2011 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
May 2011
Report

Overview of Foreign Investment Climate

Israel is open to foreign investment, and the government actively encourages and supports the inflow of foreign capital. There are few restrictions on foreign investors, except for parts of the defense or other industries that are closed to outside investors on national security grounds. There is no screening of foreign investment and no regulations regarding acquisitions, mergers, and takeovers that differ from those that Israelis must follow. Foreign investors are welcome to participate in Israel's privatization program. Investments in regulated industries (e.g. banking, insurance), however, require prior government approval. Investments in certain sectors may require a government license. Other regulations may apply, though usually on a national treatment basis. The Investment Promotion Center of the Ministry of Industry and Trade seeks to encourage potential investors to invest in Israel. The Center stresses Israel’s developed infrastructure, educated work force, open economy, and ties to the U.S. and Europe, and provides information about investment incentives available in Israel (details are discussed in the section Performance Requirements and Incentives).

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Measure

Year

Index/Ranking

TI Corruption Index

2010

6.1/30

Heritage Economic Freedom

2010

68.5/43

World Bank Doing Business

2010

29

MCC Gov’t Effectiveness

2009

82.4

MCC Rule of Law

2009

74.5

MCC Control of Corruption

2009

74.8

MCC Fiscal Policy

2011

62.3

MCC Trade Policy

2011

87.8

MCC Regulatory Quality

2009

81.4

MCC Business Start Up

2010

36

MCC Land Rights Access

N/A

N/A

MCC Natural Resource Mgmt

2010

95.6

Conversion and Transfer Policies

Israel’s foreign exchange liberalization process was completed on January 1, 2003, when the last restrictions placed on the ability of institutional investors to invest abroad were removed. Foreign-currency controls have been completely abolished, and the Israeli shekel has become a freely convertible currency. Israeli individuals can invest, without restriction, in foreign markets. Foreign investors can open shekel accounts that allow them to invest freely in Israeli companies and securities. These shekel accounts are fully convertible into foreign exchange.

Most transactions must be carried out through an authorized dealer. An authorized dealer is a banking institution licensed to arrange, inter alia, foreign currency transactions for its clients. The authorized dealer must report large foreign exchange transactions to the Controller of Foreign Currency. There are no limitations or significant delays in the remittance of profits, debt service and capital gains.

Expropriation and Compensation

There have been no expropriations of U.S.-owned businesses in Israel in the recent past. Israeli law requires adequate payment, with interest from day of expropriation until final payment, in cases of expropriation.

Dispute Settlement

Israel has a written and consistently applied commercial law based on the British Companies Act of 1948 as amended. Israel's commercial law contains standard provisions governing company bankruptcy and liquidation. Personal bankruptcy is covered by a separate bankruptcy ordinance. Monetary judgments are always awarded in local currency. The GOI accepts binding international arbitration of investment disputes between foreign investors and the state. Israel is a member of the International Center for the Settlement of Investment Disputes (ICSID) and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.

Performance Requirements/Incentives

There are no universal performance requirements on investments, but performance requirements, including investment requirements, are often included in sales contracts with the government. In some sectors, there is a requirement that Israelis own a percentage of a company. Israel’s visa and residency requirements are not onerous. The GOI does not impose preferential policies on exports by foreign investors. Israel complies with TRIMS.

The Israeli government offers a wide variety of investment and business incentives to both domestic and foreign investors who meet certain requirements. Among these are grants, tax incentives, marketing and training assistance, technological incubators, incentives for investment particularly in research and development (R&D) and the hi-tech industry and in specified regions of the country. All benefits available to Israelis are also available to foreign investors, who in some cases may enjoy even more generous tax treatment than domestic investors. Some of the benefits and requirements are described below.

For complete information, potential investors should contact:

Investment Promotion Center
Ministry of Industry, Trade and Labor
5 Bank of Israel Street,
Jerusalem 91036
Tel: 972-2-666-2607
Fax: 972-2-666-2938
http://www.investinisrael.gov.il
E-Mail: Investinisrael@moital.gov.il

Israel Investment Center
Ministry of Industry, Trade and Labor
5 Bank of Israel Street,
Jerusalem 91036 490.
http://www.moital.gov.il/NR/exeres/111C2143-2296-44C0-96F9-C29C082A19CC.htm
Tel: 972-2-666.2236
Fax: 972-2-666.2905

Ministry asks that requests be in writing.

Israeli laws that authorize investment incentives include the Encouragement of Capital Investments Law, 1959 (with amendments); the Encouragement of Industry (Taxes) Law, 1969; the Encouragement of Industrial Research and Development Law, 1984; and the Law for the Encouragement of Investments (Capital Intensive Companies), 1990. To receive certain investment incentives, an investment must receive “Approved Enterprise” status for grants and Beneficiary Enterprise status by the Tax Authority if it chooses one of the tax benefits programs. It is then eligible for incentives, such as grants of up to 24% of tangible fixed assets (grants program only) and/or reduced tax rates, tax exemptions and other tax related benefits.

To obtain this designation, an investor must apply to the Investment Center (not the same as the Investment Promotion Center), providing physical and financial details of the projected investment; background information on the investors; sources of financing; forecasts of sales, operating results, cash flow, and "break-even point"; and projected manpower requirements. Among the criteria applied by the Investment Center in deciding whether to grant approved enterprise status is a legally mandated cost-benefit analysis that evaluates the long-term value of the project from the point of view of the Israeli economy. Government approval for the incentives program is not given if investment in a proposed area is considered saturated. Investors may be required to disclose proprietary information in the application for approved status.

Investment incentives are outlined in the Law for the Encouragement of Capital Investment which was recently revised. The new Law differs from the previous one in that it adds a new path for incentives - an automatic one. The incentive programs can be divided into 2 main types:

1) The Grants program - administered by the Israel Investment Center (IIC), a department of the Ministry of Industry, Trade and Labor;

2) The Automatic Tax Benefits program administered by the Tax Authorities. To qualify, investment projects must meet certain criteria including: international competitiveness, minimal designated investment, high added value and registration of the company in Israel.

Once these criteria are met, the enterprise gains Approved Enterprise status from the IIC if it chooses the grants program and Preferred Enterprise status by the Tax Authority if it chooses one of the tax benefits programs. It is then eligible for incentives, such as grants of up to 24% of tangible fixed assets (grants program only) and/or reduced tax rates, tax exemptions and other tax related benefits.

Summary of Program Benefits

The incentive programs can be divided into 2 main types:

1) The Grants program - administered by the Israel Investment Center (IIC), a department of the Ministry of Industry, Trade and Labor

2) The Automatic Tax Benefits program- administered by the Tax Authorities.

To qualify, investment projects must meet certain criteria including: international competitiveness ( as describe in the low( section 18 1©a)), minimal designated investment, high added value and registration of the company in Israel.

Once these criteria are met the enterprise gains Approved Enterprise status from the IIC if it chooses the grants program and Beneficiary Enterprise status by the Tax Authority if it chooses one of the tax benefits programs. It is then eligible for incentives, such as grants of up to 24% of tangible fixed assets (grants program only) and/or reduced tax rates, tax exemptions and other tax related benefits.

Location

The government grants scheme is affected in part by the location of the company's activities. Several regions in Israel have been declared National Priority Regions:

Priority Area A includes:

· The Galilee
· Jordan Valley
· The Negev
· Jerusalem (for hi-tech enterprises)

Priority Area B includes:

· Lower Galilee
· Northern Negev

Area C includes the rest of the country.

Grant Program

The amount of the government grant is calculated as a percentage of the original cost of land development and investment in buildings (except in Area C), in machinery and equipment. This cost includes installation and related expenses. The percentages are:

Table 1

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Priority Area A*

Priority Area B

Industrial projects**
Up to NIS 50 million

24%

10%

Industrial projects
Above NIS 50 million

20%

10%

Investment in hotels and other accommodations

24%

Other tourist enterprises

15%

* Plus an additional grant of up to 8% for companies locating in the south ("Negev area")
** or located in low socioeconomic town ( 6 or less)

Time to Completion

Under the provisions of the grants scheme, 20 percent of the approved program for industrial projects should be completed within 24 months from the date of approval. The investment program should be completed within 5 years from the date of approval.

Tax Benefits

a) Grant Program

Companies choosing the grant program receive tax benefits as well for a period of 7 consecutive years, starting with the first year in which the company earns taxable income (grants are not considered income). Tax benefits are determined by the percentage of foreign control: the more foreign control in the enterprise, the higher the benefits. If at least 25% of an Approved Enterprise's owners are foreign investors, the enterprise is eligible for a 10 year period of tax benefits*. See table below (all figures are in %)

Table 2

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Company owned by Foreign Investors

Company that is not an Approved Enterprise

Tax rates by ownership stake (in %)

90 to100

74 to90

49 to 74

Less than 49

Taxable Income

100

100

100

100

100

Company Tax

10

15

20

25

34

Balance

90

85

80

75

66

Dividend tax: 15% of balance

13.5

12.75

12

11.25

25

Total tax on distributed income

23.5

27.75

32

36.25

50.5

b) Automatic Tax Programs

There are 3 types of automatic tax programs:

1. Alternative tax program
2. Priority area program
3. Strategic program

The minimal designated investment in programs 1 and 2 are:

A. Greenfield (new) investment- at least 300,000 NIS as in the table below:

B. Expansion- at least 300'000 NIS or amount equal to the "Approved rate" from the productive assets (the higher) from the following:

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Value of productive assets (mil NIS)

Required investment as % of the productive assets

Up 140

12%

140-500

7%

500+

5%

1. Alternative tax program: A company can choose this program by waiving the project's rights to a grant and will receive complete exemption from corporate tax on its undistributed income, as detailed below.

Table 3

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Priority Area A:

Priority Area B:

Area C / Central Israel:

10 years of complete tax exemption

6 years of complete tax exemption and 1 year of tax benefits, 4 years for a foreign investor*

2 years of complete tax exemption and 5 years of tax benefits, 8 years for a foreign investor*

* As in table 2

2. Priority area program: For companies investing in Priority Area A, benefits include:

a. Corporate tax rate of 11.5%
b. Dividend tax rate of 15%, total tax rate of 24.5%

For a foreign investor, the dividend tax rate is 4% and a total tax rate of 15%

The benefit period is for 7 years. If at least 25% of the company is foreign owned then the benefit period is 10 years.

3. Strategic program: This program is intended mainly for large multi-national companies meeting the following criteria: an annual turnover of at least $3 billion and a minimum investment of $130 million in the project itself. Location: according to table 4

Table 4

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Total group revenue

Minimal designated investment

Priority Area

Ministers decision

By law

Ministers decision

By law

13 billion NIS

600 mil NIS

Acknowledged area*

13 billion NIS

20 billion NIS

600 mil NIS

900 mil NIS

Area A

20 billion NIS

900 mil NIS

Area B or other

Benefits include:

a. Corporate tax – 0% (i.e. complete tax exemption)
b. Dividend tax – 0%
c. Benefit period – 10 years

* Accre (Akko)/Carmiel - northwards
Be'er Sheba / Arad - southwards

Right to Private Ownership and Establishment

The Israeli legal system protects the right of both foreign and domestic entities to establish and own business enterprises, as well as the right to engage in remunerative activity. Private enterprises are free to establish, acquire, and dispose of interests in business enterprises. As part of its current privatization efforts, the Israeli government actively encourages foreign investment in privatizing government owned entities. Israel has a law against unfair competition. It is government policy to equalize competition between private and public enterprises, although the existence of monopolies and oligopolies in several sectors stifles competition. In the case of monopolies, defined as entities that supply more than 50% of the market, the government controls prices.

Protection of Property Rights

Israel has a modern legal system based on British common law that provides effective means for enforcing property and contractual rights. Courts are independent. Israeli civil procedures provide that judgments of foreign courts may be accepted and enforced by local courts. Secured interests in property are recognized and enforced by the Israeli judicial system. A reliable system of recording such security interests exists.

Patent protection is provided for twenty years from filing. Both product and process patent protection for pharmaceuticals are permitted. However the Israeli patent system still allows for pre-grant opposition to patents, which may result in significant delays for some applicants. Israel employs compulsory licensing in very limited circumstances, mostly when the product is not being supplied in Israel on reasonable terms.

Israel is a Member of the WTO and the World Intellectual Property Organization (WIPO). It is a signatory to the Berne Convention for the Protection of Literary and Artistic Works, the Universal Copyright Convention, the Paris Convention for the Protection of Industrial Property, and the Patent Cooperation Treaty. Israel was obligated to implement the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) by January 1, 2000.

Of particular importance is the inadequate intellectual property protection against unfair commercial use of data generated to obtain marketing approval for pharmaceuticals. This has discouraged U.S. companies from substantial investment in the health sector.

In February of 2010, Israel reached agreement with the U.S. to modify its Intellectual Property laws to address shortcomings in its treatment of new pharmaceutical products related to data exclusivity, patent term extension and publication of patent applications.

Israel has yet to enact the modifying legislation and there are industry concerns that the draft legislation under consideration falls short of the terms of the 2010 agreement. As a result of the deficiencies of Israel’s intellectual property regime, it was placed on the USTR’s Special 301 “Priority Watch List” in 2005. As a result of the February 2010 agreement to modify its laws, once appropriate legislation consonant with the agreement is submitted to the Knesset, Israel will be moved from the Special 301 Priority Watch List to the Watch List. When legislation compliant with the agreement is fully implemented (through passage by the Knesset), Israel will be moved off the Special 301 list altogether.

Copyright

Israel's present copyright law is based on the United Kingdom Copyright Act of 1911, with subsequent amendments. Protections include the exclusive right to (a) copy or reproduce the work; (b) produce, reproduce, perform or publish translations; (c) publicly perform plays or novels; and (d) make recordings of literary, dramatic or musical works. Criminal penalties are also provided for certain commercial infringing activities.

The Knesset recently passed new copyright legislation. In general, this law is an improvement over the old Israeli law, in that is more modern its structure, terminology and scope. Temporary copies are explicitly protected and a “making available” right is explicitly provided. Under this law, a person who is a non-Israeli national has no rights in their sound recordings that were not published for the first time in Israel, unless the person is a national of country that has an agreement with Israel concerning sound recordings. In the case of the United States, the Israeli government promulgated an order which implements a 1950 bilateral agreement between Israel and the United States which does protect U.S. sound recordings. The term of protection for sound recordings is 50 years; for other works, it is the lifetime of the author plus 70 years. Copyright law in Israel also falls short of certain protections that have become common in the copyright laws of developed countries including, protection of “technological protection measures,” “rights management information,” provisions related to internet service provider liability and safe harbors and parallel import protection. Israel has also not acceded to the “WIPO Internet Treaties.”

Transparency of the Regulatory System

It is government policy to encourage increased competition through market liberalization and deregulation, but tax, labor, health, and safety laws can be impediments to the foreign investor. Although the current trend is towards deregulation, Israel's bureaucracy can still be difficult to navigate, especially for the foreign investor unfamiliar with the system. It is important that potential investors get approvals or other commitments made by regulatory officials in writing before proceeding, rather than relying on unofficial oral promises.

Israel is a signatory to the WTO Agreement on Government Procurement (GPA), which covers most Israeli government entities and government-owned corporations. Most of the country’s open international public tenders are published in the local press. However, government-owned corporations make extensive use of selective tendering procedures. In addition, the lack of transparency in the public procurement process discourages U.S. companies from participating in major projects and disadvantages those that choose to compete. Enforcement of the public procurement laws and regulations is not consistent.

Efficient Capital Markets and Portfolio Investment

Credit is allocated on market terms. Various credit instruments are available to the private sector, and foreign investors can receive credit on the local market. Legal, regulatory, and accounting systems are transparent and conform to international norms, although the prevalence of inflation-adjusted accounting means that there are differences from U.S. accounting principles.

Three large banks - Bank Leumi, Bank Hapoalim, and Israel Discount Bank - dominate Israel's banking sector. Bank Leumi had assets of USD 81.8 billion at the end of 2009; Bank Hapoalim had assets of USD 78.7 billion at the end of 2009, and Discount Bank, the third largest bank, had assets of USD 47.8 billion at the end of 2009. Bank Hapoalim was fully privatized in 2000. A group led by Matthew Bronfman purchased 26% of the shares of Discount in 2005. During 2010, the government sold off its remaining 25% of its shares in Discount by selling off blocks of 5%, 8.3% and 11.69% shares to Deutsche, UBS, and Citi, with the banks selling off the purchased shares to investors. 11.5% of the shares of Bank Leumi remain in the hands of the State of Israel. The Government of Israel is committed to completing privatization.

Many Israeli firms are not publicly traded or are controlled through integrated holding companies. In the case of publicly traded firms where ownership is widely dispersed, the practice of "cross-shareholding" and "stable shareholder" arrangements to prevent mergers and acquisitions is common, but not directed in particular at preventing potential foreign investment. Hostile takeovers are a virtually unknown phenomenon in Israel, given the high concentration of ownership of most firms.

Israel has no laws or regulations regarding the adoption by private firms of articles of incorporation or association that limit or prohibit foreign investment, participation, or control.

Competition from State-Owned Enterprises (SOEs)

The Government Companies Authority at the Ministry of Finance has responsibility for State Owned Enterprises. Prominent sectors/industries include: defense, security, building and land, gas and oil searching, agriculture, electricity and water, education training funds, services, transportation, communication, tourism, industry, trade, and culture and the arts.

Government companies have a 12 member Board of Directors that appoint a General Manager. The appointment of the Chairman of the Board and General Manager requires approval by the Ministry in question and the Ministry of Finance. Directors cannot be a Minister, Deputy Minister, or member of the Knesset. No more than two thirds of the members of the Board can be state employees. At least one seat is appointed by the government.

There are no sovereign wealth funds in Israel.

Corporate Social Responsibility

There is awareness to the issue among enterprises and the civil society. Israel adheres to the OECD Guidelines for Multinational Enterprises and a National Contact Point is operating in the Foreign Trade Administration. See also examples for CSR activities in NGOs:

CSR Report by the Academic Center for Law and Business (in Hebrew): http://www.clb.ac.il/uploads/csr.pdf

Maala–Business for Social Responsibility: http://www.maala.org.il/eng/home/about/01/default.asp?ContentID=333

Political Violence

Israel is a parliamentary democracy with a stable domestic environment. Nonetheless, the unresolved conflict between Israel and the Palestinians means that the potential for politically inspired violence and terrorism exists. The State Department web site provides updated information on travel advisories: http://travel.state.gov

Israel signed peace treaties with Egypt (1979) and Jordan (1994), and its borders with them are open. The borders with Lebanon and Syria are closed, and the potential for violent incidents remains, the most recent example being the 2007 conflict with Hizbullah.

Corruption

Bribery and other forms of corruption are illegal under several Israeli laws and Civil Service regulations. Israel became a signatory to the OECD Bribery convention in November 2008 and became a full member of the OECD in May 2010. There are several NGOs that focus on public sector ethics. Transparency International has a local chapter in Israel.

Corruption, including bribery, raises the costs and risks of doing business. Corruption has a corrosive impact on both market opportunities overseas for U.S. companies and the broader business climate. It also deters international investment, stifles economic growth and development, distorts prices, and undermines the rule of law.

It is important for U.S. companies, irrespective of their size, to assess the business climate in the relevant market in which they will be operating or investing, and to have an effective compliance program or measures to prevent and detect corruption, including foreign bribery. U.S. individuals and firms operating or investing in foreign markets should take the time to become familiar with the relevant anticorruption laws of both the foreign country and the United States in order to properly comply with them, and where appropriate, they should seek the advice of legal counsel.

The U.S. Government seeks to level the global playing field for U.S. businesses byencouraging other countries to take steps to criminalize their own companies’ acts of corruption, including bribery of foreign public officials, by requiring them to uphold their obligations under relevant international conventions. A U. S. firm that believes a competitor is seeking to use bribery of a foreign public official to secure a contract should bring this to the attention of appropriate U.S. agencies, as noted below.

U.S. Foreign Corrupt Practices Act: In 1977, the United States enacted the Foreign Corrupt Practices Act (FCPA), which makes it unlawful for a U.S. person, and certain foreign issuers of securities, to make a corrupt payment to foreign public officials for the purpose of obtaining or retaining business for or with, or directing business to, any person. The FCPA also applies to foreign firms and persons who take any act in furtherance of such a corrupt payment while in the United States. For more detailed information on the FCPA, see the FCPA Lay-Person’s Guide at: http://www.justice.gov/criminal/fraud/docs/dojdocb.html.

Other Instruments: It is U.S. Government policy to promote good governance, including host country implementation and enforcement of anti-corruption laws and policies pursuant to their obligations under international agreements. Since enactment of the FCPA, the United States has been instrumental to the expansion of the international framework to fight corruption. Several significant components of this framework are the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Antibribery Convention), the United Nations Convention against Corruption (UN Convention), the Inter-American Convention against Corruption (OAS Convention), the Council of Europe Criminal and Civil Law Conventions, and a growing list of U.S. free trade agreements. Israel is party to OECD Antibribery Convention, the UN Convention, but generally all countries prohibit the bribery and solicitation of their public officials.

OECD Antibribery Convention: The OECD Antibribery Convention entered into force in February 1999. As of December 2010, there are 38 parties to the Convention including the United States (see http://www.oecd.org/dataoecd/59/13/40272933.pdf). Major exporters China, India, and Russia are not parties, although the U.S. Government strongly endorses their eventual accession to the Convention. The Convention obligates the Parties to criminalize bribery of foreign public officials in the conduct of international business. The United States meets its international obligations under the OECD Antibribery Convention through the U.S. FCPA. Israel has adopted the Convention.

UN Convention: The UN Anticorruption Convention entered into force on December 14, 2005, and there are 144 parties to it as of December 2010 (see http://www.unodc.org/unodc/en/treaties/CAC/signatories.html). The UN Convention is the first global comprehensive international anticorruption agreement. The UN Convention requires countries to establish criminal and other offences to cover a wide range of acts of corruption. The UN Convention goes beyond previous anticorruption instruments, covering a broad range of issues ranging from basic forms of corruption such as bribery and solicitation, embezzlement, trading in influence to the concealment and laundering of the proceeds of corruption. The Convention contains transnational business bribery provisions that are functionally similar to those in the OECD Antibribery Convention and contains provisions on private sector auditing and books and records requirements. Other provisions address matters such as prevention, international cooperation, and asset recovery. Israel has signed and ratified the convention.

OAS Convention: In 1996, the Member States of the Organization of American States (OAS) adopted the first international anticorruption legal instrument, the Inter-American Convention against Corruption (OAS Convention), which entered into force in March 1997. The OAS Convention, among other things, establishes a set of preventive measures against corruption, provides for the criminalization of certain acts of corruption, including transnational bribery and illicit enrichment, and contains a series of provisions to strengthen the cooperation between its States Parties in areas such as mutual legal assistance and technical cooperation. As of December 2009, the OAS Convention has 33 parties (see http://www.oas.org/juridico/english/Sigs/b-58.html) Israel is neither a member of the OAS or signatory to the Convention.

Council of Europe Criminal Law and Civil Law Conventions: Many European countries are parties to either the Council of Europe (CoE) Criminal Law Convention on Corruption, the Civil Law Convention, or both. The Criminal Law Convention requires criminalization of a wide range of national and transnational conduct, including bribery, money-laundering, and account offenses. It also incorporates provisions on liability of legal persons and witness protection. The Civil Law Convention includes provisions on compensation for damage relating to corrupt acts, whistleblower protection, and validity of contracts, inter alia. The Group of States against Corruption (GRECO) was established in 1999 by the CoE to monitor compliance with these and related anticorruption standards. Currently, GRECO comprises 46 member States (45 European countries and the United States). As of December 2009, the Criminal Law Convention has 43 parties and the Civil Law Convention has 34 (see www.coe.int/greco.) Israel is not a signatory.

Free Trade Agreements: While it is U.S. Government policy to include anticorruption provisions in free trade agreements (FTAs) that it negotiates with its trading partners, the anticorruption provisions have evolved over time. The most recent FTAs negotiated now require trading partners to criminalize “active bribery” of public officials (offering bribes to any public official must be made a criminal offense, both domestically and transnationally) as well as domestic “passive bribery” (solicitation of a bribe by a domestic official). All U.S. FTAs may be found at the U.S. Trade Representative Website: http://www.ustr.gov/trade-agreements/free-trade-agreements. Israel has a free trade agreement (FTA) in place with the United States, which came into force in 1985. More information can be found at www.ustr.gov/trade-agreements/free-trade-agreements. Local Laws: U.S. firms should familiarize themselves with local anticorruption laws, and, where appropriate, seek legal counsel. While the U.S. Department of Commerce cannot provide legal advice on local laws, the Department’s U.S. Commercial Service can provide assistance with navigating the host country’s legal system and obtaining a list of local legal counsel.

Assistance for U.S. Businesses: The U.S. Department of Commerce offers several services to aid U.S. businesses seeking to address business-related corruption issues. For example, the U.S. and Foreign Commercial Service can provide services that may assist U.S. companies in conducting their due diligence as part of the company’s overarching compliance program when choosing business partners or agents overseas. The U.S. Foreign and Commercial Service can be reached directly through its offices in every major U.S. and foreign city, or through its Website at www.trade.gov/cs. The Departments of Commerce and State provide worldwide support for qualified U.S. companies bidding on foreign government contracts through the Commerce Department’s Advocacy Center and State’s Office of Commercial and Business Affairs.

Problems, including alleged corruption by foreign governments or competitors, encountered by U.S. companies in seeking such foreign business opportunities can be brought to the attention of appropriate U.S. government officials, including local embassy personnel and through the Department of Commerce Trade Compliance Center “Report A Trade Barrier” Website at tcc.export.gov/Report_a_Barrier/index.asp.

Guidance on the U.S. FCPA: The Department of Justice’s (DOJ) FCPA Opinion Procedure enables U.S. firms and individuals to request a statement of the Justice Department’s present enforcement intentions under the antibribery provisions of the FCPA regarding any proposed business conduct. The details of the opinion procedure are available on DOJ’s Fraud Section Website at www.justice.gov/criminal/fraud/fcpa. Although the Department of Commerce has no enforcement role with respect to the FCPA, it supplies general guidance to U.S. exporters who have questions about the FCPA and about international developments concerning the FCPA. For further information, see the Office of the Chief Counsel for International Counsel, U.S. Department of Commerce, Website, at http://www.ogc.doc.gov/trans_anti_bribery.html. More general information on the FCPA is available at the Websites listed below. Exporters and investors should be aware that generally all countries prohibit the bribery of their public officials, and prohibit their officials from soliciting bribes under domestic laws. Most countries are required to criminalize such bribery and other acts of corruption by virtue of being parties to various international conventions discussed above.

Anti-Corruption Resources

Some useful resources for individuals and companies regarding combating corruption in global markets include the following:

• Information about the U.S. Foreign Corrupt Practices Act (FCPA), including a “Lay-Person’s Guide to the FCPA” is available at the U.S. Department of Justice’s Website at: http://www.justice.gov/criminal/fraud/fcpa.

• Information about the OECD Antibribery Convention including links to national implementing legislation and country monitoring reports is available at: http://www.oecd.org/department/0,3355,en_2649_34859_1_1_1_1_1,00.html. See also new Antibribery Recommendation and Good Practice Guidance Annex for companies: http://www.oecd.org/dataoecd/11/40/44176910.pdf

• General information about anticorruption initiatives, such as the OECD Convention and the FCPA, including translations of the statute into several languages, is available at the Department of Commerce Office of the Chief Counsel for International Commerce Website: http://www.ogc.doc.gov/trans_anti_bribery.html.

• Transparency International (TI) publishes an annual Corruption Perceptions Index (CPI). The CPI measures the perceived level of public-sector corruption in 180 countries and territories around the world. The CPI is available at: http://www.transparency.org/policy_research/surveys_indices/cpi/2010. TI also publishes an annual Global Corruption Report which provides a systematic evaluation of the state of corruption around the world. It includes an in-depth analysis of a focal theme, a series of country reports that document major corruption related events and developments from all continents and an overview of the latest research findings on anti-corruption diagnostics and tools. See http://www.transparency.org/publications/gcr.

• The World Bank Institute publishes Worldwide Governance Indicators (WGI). These indicators assess six dimensions of governance in 212 countries, including Voice and Accountability, Political Stability and Absence of Violence, Government Effectiveness, Regulatory Quality, Rule of Law and Control of Corruption. See http://info.worldbank.org/governance/wgi/sc_country.asp. The World Bank Business Environment and Enterprise Performance Surveys may also be of interest and are available at: http://go.worldbank.org/RQQXYJ6210.

• The World Economic Forum publishes the Global Enabling Trade Report, which presents the rankings of the Enabling Trade Index, and includes an assessment of the transparency of border administration (focused on bribe payments and corruption) and a separate segment on corruption and the regulatory environment. See http://www.weforum.org/en/initiatives/gcp/GlobalEnablingTradeReport/index.htm.

• Additional country information related to corruption can be found in the U.S. State Department’s annual Human Rights Report available at http://www.state.gov/j/drl/rls/hrrpt/.

• Global Integrity, a nonprofit organization, publishes its annual Global Integrity Report, which provides indicators for 92 countries with respect to governance and anti-corruption. The report highlights the strengths and weaknesses of national level anti-corruption systems. The report is available at: http://report.globalintegrity.org/.

Bilateral Investment Agreements

Israel has protection of investment agreements with Albania, Argentina, Armenia, Belarus, Bulgaria, Croatia, Cyprus, Czech Republic, El Salvador, Estonia, Ethiopia, Georgia, Germany, Hungary, India, Kazakhstan, Latvia, Lithuania, Moldova, Mongolia, Poland, Romania, Serbia-Montenegro, Slovak Republic, Slovenia, South Korea, Thailand, Turkey, Turkmenistan, Ukraine, Uruguay, Uzbekistan. Agreements awaiting ratification include China, Guatemala, South Africa, and Azerbaijan. Agreement initiated with Peru.

OPIC and Other Investment Insurance Programs

OPIC is involved in several projects in Israel and also finances projects sponsored by U.S. investors in Israel, but not in the Golan Heights. Israel is a member of the Multilateral Investment Guarantee Agency (MIGA).

Labor

Israel's civilian labor force numbers approximately three million people. Highly skilled and well educated, the Israeli labor force is the economy’s major asset. More than 40% of the work force has more than 13 years of education and over 22% have 16 or more years of education. More than 30% of university students specialize in fields with high industrial R&D potential, including engineering, mathematics, physical sciences, and medicine. According to the Investment Promotion Center, there are more than 135 scientists out of every 100,000 workers, the highest in the world. The rapid growth of Israel's high-tech industries in the late 1990s increased the demand for workers with specialized skills. However, in the last few years Israel consistently ranks at the end of the list of Western countries in international student assessment tests.

Unemployment in 2008 was 6.0%, a level not seen in Israel since the mid 1990’s. Although the Israeli economy survived the global economic crisis relatively well, unemployment increased in 2009 to 7.5%. With a return to rapid growth at the end of 2009 and in 2010, unemployment declined to 6.7%. In line with the government’s policy of reducing the number of foreign workers in order to encourage Israelis to join the labor force, there was a decline of 16,000 foreign workers (legal and illegal) to 256,300 foreign workers in 2010, from 272,300 in 2009. According to Bank of Israel statistics, the number of legal foreign workers at the end of 2009 was about 130,000 --- 77,000 foreign workers and 53,000 Palestinians.

The national labor federation, the Histadrut, organizes about one-third of Israeli workers. Collective bargaining negotiations in the public sector take place between the Histadrut and government entities. In the private sector, negotiations at the national level between the Histadrut and the employers association are supplemented by local negotiations to finalize details. The number of strikes has declined significantly as the public sector has gotten smaller. However, strikes remain a viable negotiating vehicle in many difficult wage negotiations.

Israel strictly observes the Friday afternoon to Saturday afternoon Sabbath and special permits must be obtained from the government authorizing Sabbath employment. At the age of 18, most Israelis are required to perform 2-3 years of national service. Until age 50, Israeli males are required to perform 30-50 days of military reserve duty annually, during which time they receive compensation from national insurance companies.

Foreign Trade Zones/Free Ports

Israel has one free trade zone, the Red Sea port city of Eilat. In addition to the Eilat Free Trade Zone, there are three ports that offer free trade: Haifa Port (including Kishon), the Port of Ashdod and the Port of Eilat.

The GOI has plans to expand and upgrade the major ports of Haifa (in the north) and Ashdod (in the center). There is good quality warehousing including cold storage in all of the major ports and trade zones, but current capacity may become inadequate in the face of growing demand.

Foreign Direct Investment Statistics

Foreign Direct Investments (FDI) for the first 9 months of 2010 totaled about USD 673 million. FDI totaled USD 8.8 billion, USD 10.9 billion, and USD 3.9 billion in 2007, 2008, and 2009, respectively. FDI in Israel totaled USD 14.3 billion in 2006, an increase of almost 200% compared with FDI of USD 4.8 billion in 2005. The sharp increase was due in large part to Berkshire Hathaway’s purchase of 80% of Iscar Metals for USD 4.4 billion and Hewlett Packard’s purchase of Mercury Interactive for USD 4.5 billion.

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