Impact of export control law on the Israeli economy

In refusing to clarify fundamental requirements under the law, Israel chills local economic activity and investment.

By ELI GREENBAUM
AN EMPLOYEE stands next to an Elbit Systems Ltd. Hermes 900 unmanned aerial vehicle at the company's drone factory in Rehovot (photo credit: REUTERS/OREL COHEN)
AN EMPLOYEE stands next to an Elbit Systems Ltd. Hermes 900 unmanned aerial vehicle at the company's drone factory in Rehovot
(photo credit: REUTERS/OREL COHEN)
Laws regarding export control have strong impact on the Israeli economy, especially the hi-tech industry. Export control law traditionally restricted the export of military equipment and weaponry to problematic states and other entities. However, since countries increasingly seek military advantage through the use of cutting-edge technology, export control law also prohibits the export of certain innovative technologies without government approval. For example, Israeli law prohibits the export of all drone technology and some cyber technology without the proper government approvals. These laws can have a dramatic impact, both on economic activity and on the Israeli innovation ecosystem. For example, it may be difficult for start-up companies to obtain sufficient investment to develop technology in these areas.
Unfortunately, Israeli export control law can be very broad – much broader than the laws of other countries. For example, while other countries may only restrict certain, specific drone technology, Israeli law can restrict the export of almost all drone technology without exception. The wisdom of such expansive regulations is questionable – if customers cannot obtain certain technology from Israel, they will turn to other countries that allow the supply of that technology. In other words, when Israel does not coordinate its export control law with the laws of other countries, the ability of the Israeli economy is damaged without reasonable justification.
Israeli regulators are not unaware of this problem. Indeed, they have begun the process of harmonizing the regulations with international standards. These changes have been delayed because of the extended election season, but the regulators do seem to understand the problem.
However, the solutions proposed by regulators do not seem sufficient. To date, they have proposed limiting the specific items and technology controlled under Israeli law. For instance, going back to the drone example, if existing law controls all drone technology, the proposed changes would limit the controls to the specific technology that is controlled under international agreements.
But, aside from shortening the list of controlled items, Israel also needs to clarify some fundamental principles of export control law. One example – export control laws across the world often restrict the export of items that are “specially designed” for certain purposes. Again, using the drone example, Israeli law restricts the export of technology that is “specially designed” for drones. These commonly-used words allow the regulators to control a broad range of technology without having to specify every single item to be controlled. But the meaning of the words “specially designed” is not clear. Does it refer to the subjective intent of the parties or a more objective standard? Does it require that the restricted technology be designed exclusively for the problematic field, be used primarily for that field or simply be capable of use in that area?
Israeli law does not even attempt to provide a definition of the words “specially designed,” and seems to prefer to leave the interpretation of that provision to the regulators. But other countries have struggled to provide a proper definition of those words. In the United States, at least one court overturned a criminal conviction for an intentional violation of export control law specifically because it found that the words “specially designed” were too vague and ambiguous, and could not allow a criminal conviction to stand under a law that did not properly define the prohibited conduct. That decision was reversed on appeal, but for reasons that may not apply in Israeli court.
Following that decision, the United States proposed a complicated definition that would satisfy both the needs of industry and national security requirements. European regulators have also attempted to provide such a definition. Israeli law, however, leaves these words ambiguous. In refusing to clarify fundamental requirements under the law, Israel chills local economic activity and investment.
In sum, Israeli regulators recognize the need for Israeli export control law. But it is important that such reforms look beyond a technical listing of the specific controlled items. Rather, any reform of Israeli export control law should also take a broad perspective of the problems that arise under the existing law and try to solve such problems in cooperation with industry.
The writer is a partner at Yigal Arnon & Co.