Import reform plus competition could hurt Israeli manufacturers - opinion

A real opening of the Israeli market to international competition could adversely impact manufacturers’ profits. Here's how:

Textile business 311 (photo credit: .)
Textile business 311
(photo credit: .)

Until now, Israeli manufacturers were protected by customs and standards, and therefore did not require much use of the Trade Levies (Anti-Dumping Restrictions) Law. But a real opening of the Israeli market to international competition could adversely impact manufacturers’ profits and trigger increased use of this law as a tool to protect them from unfair international competition.

Implementation of the first phase of Israel’s major import reform began in June 2022. Approved as part of the Economic Plan (Arrangements Law) for 2021-2022, the import reform aims to considerably ease the regulatory burden on imports through a series of measures. These include recognizing international standards and reducing the use of Israeli standards, switching to reliance on importers’ declarations instead of inspections and document submissions, promoting parallel imports and increasing enforcement in the markets instead of inspections at the borders.

The goal of the reform, which will come into full effect by 2023, is, inter alia, to overcome the lack of competition to Israeli manufacturers by increasing cheap imports of products from abroad.

The government’s expectation is that the removal of restrictions on imports will attract many more competitors to Israel in numerous sectors. This will thus result in higher competition and lower prices.

According to OECD surveys, Israel is a relatively expensive country. A large portion of the “cost of living” is attributed to the fact that in many sectors (especially the food sector), the Israeli market is concentrated, i.e., controlled by a limited number of manufacturers and sometimes even by a single manufacturer holding a monopoly. This lack of competition compels Israeli consumers to pay higher prices.

Let the consumer choose. (credit: REUTERS)Let the consumer choose. (credit: REUTERS)

Theoretically, it should have been possible to overcome the lack of competition against Israeli manufacturers through inexpensive imports of products from abroad. However, until now, domestic manufacturers were protected from international competition.

Israel imposed tariffs on many imported products. An even greater burden was the need of goods manufactured abroad to qualify according to Israeli standards. The need to adapt products to the Israeli standard imposes high costs on importers to the point they skip the Israeli market.

THE IMPORT REFORM described above is intended to overcome these obstacles to the increase in imports to Israel. It is one of several courses of action intended to facilitate such imports and lower prices. Other means to that end are a significant reduction in the customs tariffs on a wide spectrum of products imported to Israel, and encouragement of parallel imports.

Price slashing ruins manufacturers 

Although free competition is welcome, the entry of additional competitors into the market and the slashing of prices might adversely impact the profits of Israeli manufacturers. It could also lead to situations whereby it will no longer be worthwhile to manufacture some products in Israel at all, and manufacturers may discontinue domestic production altogether.

As an example, the manufacturing of textiles and footwear in Israel stopped almost completely in the 1990s upon the removal of the customs protection in these two sectors.

From an economic perspective, cheap imports that adversely impact or even wipe out domestic manufacturing in a particular sector do not pose a problem. As long as imports continue at cheap prices, there is no reason to impose restrictions on them, which would effectively compel Israeli consumers to subsidize inefficient domestic manufacturing.

In relatively rare cases, the state should protect domestic manufacturing for reasons not purely economic. Examples include defense products or products of strategic importance, and perhaps also products in the agricultural sector, as there are additional interests in maintaining this sector in Israel.

Another instance in which it might be needed to impose restrictions on imports is when the low price of imports is based on unfair competition. The most obvious example of unfair competition is dumping. This is when an importer sells a product in Israel at a lower price than the selling price abroad.

The concern is that the importer is selling the product at a cut-rate price in order to push the Israeli manufacturer out of the market. As soon as the Israeli manufacturer stops manufacturing, the importer will hike the price back up.

Price dumping and unfair competition

In instances of price dumping, and in other instances of unfair competition, Israeli manufacturers can seek enforcement of Israel’s Trade Levies Law. This law empowers the economy minister to impose levies on imports of foreign products to Israel if Israeli manufacturers can prove they have suffered significant damages as a result of imports sold at dumping prices.

Until now, Israeli manufacturers were protected by customs tariffs and standards. Therefore, they did not have to seek much enforcement of the Trade Levies Law. Up until now, levies were imposed by virtue of the law only in a limited number of instances. However, a real opening of the Israeli market to international competition will probably trigger increased use of the law as a tool to protect against unfair international competition.

The writer is a member of the Ono Academic College Faculty of Law and special counsel for international law at Barnea Jaffa Lande.