supervised 
the prices of cigarettes, malt beer, mother's m ilk substitute, and pasta (Chapter III(4)(ii)). 
                                                     
 
12 Tariff averages by sector vary according to the definition used.   Israel WT/TPR/S/157/Rev.1 
 Page 69 
 
 
Table IV.8 
Manufactured exports by industry (excluding diamonds), 1990-04  
(Per cent, unless otherwise specified) 
 1990 2000 2002 2003 2004 
  Manufacturing exports (US$ million) 7,696.8 21,004.6 18,308.8 19,449.7 23,730.6
   Mining and quarrying (13) 3.4 1.7 1.8 2.5 2.8 
   Food products, beverages and tobacco pr oducts (14, 15, 16) 8.3 2.1 2. 3 2.6 2.5 
   Textiles, wearing apparel and leat her (17, 18, 19) 9. 5 5.4 5.5 5.1 4.6 
   Wood, paper and printing (20, 21, 22)    1.1 0.9 1.5 1.4 1.2 
   Refined petroleum (23) 1.0 1.1 0.6 0.7 0.4 
   Chemicals and chemical products (24) 19.4 16.5 21.8 22.9 24.0 
   Plastic and rubber products (25) 4.7 5.1 5.9 6.6 6.4 
   Non-metallic mineral produc ts (26) 0.3 0. 4 0.6 0.7 0.9 
   Basic metal (27) 1.5 1.3 1.3 1.2 1.6 
   Metal products (28) 4.5 3.7 4.1 4.0 4.2 
   Machinery and equipment (29) 8.2 5.4 5.5 5.7 5.8 
   Office and accounting machinery and computers (30) 3. 7 4.3 3.5 3.5 3.8 
   Electric motors and accessori es (31) 3.4 2. 5 3.0 2.2 1.9 
   Electronic components (32)  2.6 13.0 9.3 7.8 7.1 
   Electronic communication equipment (33) 5.8 19.4 13.4 12.3 12.1 
   Industrial equipment for control and supervision, me dical and scientific equipm ent (34) 9.5 9.3 9.8 11.2 12.0 
   Transport equipment (35) 7.2 4.8 6.3 6.3 5.7 
   Furniture (36)  0.5 0.1 0.1 0.1 0.2 
   Jewellery, goldsmiths' and silversmit hs' articles (38) 4.4 2.2 2.8 2.4 2.1 
   Manufacturing,  n.e.c. (39)  1.0 0.5 0.7 0.7 0.8 
Source: Central Bureau of Statistics (2005), Statistical Abstract  of Israel 2004 .        
41.  The manufacturing sector is the main beneficiary of state aid.  Both local and foreign 
investment can benefit from a wide range of incen tives;  special attention is given to high-tech 
companies, small and medium enterprises, and R& D activities (Chapter III(4)(i)(a) and (b)).  Under 
the Law for the Encouragement of Capital Investment, 93%  of total approved investment incentives 
went to the manufacturing sector in 2004.  Electri city and electronics (including software houses and 
energy), followed by chemicals, were the main beneficiaries of investment and R&D incentives.  
Incentives are also available to internationally orie nted manufacturing companies located in free ports.  
Under the Mandatory Tenders Regulation of 1995, contracting authorities must follow an offset 
policy designed to promote national manufacturers (Chapter III(4)(iii)). 
42. The liberalization and privatization reforms initia ted in the 1990s have strongly affected the 
manufacturing sector.  Some major government-owned co mpanies have been (or are being) totally or 
partially privatized.  Nevertheless, the State maintain s a majority share of direct or indirect ownership 
in some of the largest Israeli enterprises, such  as the Electric Corporation (99.8% of the capital), 
Bazan Oil Refineries Ltd. (74%), Israel Aircraft I ndustries Ltd. (100%), Rafael Armament (100%), or 
Mekorot, a monopoly supplier of water (100%). 
 WT/TPR/S/157/Rev.1 Trade Policy Review 
Page 70 
 
 
051015202530
311
312
313
314321322323324331332341342351352
353354355
356361362369371372381382383384385
390Chart IV.2
Tariffs on manufactured products, 2005
Average tariff rates by ISIC categories (per cent)
ISIC
371
372
381
382
383
384
385
390Description
Iron and steel
Non-ferrous metalFabricated metal products
Non-electrical machinery 
including computers Electrical machineryTransport equipment
Professional and scientific
 equipment Other manufactured productsISIC
342
351
352
353354355
356
361362369Description
Printing and publishing
Industrial chemicalsOther chemical products
Petroleum refineries
Petroleum and coal productsRubber productsPlastic products
Pottery and china
Glass and glass productsOther non-metallic mineral productsISIC
 
311-312313314
321
322323324
331
332341Description
Food products
BeveragesTobacco
Textiles
ClothingLeather productsFootwear
Wood products
Furniture and fixturesPaper products
Note:      
Source: The tariff analysis includes ad valorem  equivalents of specific, compound, and alternate duties, if available.
WTO Secretariat calculations, based on data provided by the Israeli authorities.Average rate (7.3%)
 
(ii) High-tech industries 
(a) Electronics  
43. The electronics industry remains the principal subsector in Israel's manufacturing.  It accounts 
for about one quarter of the production by the busin ess sector, one third of manufactured exports, and 
exports about 85% of its production.  The indus try grew by 4.9% on average between 1998 and 2004 
(21.7% in 2004), with a turnover of US$15,800 million in 2004 (Table IV.9). The Far East has 
recently become a major destination for Israel's e xports of electronics;  in 2004, Asia accounted for 
37% of the Israeli electronic exports, the United States for 35%, and Europe for 16%.  The main segments of the industry are electronic component s, equipment for the semiconductor industry, 
industrial equipment, general electronic equipment,  and electronic assembly services.  The industry is 
characterized by a high R&D content.  The electronics and software industries employ directly 57,200 
persons;  over 64% are engineers, scientists and technicians.  
 Israel WT/TPR/S/157/Rev.1 
 Page 71 
 
 
Table IV.9 
Evolution of the electrical and electronic equipment industries, 1998-04 
(Per cent) 
 1998 1999 2000 2001 2002 2003 2004 
Industrial production (annual rate of change)        
    Electronic communications equipment (33) 10.5 8.8 16.0 -16.8 -14.6 -8.4 21.7 
    Electric equipment and electronic components (32, 34)  3.9 8.4 43.1 -9.2 -8.1 4.1 7.2 
    Electronic motors (31) 10.4 0.1 2.0 -10.9 -2.7 1.1 -3.0 
Memo: total manufacturing (excl.  diamonds) 2.8 1.4 10.0 -5.0 -1.9 -0.3 6.6 
Exports (annual rate of change)        
    Communication, control, medical equipm ent (33, 34) 18.8 17.2 39.3 -11.2 -18.2 7.2 25.2 
    Electronic components (32)  7 5.4 158.1 -15.7 -21.4 -13.5 11.7 
    Electronic motors (31) 22.8 -3.5 10 0.7 0.2 -19.7 3.4 
Memo: total manufacturing (excl.  diamonds) 11.6 7.1 31.6 -4.8 -5.6 2.2 6.9 
Source : Bank of Israel (2005), Annual Report 2004 , Statistical Appendix (Table 1. A.1.20); Bank of Israel (2004), Annual 
Report 2003 , Complementary Data to the Statistical Appendix (Table 2.5d); and Central Bureau of Statistics 
(2005), Statistical Abstract of Israel 2004 . 
44. Tariff protection for the electrical machinery industry has continued to decline and has 
remained below the average protection for the manu facturing sector.  The average MFN tariff for the 
industry is 4.3% compared with 7.3% for the ma nufacturing sector as a whole (Table AIV.3);  down 
from 5.9% and 8.2% in 1999.  Imports from the EU  and the United States enter the Israeli market duty 
free.  Other border measures include import licensing and technical regulations (Chapter III(2)(v)(b);  
and (vii)(a)). 
45. The Government's participation in total R&D expe nditure is highest in th e electronic industry.  
In 2002 (the latest available data), 10.4% of R&D expenditures in electronics and electric motors were 
financed by the Government and international public foundations; the ratio reached 14.3% in the 
electronic communication equipment subsector (compa red with an average of 9.3% for the whole 
manufacturing sector).13  The industry was also the main bene ficiary of the Government's tax and 
grant incentives as it accounts for a relatively large share of investment incen tive certificates under the 
regional aid programme (about 46% in 2003). 
(b) Chemicals and oil products 
46. Chemicals (pesticides and herbicides, fertili zers, detergents, paints and dyes, and 
pharmaceuticals) and oil products are also among Isr ael's major manufacturing industries.  In 2002, 
they accounted for about 18% of industrial gross out put and exports (Table AIV.2).  These industries 
are export-oriented (around 47% of production was e xported in 2002).  In 2004, imports of chemicals 
and oil products each amounted to around US$4.3 billion, i.e. about 11% of all merchandise imports.14  
The oil subsector is still dominated by government-o wned companies, particularly oil refineries.   
47. Tariff protection for chemicals and oil products  is below the average for the manufacturing 
sector.  The simple average MFN tariff on industria l chemicals has declined from 2.7% in 1999 to 
1.2% in 2005, on chemicals, including pharmaceuticals from 4.8% to 4.1% over the period (Table AIV.3).  Imports of refined petroleum pr oducts face an average tariff of 2.4% (down from 
3.0% in 1999), while tariff protection for miscella neous petroleum and coal products is unchanged at 
1.8%.  Imports of rubber products a nd plastic products are subject to average MFN tariff rates of 6.2% 
and 9.2%, respectively.  Most basic industrial chem icals enter Israel duty free.  Apart from a few 
                                                     
 
13 Central Bureau of Statistics (2005). 
14 Central Bureau of Statistics (2005). WT/TPR/S/157/Rev.1 Trade Policy Review 
Page 72 
 
 
items (e.g. certain albuminoidal substances, modified starches and glues), imports of chemical 
products from the EU are duty free, as are all imports  of chemicals and oil products from the United 
States.  Imports are also subject to strict technical  regulations on security and health grounds.  About 
50% of the tariff lines for rubber items and one third of  those for chemical items (other than industrial, 
mostly hazardous substances) are subject to mandato ry standards.  Pharmaceutical and oil products 
are also subject to market regulations.  These in clude rules on the establishment and location of 
pharmacies, and price controls for pharmaceutical products.  The Government also sets the maximum 
prices of refined oil products and gas. 
48. The chemicals and oil industri es benefit from substantial R&D assistance, and accounted for 
9% of approved investment certificates issu ed in 2003 under the regional aid programme. 
(c) Transport equipment 
49. The transport equipment industry is primar ily export oriented.  In 2002, the industry 
accounted for only 4.7% of industrial output, of wh ich 65% was exported.  The main sub-sectors are 
the manufacture and repair of maritime vessels and aircraft, and the major exports are aircraft and their equipment.  The industry has developed strong ly in recent years and is now a worldwide supplier 
and manufacturer of original parts.  There is no motor industry in Israel (except for the construction of 
some utility vehicles).  Therefore, tariffs on most of these products are lower than the average in manufacturing; the average MFN tariff on transport equipment is 3.6% (Table AIV.3).  Imports from Israel's free-trade area partners enter duty free.  Internal taxes on motor vehicles include a 95% 
purchase tax, as well as the 16.5% VAT. 
50. The industry is also subject to other border measures, including import licensing and technical 
regulations.  More than 40% of the tariff lines are s ubject to safety requirements, and almost all items 
within the motor vehicles industry require an appr oval (through licence) for safety compliance and 
assurance of supply of spare parts.  Products subj ect to licences include chassis fitted with engines, 
and certain motor vehicles for the transport of go ods or persons (Chapter III(2)(v)(b)).  Transport 
equipment manufacturers are not granted any sector-specific incentives but have access to those 
available to all exporters (Chapter III(4)(i)). 
(iii) Traditional industries 
(a) Food, beverages, and tobacco 
51. In 2002, the food, beverages, and tobacco i ndustries accounted for about 15% of industrial 
production;  they are the second largest employers in  the industrial sector (after electrical and 
electronic equipment) with more than 16% of i ndustrial employment in 2004.  The industries are 
oriented mainly towards the domestic market, w ith exports representing ar ound 6% of production.  
Nonetheless, Israel is a major exporter of fruit and canned vegetables, for which it benefits from 
resource-based comparative advantages due to its favorable climatic conditions. 
52. The simple average MFN tariff on food, beverag es, and tobacco has increased from 20.5% in 
1999 to 25.5% in 2005 (Table IV.10).  Average ta riffs have increased for food manufacturing and 
preparations, but decreased for the beverage and toba cco industries.  MFN tariffs are particularly high 
on dairy products (112.7% on average), manufacture of bakery products (60.9%) and meat products 
(50.3%).  Tariff rates also feature a high dispersion, ranging from zero to 340% in the food industry and fruit and vegetables canning.   Food, beverages,  and tobacco products are also subject to SPS 
measures. Israel WT/TPR/S/157/Rev.1 
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Table IV.10 
Selected tariffs for the food, bevera ges, and tobacco industries, 1999 and 2005 
(Per cent) 
 1999 2005  
 Average tariffs Range Average tariffs Range 
Food, beverages and tobacco (ISIC 31) 20.5 0-215 25.5 0-340 
     Food manufacturing (ISIC 311) 22.1 0-215 28.3 0-340 
     Other food and prepared animal feeds (ISIC312) 9.7 0-215 16.7 0-170 
     Beverages industries (ISIC 313) 22.1 0-93.2 9.6 0-13.4 
     Tobacco products (IS IC 314) 9.6 0- 36.7 3.4 0-12 
Source : WTO Secretariat, based on informati on provided by the Israeli authorities. 
53. Producers of food, beverages, and tobacco have  access to incentives, mainly grants and tax 
incentives, available to all investors.  Food, be verage and tobacco accounted  for 8.5% of approved 
investment certificates issued in 2003. 
(b) Textiles and clothing 
54. Israel's textiles and clothing industry has been  strongly affected by the implementation of 
free-trade agreements;  this has exposed it to further competition from imports from preferential 
sources such as Egypt, Turkey, Portugal, and Jordan .  Its share in industrial output has remained 
relatively stable (Table AIV.2), but the number of employees fell from 43,000 in 1995 to 24,000 in 2004.   
55. Israel's preferential margin on the U.S. (destin ation for about half of Israel's textiles and 
clothing) and the EU markets was sharply eroded by multilateral tariff reduc tions under the WTO;  
EU extension and its free-trade agreements with th ird parties, the free-trade agreement between the 
United States and Mexico, and the opening of the Un ited States market to imports from China have 
also played a part.  However, flexibility in the or igin rules under Israel's trade agreement with the 
United States allows the labour-intensive sewing activ ities to be done in third countries, with Israel 
still conserving preferential treatment on the fini shed goods.  Under an agreement between the 
United States, Jordan, and Israel, joint Israel-Jor dan-produced merchandise (including textiles and 
clothing) can be exported to the United States duty free (Chapter II(6)(iii)(b)).  
56. As a result, Israel's industries reoriented their production away from labour-intensive and 
unskilled activities (e.g. tailoring, weaving, and kni twear) towards upmarket goods for the U.S. and 
U.K. markets, through plants using modern equi pment (mainly knitwear).  The textile segment is 
more export oriented than the others.  Israel's te xtiles and clothing exports enter the United States and 
the EU (the main destinations for the production) duty free.  
57. The simple average applied MFN tariff is 7.7% (down from 12.5% in 1999) on textiles and 
11.3% (down from 31.2% in 1999) on wearing apparel (Table AIV.3).  However, tariff escalation in 
textiles is significant, i.e. effective tariff protectio n is higher than nominal protection.  Some textile 
and leather products are also subject to technical regulations.    Producers of textile and clothing 
products are not granted any sector-specific incen tives, but benefit from the general incentives 
available to all investors (Chapter III(4)(i)). 
(5) S
ERVICES  
(i) Main features 
58. Services have grown in importance in the Isr aeli economy.  In 2004, the sector accounted for 
almost 77% of NDP and 76% of employment, up from about 72% in terms of its contribution to NDP WT/TPR/S/157/Rev.1 Trade Policy Review 
Page 74 
 
 
and 75% in terms of employment in 1999 (Table I. 1).  The main services include finance and business 
services; commerce, restaurants and hotels; housing services; transport;  and communication (Table IV.11). 
59. Israel used to be a net-importer of services but significant growth in exports turned the deficit 
into surplus in 1999.  However, the general econo mic downturn and the deterioration of the security 
situation strongly affected the industry, and expor ts declined until the end of 2002 (Table AIV.4).  
Since then, Israel's performance in services trade has improved and in 2004, exports increased by 
21%.  Services exports account for more than a third of Israel's total exports.  The balance of services 
is in deficit for all of its largest components.   
Table IV.11 
Services and main subsectors, 2000, and 2002-04 
(Per cent, unless otherwise specified)  
 2000 2002 2003 2004 
Output (NIS million) 269,609.0 280,460.2 282,933.2 295,602.2 
Commerce, restaurants, and hotels 15.0 13.8 13.8 15.9 
Transport, storage, and communications 10.1 8.9 9.5 8.4 
Communications 2.4 2.4 3.2 2.9 
Finance and business services 27.1 27.6 26.0 30.8 
Housing servicesa 9.4 11.3 10.9 10.1 
Public administration 12.1 13.3 12.8 12.6 
Education 11.7 12.5 11.9 12.1 
Health, welfare and social work 8.4 9.2 9.0 8.9 
Personal and other services 5.6 5.6 5.5 5.2 
Imputed value of bank services -1.8 -4.5 -2.5 -4.0 
a Including imputed rent of  owner-occupied dwellings. 
Source : Central Bureau of Statistics (2005), Statistical Abstract  of Israel 2004 . 
60. Israel's specific commitments under the GA TS cover 49 activities (the average is 23 for 
developing and 93 for developed c ountries) out of a total of 161.15  Israel is a signatory of the Fourth 
Protocol (on telecommunications services) and the Fi fth Protocol (on financial services) to the GATS, 
and of the 1997 Information Technology Agreement (ITA). 
61. There have been no changes to Israel's commitments on services since its last TPR 
(Table AIV.5).  Under Article II of the GATS, Is rael has listed MFN exemptions on film, video and 
television programme co-producti on and distribution; and banking.16  For the first group, Israel grants 
differential treatment to persons from countries w ith which it has co-production arrangements or is 
engaged in film and video distribut ion.  In banking, Israel retains the right to grant licences only to 
suppliers from countries that grant Is raeli suppliers similar access.  
(ii) Financial services 
62. The financial services industry has three major components: (i) the financial institutions 
including the banking system, institutional invest ors (pension funds, insu rance companies, and 
provident funds), and other financial entities (e.g. investment funds, credit co rporations, mutual funds, 
fund managers, underwriters); (ii) the financial markets comprising the money, foreign-currency, and 
securities markets; and (iii) the payments and settleme nt systems, which relay cash, and clear cheques, 
payment orders, debits and credits, notes, a nd securities between banks and other financial 
institutions, and between them  and the Bank of Israel.  
                                                      
15 GATT (1995a). 
16 WTO document GATS/EL/44, April 1994.  Israel WT/TPR/S/157/Rev.1 
 Page 75 
 
 
63. The financial service sector is dominated by the three largest banks (Hapaolim, Leumi and 
Discount), which play a central role in the main s pheres of corporate financing and the capital market.  
By end 2003, these banks held 78%  of bank deposits, managed 80% of  mutual fund assets and 85% of 
provident fund assets, and were predominant in  the underwriting of new equities issues.   
64. While the infrastructure for the corporate bond markets exists, Israel’s market for fixed-
income instruments is still dominated by government  bonds.  Israel has recently initiated a set of 
reforms aimed at reducing the predominance of  banks and opening the industry to greater 
competition, including the preparation of the lega l infrastructure for the introduction of municipal 
bonds or funds, commercial papers, asset backed se curities, and other instruments.  The corporate 
bond market is therefore growing;  the corporate tradeable bond market accounted for 7% of GDP in 
2004, up from 3% in 2002.  In 2004, total market capitalization of the Tel Aviv Stock Exchange (TASE) accounted for about 72% of GDP. 
65. There are three main financial sector supe rvisory authorities.  The Banking Supervisory 
Department (BSD) at the Bank of Israel is respons ible for the soundness of the Israeli banking system 
and banks' management.  The Israel Securities Aut hority (ISA) is responsible for supervising the 
capital market, in particular the TASE, mutual f unds, brokers, securities firms,  investment advisers, 
and portfolio managers.  The Capita l Markets, Investment and Savings Department of the Ministry of 
Finance, which includes the Commissioner for Insu rance (CFI), is responsible for supervising 
insurance (life and general), pens ion funds and provident funds.  The regulatory structure of the 
financial service industry is fragmented; no single s upervisory body regulates the entire industry.  The 
authorities are debating whether to establish such an  agency to increase cooperation and coordination 
between the existing agencies.   
(a) Banking 66. The Government is divesting itself from the banking sector progressively.  However, it still 
maintains significant shares of some of Israel's la rgest banks.  In recent years, the Government fully 
privatized Mizrahi (1998), Bank Hapoalim (in two stag es, 1997 and 2000), and sold 16% of its shares 
in Bank Leumi, thereby reducing its holdings to 25% in 2005.  The Government still holds 57% of 
Israel Discount Bank, and owns the Industrial Deve lopment Bank, which is operating at significant 
losses.  Public ownership in the banking system  has not implied government control, although 
investments in the banking and insurance s ubsectors require prior government approval. 
67. The banking system currently counts five larg e banking groups and eight independent banks.  
At the end of 2004, the banking subsector comp rised 34 banking corporations (down from 45 in 
2000), of which 18 commercial banks, six mortgage banks and ten other banking corporations (five 
financial institutions, one merchant bank, two join t-service companies and two foreign banks).  The 
last investment bank in Israel closed down in 2 002.  A series of acquisitions and mergers in recent 
years reduced the number of banking corporations;  th e five largest corporations hold 95% of the total 
banking assets.  The Israeli banking  corporations also operate abroad via 118 offices, of which 55 
were subsidiaries in 2003. 
68. Banking activities include classic banking intermediation, with a focus on commercial 
banking, e.g. mortgage banking, banking abroad (subsidiaries and branches);  the ownership of non-
financial companies and insurance companies;  cr edit card activities;  and activities related to the 
capital market, such as advice and trading in securiti es and financial assets, portfolio management for 
customers, mutual fund management, provident  fund and advanced study fund management, 
underwriting, and issues.  Commercial banks dominat e investment banking, and mutual and provident WT/TPR/S/157/Rev.1 Trade Policy Review 
Page 76 
 
 
fund activities;  brokerage business and most of th e commercial banking activities are operated by the 
large banking corporations via subsidiaries.   
69. There are no restrictions on the establishment (t hrough local incorporation) of banking firms 
or on their acquisition by foreign residents, pr ovided prudential requirements laid down by the 
Supervisor of Banks regarding ownership and management of banks are respected.  There are no 
restrictions on the opening of branches of fo reign 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.   
70. The Banking (Licensing) Law of 1981 structures the banking system on the European model 
of "universal banking", whereby banks are allowed to operate as retail, wholesale, and investment 
banks, as well as being active in all the main area s of capital market activity.  Banks can supply 
banking and financial services, excluding insurance.  Banks are also not allowed to manage or to hold 
control of pension funds.  However, each bank is allowed to hold up to  20% of its equity in a pension 
fund, and to hold, control and manage provide nt funds.  Banks may offer certain banking and 
financial services (including financial leasing) thr ough subsidiary companies.  However, banking 
corporations may not engage in commercial activities, nor may they control "real bodies corporate" 
such as commercial and industrial companies.  
71. The establishment of a bank, a branch or a subsidiary by a national or a foreigner requires a 
licence issued by the Banking Supervisory Department  (BSD).  All banking corporations are required 
to comply with regulations issued by the Supervisor  of Banks.  In particular, all Israeli banking groups 
and every banking corporation must comply with th e minimum capital adequacy requirement of 9%.  
Banking corporations may control subsidiary compan ies, while an Israeli banking subsidiary abroad 
may control a foreign corporation only under a perm it from the Governor.  Foreign-based banks may 
offer banking services to Israeli resident s through their branches in Israel.   
72. 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 foreign bank entry are the following:  (i) the parent bank is supervised by a lead regulator, 
which maintains high standards of supervision on a cons olidated basis;  (ii) the parent bank is highly 
rated by size, stability (such as capital ratio), manageme nt, and reputation;  (iii) a local subsidiary is 
preferred, but a branch would also be considered if it does not exceed a maximum size;  and (iv) the 
home country of the foreign bank allows Israeli banks to establish a branch in that country.
17 
73. The primary prudential requirements for foreign banks are the same as those applying to 
domestic banks.  Israeli branches of foreign banks have full access to central-bank credit, local financial markets, and settlement and cleari ng facilities.  There are no national ownership 
requirements but there are limitations regarding national management requirements:  at least two thirds of the board of directors of a banking corporat ion 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 boa rd.  The chief executive officer and the compliance 
officer should be permanent Israeli residents. Th e minimum capital requirement is NIS 10 million.  
However, the Governor of the Bank of Israel can  require higher capital, depending on the nature and 
the scope of  the bank’s activity.   
74. By the end of 1992, the minimum nominal pr imary reserve had been reduced to 6% on 
deposits with maturity up to six days, 3% on deposits  with maturity up to a year, and 0% on longer-
term deposits.  In 2002, the seconda ry reserve requirement on foreign currency deposits was gradually 
                                                     
 
17 According to the authorities,  the reciprocity provision has not been invoked in recent years.  Israel WT/TPR/S/157/Rev.1 
 Page 77 
 
 
lowered and brought to the level of  the primary reserve requirement, after which the latter became the 
only reserve requirement on all deposits.  Reforms also  include the elimination of most restrictions on 
interest rates and minimum terms of indexed depos its and credit, and the removal of the prohibition 
on the issuance and trading of certain types of de rivatives.  This deregulation of bank activity, 
together with the liberalization of foreign exch ange, helped to reduce the segmentation between 
different types of financial intermediation and a ugmented the substitutability between different types 
of credit. 
75. Privatization has been another main aspect of the banking reform process.  During the 1990s, 
the Government sold almost all of its shares in Bank Hapoalim Ltd.; it currently owns 0.01% of the 
group.  In 2004 and February 2005, the Government sold part of its shares in the Israel Discount Bank 
Ltd. (26% of the issued share capital of the bank,  coupled with an option to purchase a stock package 
totaling 25% of the issued share cap ital of the bank within a three-year period).  The sale of Israel 
Discount Bank Ltd. is still pending approval by the Bank of Israel;  the State owns 57.1% of the bank.  
Once the sale is approved and the purchase option is  exercised, the State's holdings will decrease to 
approximately 6%.  The State owns 28.3% of Bank Leumi Ltd., down from 36.3% at the end of 2004. 
76. In 2004, the Government established a high- level committee (the Bachar committee) to 
address the issue of dominant position of banks in the Israeli financial sector.  Its main 
recommendations, on the need to divest banks of th eir mutual and provident fund activities and to lift 
restrictions on the maximum market share of individual firms, were approved by the Government at 
the beginning of 2005.  Legislative memoranda ha ve already been circulated for implementation.  The 
required reforms included the restructuring of banks ' holdings and of management of provident and 
mutual funds.   
77. The Anti-Money Laundering Law was enacted in August 2000 and its prov isions on financial 
entities took effect in February 2002.  In January 20 01, the Governor of the Bank of Israel issued a 
Prohibition on Money Laundering Order, which im poses requirements regarding identification, 
reporting, and recordkeeping by banking corporat ions.  Accordingly, the banking directive on 
business customer identification and recordkeeping (a  regulation that has been in effect since 1995) 
has been amended in light of the declaration of principles of the Basel Committee on Banking Supervision of October 2001 on Customer Due Di ligence for banks.  The regulation incorporates 
directives on customer acceptance policy and ongoing  monitoring of high-risk accounts, and contains 
special directives on private banking, correspondent banking, and on caution in the management of 
high-risk accounts.
 
78. As a result, Israel was remove d from the FATF list of non-cooperative countries in June 2002, 
and from the FATF watchlist by the end of 2003.  By  early 2005, the law on "Prohibition of Financing 
Terrorism" was enacted and Israel's banking directive was modified to include provisions against terrorism financing.  A Sanctions Committee, em powered to impose financial penalties in case of 
infringement, commenced operations in April 2003. 
79. In recent years, the banking subsector has been  subject to a process of dis-intermediation 
through which the share of bank credit in total cr edit declined significantly due to an increase in 
contestability (with regard to raising credit) betw een the banking system and alternative sources in 
Israel and abroad.  Consequently, the amount of credit extended by the banking system decreased considerably; according to the authorities, this could help to accelerate the process of issuing 
corporate bonds and to increase competition in the banking system. 
80. Israel has no formal deposit insurance scheme.   Until 2002, in all cases of bank failure, the 
Bank of Israel compensated the depos itors, regardless of the size of the deposits or the identity of their WT/TPR/S/157/Rev.1 Trade Policy Review 
Page 78 
 
 
holders (except if they were the owners of the fa iled bank).  However, in April 2002, in the liquidation 
of a small bank, deposits under NI S 4 million were fully compensated but compensation for deposits 
over NIS 4 million was limited to 95% of the bank’s total deposits.  
(b) Insurance 
81. Insurance is a major subsector of the economy.  Its contribution to GDP was around 6% in 
2004 and continues to grow.  In 2004, the revenue fr om insurance fees and pr emiums totaled NIS 31.8 
billion, of which NIS 14.2 billion for life insura nce and NIS 17.6 billion for non-life insurance.  
Insurance services are provided via Israeli insuranc e companies, foreign insurance companies and 
authorized Lloyd's underwriters; approximately 98% of the premium volume for business is in the 
Israeli insurance companies.  The market is dom inated by several large insurance groups accounting 
for 95.2% of life insurance premiums and 70.0% of  non-life premiums.  In 2004, there were 25 Israeli 
insurance companies (including the five large insurance groups, direct insurance companies, 
government companies, and Avner and Karnit18).  Foreign presence in the subsector remains low.19  
82. The main legislation on insurance services is the Supervision of Insurance Business Law 
5741-1981 (Supervision Law).  Under the law, insurers  must hold a licence that defines the insurance 
subsectors in which they may operate.  Brokers also re quire an insurance agent licence.  As part of the 
reform aimed at creating a competitive capital market, the minimum holding of capital, for which the approval of the Commissioner is required, has been lowered from 10% to 5%.  
83. Foreign-owned companies face the same legal obligations as Israeli-owned companies.  
Foreign-based reinsurers can sell reinsura nce directly or via brokers in Israel.
20  However, individual 
policies can only be sold by licensed insurance companies.  In the case of Lloyd's authorized 
underwriters, the agents can place business with  Lloyds. Minimum capital requirements are 
NIS 35 million for life insurance, 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.
21  In 2004, the minimum 
solvency of insurers was increas ed with respect to deferred acquisition costs in life assurance. 
84. In 2001, the Knesset Finance Committee approved a set of new investment regulations for 
insurance companies.22  The new regulations give insurance companies broader latitude in investing in 
domestic and foreign capital markets; they also to ughen the trusteeship requirements that insurers 
must meet in managing the money of insured.  Fo r instance, an insurer may invest abroad only in 
assets from abroad .  A foreign insurer must invest in and hold assets in Israel in the amount of all its 
                                                      
18 Avner is a private insurance company which was initially a co-insurer of 70% of automobile liability 
insurance sold in Israel.  As part of the reform of the compulsory no-fault autom obile market, the co-insurance 
percentage has been phased out.  It was changed in 1998 to 50% with further reductions in subsequent years to 
0% from 2003 onward.  Karnit is a guarantee fund for mo tor vehicle liability insurance, providing coverage for 
uninsured motorists and for hit and run accidents where th e insuring company is unkn own, and claim payments 
in the event a company becomes insolvent.  It is currently  receiving 1% of the premiu ms paid by the public for 
automobile liability insurance, plus an additional NIS 13 million a month from Avner. 
19 The U.S.-based AIG group has established two companies in Israel:  one is a direct provider of 
personal insurance, and the other markets mortgage gu arantee insurance (AIG Gold en Insurance Company and 
EMI-Ezer Mortgage Insurance Company).  The Italian As sicurazioni Generali has bought a controlling interest 
in Migdal (Israel's largest insurance company).  
20 Reinsurance business is free of restrictions. Neve rtheless, reinsurers must maintain deposits in 
proportion to their reinsurance progra mmes and according to schemes that va ry with the class of insurance. 
21 The amounts indicated were set by the Supervision of Insurance Business Regulations (Minimum 
Equity Required of an Insurer) in 1998.  They are automatically indexed to CPI changes.  
22 Supervision of Insurance Business Regulations (Modes of Investment of the Capital and Reserves of 
an Insurer and the Management of its Liabilities), 5761-2001. Israel WT/TPR/S/157/Rev.1 
 Page 79 
 
 
obligations in Israel, plus an amount of excess of assets over obligations, and may transfer abroad the 
amount in excess of 110% of the amount of assets required under the regulations.  Funds related to 
non-life insurance cannot be put into stocks or real est ate, and investment in subsidiaries must be from 
the companies' surplus.  Any inv estment in insurance-related subsidiaries require prior approval by 
the Insurance Commissioner. The anti-money-launde ring legislation also applies to insurance 
companies (section (a) above). 
85. In January 2003, an agreement dealin g with co-insurance was eliminated.23  Except for the 
compulsory part of car insurance, which has to be written in Israel, all other private insurance can be 
bought anywhere in the world.  There are no legislative or regulatory provisions that prohibit the sale 
of insurance policies to non-resident s.  With the exception of automobile insurance premiums, which 
are subject to approval by the Commissioner, a nd mortgage insurance premiums, for which a 
maximum is set, all operators are free to set their premiums.24  Insurance companies do not receive 
any government support.         
(c) Institutional investors and other financial services  
86. Provident funds (for severance pay, advanced  study, and other purposes) are the second-
largest type of financial institutions after the ba nks.  As of August 2005, there are 427 provident-fund 
that collectively manage NIS 227 billion in assets (T able IV.12).  Most provident funds are managed 
by the five large banking groups.  Legislation designe d to restructure the financial services in Israel 
was passed in 2005;  it requires the banks to incr ementally divest their holdings in firms managing 
provident funds.  
87. Pension funds were the third-largest type of institutional investors with NIS 183.4 billion in 
assets as of August 2005.  Israel's pension system  comprises "old" pension funds (which have not 
been allowed to admit new members since 1995), "new" pension funds (operational since January 
1995), and general pension funds (first approved in  2000).  The assets of new and general pension 
funds are managed by different entities from those that managed the old funds.  The pension-fund 
industry is the most concentrated of Israel's financial sector.  The funds owned by the Histadrut until they were "rationalized" during the May 2003 reform  (see below) are dominant;  the three largest 
funds - Mivtahim, Makefet, and Pe nsia Merkazit - control about 82% of the capital of old funds and 
75% of the capital of new funds.
25 
88. As of 31 October 2005, the number of mutual funds totaled 860, managed by 41 mutual fund 
management firms.   The value of assets of mu tual funds totaled NIS 133 billion in October 2005.  
The ISA has the authority to exempt these funds from some or all of the requirements under the Mutual Fund Law (as amended), if it is convinced that  the law of the State where they are registered 
fully protects investors in Israel.  
                                                     
 
23 In the past, all insurance companies were required to co-insure part of their compulsory automobile 
insurance business with Avner.  The premium rate was fixed by the Parliament for each class of vehicle. 
24 All premiums set by operators are subj ect to approval by the Commissioner.   
25 The Histadrut is a trade union or ganization, accounting for about 85% of total employees in Israel.  It 
is also active in social services, education and cu ltural activities, and economic development projects. WT/TPR/S/157/Rev.1 Trade Policy Review 
Page 80 
 
 
Table IV.12 
Overview of the Israeli capital market, August 2005 
(NIS billion and number of institutions, end of period) 
 
Number of 
institutions Total 
assets Sharesa Tradeable 
bondsb Indexed 
earmarked 
bonds Treasury 
billsb Other assets 
held by 
institutions 
Institutions        
    Provident funds 627 226.9 38.3 96.8 4.8 5.3 81.7 
    Established pension funds 18 143.3 3.4 12.5 114.6 1.0 11.8 
    New pension funds 30 40.1 2.5 15.3 12.8 0.2 9.3 
    Life insurance 30 112.8 10.7 25.3 30.5 1.1 45.2 
    Mutual fundsc 838 128.4 15.2 23.4 0.0 32.1 57.7 
Households and firms .. 1,044.6 335.3 81.1 0.0 25.8 602.4 
.. Not available. 
a Excluding double counting and government-owned quoted companies.  
b Excluding securities held by the Bank of Israel. 
c Adjusted for provident funds' and no n-residents' holdings in mutual funds. 
Source : Information provided by the Israeli authorities (Bank of Israel  (2005), Research and Monetary Department). 
89. The ISA was established in 1968 as an independent statutory regulatory agency to administer 
the Securities Law of 1968.  The declared function of  the ISA is "protection of the interest of the 
public investing in securities", and its principal objectiv es are to ensure that Is rael's securities market 
operates in a fair and orderly manner and that corpor ations comply with the rules of full disclosure.   
Under the Securities Law, the ISA supervises the opera tion of the TASE.  Securities may be traded on 
the TASE after the issuing company has met the requirements of the Securities Law and the TASE 
listing standards.  Overseas investors must trade in  Israeli securities through locally licensed brokers.  
The fully automated Tel Aviv Continuous Trading (TACT) system was introduced in 1997, and since 
1999, all listed securities as well as derivative products , have been traded on the new integrated 
trading platform.  In October 2005, the total mark et capitalization was US$111.4 billion (stocks only), 
with international investors holding 10.5%.  
90. As of October 2005, 584 companies had listed shar es and convertible securities on the TASE 
in a range of industries.  The equity market o ffers around 900 securities, including shares, warrants, 
and convertible bonds.  The fixed income market of fers mainly government bonds.  Index options and 
futures contracts are also traded on the TASE.  A ll TASE-traded options are of European exercise 
style.26   
91. TASE members must comply with a minimum capital requirement (NIS 9.5 million) and 
maintain liquid assets equal to 50% of the minimum capital requirement.  Portfolio managers must 
have a minimum capital of NIS 325,000 and must be  insured for the value of 5% of their managed 
portfolio, while mutual funds must minimum capital of NIS 0.5 million and be insured for a minimum 
of NIS 1.5 million or up to half of their asset va lue (with a maximum of NIS 10 million).  Portfolio 
management, investment advice or the execution of  transactions on the TASE must be conducted by 
portfolio managers licensed by the ISA.  For i ndividuals, licences will only be granted to Israeli 
citizens, while foreign brokers wishing to operate lo cally in Israel-listed securities must do so via 
subsidiaries incorporated under Israeli law and must be licensed under Israeli law, in the same way as 
an Israeli company.     
                                                      
26 Until 1999, options and futures were traded on the derivatives market through the open outcry 
method; they were the last securities to  be transferred to the TACT system. Israel WT/TPR/S/157/Rev.1 
 Page 81 
 
 
92. In July 2002, the Knesset p assed the Amendment to the Income Tax Ordinance, which 
redefines the taxation and investment regulations applying to provident and mutual funds.  The 
Amendment allows provident funds to invest in any asset, subject to a number of restrictions aimed at maintaining stability and governing the control of cor porations.  Most restrictions previously in place 
on the funds' investment were lifted, except for the restrictions concerning the manner in which 
investments are managed and the competence requi red from those involved in investment decision-
making processes.  In addition, the range of invest ment opportunities in tradeable and non-tradeable 
derivative assets has been in creased, subject to stability-oriented restrictions.   
93. The 2002 income-tax reform also affected th e taxation of gains derived from the capital 
market, and in particular eliminated the preferen tial tax treatment for income from domestic assets 
compared with from foreign assets.  Tax rates were set at 10% on interest from un-indexed assets, 15% on interest from assets indexed to an exchange rate or the CPI, and 25% on dividends and capital 
gains.  Withdrawals from provident funds before re tirement age are taxed at 15% on inflation-adjusted 
return. The tax benefit for advanced-training funds  was maintained and withdrawals from such funds 
are not taxed.  Contributions to pension, provide nt, and life insurance funds are tax deductible, while 
accumulated profits are free of tax.  Various instrume nts also enjoy certain tax breaks (e.g. short- and 
medium-term investments such as Treasury bills an d deposits and savings plans are tax exempt).  
94. The Amendment split the mutual fund industry into three types of funds: exempt funds, liable 
funds and mixed funds.  An exempt mutual fund is  exempt from the payment of tax on all types of 
income.  A liable mutual fund has to pay tax on all income from interest, capital gains, and dividend.  
Investors are therefore exempt from the payment of tax when redeeming units in liable funds and 
exempt from tax on earnings distributed by the fund.  A mixed mutual fund pays tax only on earnings from foreign securities and from dividends obtained from  Israeli companies.  Moreover, the restriction 
that prohibited institutional investors from inves ting more than 20% of their assets abroad was 
rescinded.  The liberalization gives residents fu ll latitude in foreign currency transactions with 
non-residents, and allows non-residents to make transactions in NIS without limit. 
95. In 2003, the pension industry was reformed to brin g the actuarial deficits of the old funds into 
balance and halt their crisis.
27  The reform shifted participants from a defined benefit to a defined 
contribution system.  Accordingly, any particip ant who entered the system after 1995 would be a 
member of the "new" pension funds, characterized by few investment restrictions.  Those who were 
already in the system prior to the 1995 reforms rema ined in the "old" pension funds.  At the end of 
2002, about 1.2 million workers and pensioners, appr oximately 52% of the workforce, were covered 
by the "old" funds.  Investment regulations govern ing the pension funds were also adapted.  In 
particular, the proportion of each fund that may be invested in non-negotiable, subsidized, government bonds was reduced from 100% to 30%. 
(iii) Transportation 
(a) Air transport 
96. The Minister of Transport is the authority in  charge of air transport services.  The Civil 
Aviation Authority (CAA), which is an  integral part of the Ministry of Transport, has replaced the 
Civil Aviation Administration since May 2005.  It is responsible for licensing and monitoring air transport in Israel.  In addition, the CAA advi ses the Minister of Transport on aviation issues, 
conducts economic and statistical surveys, and pa rticipates in international activities including the 
negotiation of air agreements, and representing Israel  in the International Civil Aviation Organization 
                                                     
 
27 The "old" pension funds accumulated actuarial deficits reaching about NIS 110 billion (23% of 
GDP) at the end of 2002. WT/TPR/S/157/Rev.1 Trade Policy Review 
Page 82 
 
 
(ICAO) and other international aviation organizations .  The Israeli Airports Authority (IAA), a public 
corporation that reports to the Minister of Transport, operates eight airports in Israel as well as air navigation services, which allocates slots.  Some airport services, including ground handling, are operated by private companies licensed by the IAA.  The cargo terminals are operated by private 
companies, which are also licensed by the IAA.  A few small airfields are operated by regional 
authorities or by the private sector. 
97. The designated Israeli carrier is El Al Israel Ai rlines Ltd. (El Al).  It operates international 
scheduled passenger flights and most cargo flights.  El Al was privatized in 2003-04.  The State's 
direct and indirect ownership in El Al was 21.7% in May 2005;  the long-term objective is its full 
privatization.  Cargo Air Lines (CAL) is the second Israeli carrier (international and cargo flights).  
Three other Israeli carriers - Arkia, Sundor (a subsidia ry of El Al), and Israir  - operate international 
passenger charter flights; Arkia and Israir also opera te domestic and scheduled international flights.  
In addition, 24 private carriers operate domestic or ge neral aviation flights with fleets of light aircraft.  
The criteria for approving domestic carriers include  national ownership (a mini mum 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 financial long-term arrangement), insurance coverage, access to sufficient financial 
resources  (minimum equity of US$3 million for compan ies operating international routes, and lower 
requirements from companies operating domestic routes), and compliance with ICAO safety 
standards.     
98. International scheduled flights are regulated under the framework of bilateral agreements.  
The agreements with the United States and with the United Kingdom provide for multiple designation 
and fifth freedom rights (i.e. the right to carry traffic between two countries outside the country of registration as long as the flight originates or termin ates in the country of registration), with airlines 
deciding on the capacity; the other bilateral agreements are more restrictive.  In particular, there are 
single designation provisions and predetermination of capacity methods in most of the agreements.  
The CAA does not compel carriers to agree on tariffs for scheduled flights; discounts on air tickets are 
possible.  Charter flights are regulated by special regulations and by a few bilateral agreements.  An 
exemption from the Israeli Antitrust Law is grante d for international air transport on agreements 
between carriers.  These include a cooperation agre ement between El Al and Arkia, code sharing 
agreements (e.g. common flight numbers) betwee n El Al and some foreign carriers, and other 
commercial agreements between El Al and other foreign carriers.  
99. The transport of cargo on scheduled flights is  also regulated under bilateral agreements.  
Cargo capacity is approved by the CAA in accord ance with such agreements.  However, the CAA 
does not enforce filing of cargo fares.  When demand  is not satisfied by scheduled services, the CAA 
allows cargo charter flights.  Foreign airlines do not  have cabotage rights;  but domestic freight traffic 
is insignificant. 
100. In  2004, international scheduled passenger fli ghts were provided by El Al, Arkia and Israir, 
and 40 foreign carriers.  International non-scheduled  passengers flights are provided by Israeli and 
foreign carriers.  El Al, CAL, and four foreign carri ers provide all cargo flights.  Foreign carriers also 
provide a small volume of capacity on all cargo flights on ad hoc basis.  Domestic services are provided mainly by Israir and Arkia.  During 2004,  international commercial traffic accounted for 7.8 
million passengers and 333,000 tonnes of freight.  Domestic traffic accounted for 1.05 million 
passengers and an insignificant volume of freight. 
101. Slot allocation at Israel's main airports is based on the following criteria, in descending order 
of importance:   slots for seasonal scheduled flights have  preference over slots for other seasonal 
flights;   preference is given to the operator who has u sed the same slot during the previous season;   Israel WT/TPR/S/157/Rev.1 
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requests for the same consecutive slot for several da ys within a week have preference over requests 
for single or twice-weekly slots.  Where these c onditions are not applicable, allocation is on a first-
come, first-served basis.  Moreover, requests for whole-season slots have preference over requests for 
partial-season slots, and requests for a series of flights have preferences over single flights.  
102. The Government grants no special privileges to the air companies but covers half of the 
additional security costs for El Al in international airports.  Aviation transport is exempt from antitrust 
law. 
(b) Maritime 
103. Maritime transport is important for Israel's ec onomy, with almost all of its exports (99.0%) 
and imports (99.4%), as well as a considerable numb er of cruise transit passengers, passing through 
its main ports.  The annual revenue from Israeli shipping companies amounts to some US$2 billion, 
around 20% is from imports and exports, and the r est from international shipping activities, i.e. 
between foreign ports.  All merchant shipping and transportation lines ar e owned and operated by 
private local and foreign shipping entities.  Th e largest shipping company Zim Israel Navigation 
Company Ltd., used to be state-owned.  The Governme nt sold control of Zim to the Israel Corporation 
Ltd., a public company in 1970, retaining 48.6% of its share capital.  In February 2003, the State sold 
the balance of its holdings to the Isr ael Corporation Ltd. for US$113 million. 
104. The new Shipping and Ports Authority of the Isr aeli Ministry of Transport is responsible for 
implementing national policy on merchant shippi ng and sea-port services.  The Shipping and Ports 
Authority is also in charge of ratifying and inco rporating international ma ritime conventions into 
domestic laws.  The main legislation is the 19 71 Ports Ordinance (New Text), the Shipping Law 
(Vessels) of 1960, the Shipping Law (Seaman) of 1973, and the Shipping Law (Limit of Liabilities for 
Vessels) of 1965.  The first phase of the refo rm programme, implemented between 1996 and 1999, 
reduced the number of mandatory Israeli crew from 22 to 10 and w as supported with a total subsidy 
of US$25 million.  The second phase, implemented between 1999 and 2003, reduced the mandatory 
Israeli crew to between four and eight, including the captain. It was supported by a total State subsidy 
of some US$25 million. 
105. The national policy draws on the principles of reciprocity, freedom of navigation, 
liberalization and free (access to) competition, under st rict compliance with the highest international 
standards for vessels, transport, and port services.   New reforms were recently introduced in the 
national marine industry and its ports  organizational structure.  In pa rticular, the organizational reform 
of the Israeli port system went into effect in February 2005 and port services were privatized.  The 
ports authority was replaced by three government -owned (commercial) port companies and a 
development and assets company  in charge of developing port infrastructure.  The Shipping and Ports 
Authority is responsible for regula tion and supervision, and for ensuring that the companies maintain 
a competitive climate and operate their facilities in  a safe and efficient manner (in accordance with 
law).   Most auxiliary shipping and ports services are thus fully privatized. 
106. The three port operating companies, Ashdod Port Company Ltd., Haifa Port Company Ltd. 
and Eilat Port Company Ltd., are mandated to opera te the port facilities leased to them for 49 years, 
beginning February 2005.  Ownership of existing cranes and handling equipment has been transferred to the three companies, which are required to mainta in both the port property and the equipment.  The 
Government intends to sell up to 15% of its shares in  the operating companies within five years, with 
additional share sales of up to 49% taking place over the following ten years.  In addition, operating 
licences will be awarded to several additional car go handling companies, including Israel Shipyards 
and companies that operate facilities handling vari ous solid and liquid bulk cargoes.  There are no WT/TPR/S/157/Rev.1 Trade Policy Review 
Page 84 
 
 
restrictions on the supply of auxiliary services, wh ich is open to Israeli and foreign companies.  
Currently, foreign companies are pr esent in the supply of most auxiliary shipping services, including 
maritime agency services and maritime freight forwarding services.  All services are available to users on an equal basis. 
107. Israel has been implementing the Port State Control (PSC) inspection system since 1997, in 
accordance with International Maritime Organi zation and International Labour Organization 
resolutions.
28  Israel is a signatory of the regional PSC  organization, the Mediterranean Memorandum 
of Understanding.  The Shipping and Ports Admini stration is responsible for all PSC activities, and 
aims to inspect every tanker and passenger ship a rriving at Israeli ports, as well as 25% of container 
ships and general cargo, with an emphasis on bulk carri ers.  Imports are subject to a wharfage fee of 
1.02% of the c.i.f value and exports to a fee of 0.2%  of the c.i.f. value.  The wharfage fee does not 
reflect the costs of services.  As this measure introduces a bias in favor of exports, the authorities 
intend to equalize the fees gradually (Chapter III(2)(iv)(a)).  Wharfage fees presently account for 
about 45% of the ports income. 
108. In 2004, the Government started granting annual financial aid to Israeli flag ships of up to 
NIS 20 million for employing Israeli nationals on board, and up to NIS 8 million to energy ships 
(tankers, coal carriers, etc.). This policy is to be implemented until 2008.  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 en tity.  However, exemptions are legally allowed.  
Israel has no restrictions on maritime cabotage;  however, the authorities are considering cabotage 
measures based on the principle of reciprocity with third countries.  Conference agreements operative 
in Israel require an exemption from antitrust law (the Restrictive Business Practices Law of 1988), which may be withdrawn if there is cartel-like usage. 
(iv) Telecommunications and postal services 
109. The telecommunications sector in Israel grew at  an average rate of 7% per annum between 
1998 and 2004.  In 2004, the entire telecom servi ce market was worth approximately US$5.7 billion. 
Competition was either introduced or increased in  almost all telecommunications service segments 
between 1999 and 2004: there are currently two domestic fixed-service operators, four mobile 
telephony operators, six international service pr oviders, two multi-channel television broadcasters, 
and five major Internet service providers.   
110. Israel is committed to an active policy of inte rnational and regional in tegration in order to 
participate in future cooperative endeavors rela ting to telecommunications products and services.  
Israel participated fully in the last round of WT O telecommunications services negotiations.  It is a 
member of the International Telecommunicat ion Union (ITU). It has signed bilateral 
telecommunications agreements with 24 countries,  and negotiations are currently being conducted 
with others.   
111. Since its last TPR, Israel has pursued progressive liberalization and privatization in its 
communications and information technology subsector .  These reforms included privatization, with 
the sale by the Government of its controlling inter est in Bezeq, Israel's incumbent fixed-wire line 
service provider; adoption of a regulatory regi me suitable for a multi-operator environment; and 
competitive local exchange carrier (CLEC) licences for infrastructure, transmission, data and 
telephony services. 
                                                     
 
28 PSC inspections are conducted to ensure that foreign vessels calling at Israeli ports comply with 
international regulations and conventions. Israel WT/TPR/S/157/Rev.1 
 Page 85 
 
 
112. Regulatory functions are exercised by the Ministry of Communications.  The 
Communications (Telecommunications and Broadcas ts) Law, 5742-1982 (the Communications Law) 
and the Wireless Telegraphy Ordinance (New Version), 5732-1972 empower the Minister of 
Communications to enact legislation concerning all relevant telecommunications services and 
equipment, including technical specifications for te lecommunications equipment and type approvals.  
The Communications Law states that any licence a nd change thereof must contribute to competition 
in the field of telecommunications.  It also provi des that a licensee must fulfil certain prerequisites 
(requirements vary from one licensee to another).  Licences may be revised or cancelled if an operator becomes, inter alia , anti-competitive, or unfit to handle telecommunications services.
29  There are no 
controls over the tariffs of private suppliers, ex cept for those licensed through public tenders under 
which tariffs are part of their commitment.  Cr oss-subsidies from monopolized services to competitive 
services are not allowed. 
113. The Communications Law was amended in A ugust 2001 to eliminate the existing cable 
television franchises and introduce a revised licensing re gime. This allows use of cable infrastructure 
for the provision of telephony an d advanced fixed telecommunications services, such as data 
communications and broadband Internet access, in addition to multi-channel subscriber television 
already provided by franchise.  In May 2003, a ne w amendment to the Communications Law allowed 
CLECs to compete in the fixed telecommunicati ons services without USO (universal service 
obligation) as from September 2004.  The Ministry of  Communications subsequently issued a set of 
regulations to establish the terms of procedures to a pply for such a licence, called a "particular general 
licence".   
114. The State has gradually reduced its share in Israel Telecommunications Corporation Ltd. 
(Bezeq) since the mid 1990s.  In 2004, the State's share was 46.5%;  the sale of a further 30% of the total shares was completed in September 2005, th us reducing the State's share to 16.38%, with a 
purchase option for the buyer of an additional 10 .66%.  If all options, including for employee 
purchase of shares (4.71%) are exercised, governme nt ownership in Bezeq will be 1.01% (fully 
diluted).   
115. With regard to fixed services, Israel has 3 milli on direct exchange lines, using a 100% digital 
network (owned by Bezeq) that provides advanced  services to all customer s.  The "phone-lines-to-
households penetration rate" is 95%, while the "home-pass rate" fo r domestic telephony exceeds 99%.  
There are currently 730,000 subscribers to Bezeq ’s ADSL broadband service.  In March 2002, three 
cable companies were granted licences to provide br oadband access to their infrastructure;  there were 
370,000 subscribers by July 2005.  The three companies were also licensed to provide voice telephony services and began operating in December 2004.  Th e broadband service in Israel (by cable modem or 
ADSL) has a home-pass rate of 99% , and penetration rate of 52% of households.  Facilities-based 
competition, in which each competitor owns its infrastru cture, has been introduced for all carriers, and 
a Universal Service Fund has been mandated for existi ng carriers.  In the international-calls market, 
two privately owned facility-based carriers, Golden Lines and Barak, were licensed in July 1997.  In 
March 2004, the Ministry decided to grant licences to any operator fulfilling threshold conditions.
30  
So far, three new licences have been issued; two to large Internet service providers (Internet Zahav 
and Netvision), and the third to an  international company (XPhone). 
116. There are four cellular operators in Israel.  Three are privately owned, and the fourth, 
Pelephone, is owned by Bezeq;  all provide digita l technology countrywide coverage (99% of the 
                                                      
29 WTO document S/NGBT/W/3/Add.32, 29 September 1995. 
30 The conditions include a licence fee of NIS 1 million, a NIS 10 million bank guarantee, a 
circuit-switched interface, non-disc rimination among domestic telephony pr oviders, and various technical 
requirements. WT/TPR/S/157/Rev.1 Trade Policy Review 
Page 86 
 
 
Israeli population) and modern network services.  Pelephone uses CDMA technology;  Cellcom, uses 
IS-136 TDMA technology and GSM network; Orange (Partner Communications) uses GSM technology; and MIRS uses iDEN ESMR technology.   Approximately 6.5 million cellular phones are 
in use, a penetration rate of more than 97%.  Tota l cellular market revenue in 2004 was approximately 
US$3.1 billion.   
117. The pricing system in force for telecommunications services is divided into two categories, 
one for the competitive markets and the other for th e supervised markets.  In the first category, 
operators set their own tariffs: this is the case for, inter alia , outgoing cellular calls, international calls.  
In markets featuring high concentration (for instan ce, domestic telephony, where Bezeq has more than 
a 90% market share; high-speed Internet, where it  has more than 60% at present; and multichannel 
broadcasting, where HOT also has more than 60% of the market share), the tariff structure is 
supervised by the Minister of Communications, fo llowing consultation with the Minister of Finance. 
In particular, the Minister of Communications sets prices of fixed services to private and business consumers by Bezeq (but not for its competitor HO T).  A mechanism has been established to update 
Bezeq’s tariffs, from time to time, for call termina tion in the networks of Bezeq and for the new fixed 
service providers; and for call termination in the mob ile networks; this tariff was recently reduced by 
30% and is scheduled to be further reduced in th e coming years. Interconnection tariffs are generally 
supervised by the regulator; the Minister may in tervene should disagreement regarding tariffs occur 
between operators.  
118. Competition is not permitted in telegraph servic es, which are presently under the monopoly of 
the Israel Postal Authority.  It is permitted in  the market for private leased circuits voice services.   
119. The Postal Authority Law of 1986 grants the transfer of postal items weighing less than 500g 
to the Postal Authority, thus establishing its monopoly in this area;  the postal market for items over 500g is open to competition.  In addition, the Law au thorizes the Minister of Communications to issue 
permits for postal activities in accordance with conditions set out either generally or in each permit.    
120. The Postal Authority provides universal postal services in Israel, including daily collection 
and delivery of postal items up to 20 kg; the Mini stry of Communications supervises the quality of 
services and most tariffs (together with the Minister  of Finance).  The Authority currently employs 
approximately 7,000 workers, administers about 700 agencies and service units, and an additional 50 
mobile postal units.   
121. Israel has initiated postal services liberaliza tion through the gradual opening of services to 
competition, while ensuring the continued activity of  the universal service provider.  In September 
2003, the Minister of Communications introduced a general permit for delivery of letters weighing 
under 500g.  The central conditions of this permit incl ude delivery of items, from Israel or abroad, to 
addresses in Israel, subject to a number of speci fic conditions; unlimited delivery of postal items 
originating in Israel for delivery abroad; a minimu m price of NIS 5.40 for the service (4.5 times the 
tariff for a standard letter); and full disclosure of the terms of service.  So far, 91 permits have been 
issued under this new postal policy, including to international companies. 
122. There was a significant amendment to the Law, in January 2004, in order to transform the 
Postal Authority into a government-owned corpor ation and to introduce competition in the sector.  
The amendment introduced further gradual liberaliza tion in the postal sector, scheduled to begin on 
31 January 2006, with special perm its that should specify market seg ments that are off-limits to the 
holder of the permit (for example, governmental bodi es and insurance companies).  Full liberalization 
of the postal sector in Israel is set to be concluded in 2010. Israel WT/TPR/S/157/Rev.1 
 Page 87 
 
 
(v) Tourism 
123. Tourism is an important subsector of the Is raeli economy; the major attractions include 
significant religious sites, the Dead Sea, and the Mediterranean coast. Receipts from foreign tourism 
(excluding expenditures of foreign workers in Isr ael) reached US$1.5 billion in 2004 (1.3% of GDP).  
This is still low compared with 2000 (2.8% of GDP)  but the industry is recovering progressively from 
the deep slowdown in 2001 and 2002 due to the deterioration of the security situation in Israel and the 
war in Iraq.  The evolution also reflects a decrease of 65% in the number of tourists visiting Israel 
between 2000 and 2002.  Accordingly, during the sam e period, receipts from foreign tourism and the 
share of hotel nights spent by tourists declined by 70% and 72%.   
124. In 2004, tourism contributed about 1.9% of GDP , much lower than its contribution in 1995 
(almost 3%), but higher than in 2002 when the share dropped to 1.7% (Table IV.13).  The sector employed some 70,000 persons.  The economic importance of tourism, as an export sector, also lies in its contribution to the balance of payments.  Tour ism accounted for almost 16% of services exports in 
2004 and constitutes the only item of the Israeli balance of services that is not systematically in deficit.  
Table IV.13 
Overview of the tourism subsector, 1995-04 
 1995 1998 2000 2001 2002 2003 2004
Share of GDP (%) 2.8 2.1 3.0 2.0 1.7 1.7 1.9 
Receipts from foreign tourism (US$ million)a 1,101 2,671 3,133 1,378 919 1,071 1,499 
Receipts from foreign tourism (% of GDP)a 4.8 2.8 2.8 1.2 0.9 1.0 1.3 
Foreign tourist arrivals ('000) 1,264 1,941 2,417 1,196 862 1,063 1,505 
Average length of stay per foreign tourist (days) 20.7 14.7 13.2 26.9 20.5 22.0 20.0 
Share of hotel guest-nights spent by tourist (%) 51 37 43 18 12 15 21 
Average room occupancy rate (%) 68.1 65.6 60.4 45.5 43.5 45.2 50.8 
Average bed occupancy rate (%) 60.3 51.1 50.8 38.6 36.8 38.0 42.2 
a Excluding expenditures from foreign workers in Israel. 
Source : Central Bureau of Statistics, Statistical Abstract of Israel (various issues). 
125. Under the Tourism Services Law of 1976, the Ministry of Tourism is responsible for 
supervising the tourism subsector, which encompasses tour guides, hotels, travel agencies, camping sites, touring bus companies, and lis ted tourist shops.  A licence, issued by the Ministry, is required to 
operate as a tourist guide. 
126. As detailed in Israel's commitments under the GATS, ownership of hotels is restricted to 
Israeli-registered companies, while tourist guide servi ces are restricted to Israeli residents or citizens.  
Foreign investors control some 20 hotels, accounting fo r nearly 5% of the total number of hotels, with 
a preference for the luxury and upscale market.  Th e share of total assets owned by foreigners is 
estimated at between 20% and 25% of the entire hotel industry.  
127. The Ministry of Tourism operates as a commercial entity and develops the tourism 
infrastructure with the help of regional and national development companies.  It also assists in 
establishing tourism business initiatives (e.g. tourist attractions, hotels, accommodation units in rural 
tourism) throughout the country.  This is ma de possible by government grants under the 
Encouragement of Capital Investments Law (Chapter  III(4)(i)).  The Ministry of Tourism is also 
responsible for the marketing strategy of the tourist industry.  Accordingly, its Marketing 
Administration, via the Government Tourism Offices abroad, performs numerous marketing WT/TPR/S/157/Rev.1 Trade Policy Review 
Page 88 
 
 
operations in cooperation with local  tourism establishments.  Forei gn tourists are exempt from the 
VAT.  
128. The Ministry of Tourism owns some developmen t companies, sometimes in partnership with 
local municipalities.  Foreign companies, provided th ey are locally registered, can operate freely in 
Israel;  they can buy or rent land.  The sector is  not under price supervision by the Government and 
prices are set freely in all categories of services.  There is no governmental classification of hotels and restaurants and most hotel chains specify their own classification.  Israel WT/TPR/S/157/Rev.1 
 Page 89 
 
 
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