Cutting the red tape on imports: An important step toward lowering Israel's cost of living

Getting rid of some messy import policies would help spur competition and bring down prices.

Port of Ashdod (photo credit: REUTERS)
Port of Ashdod
(photo credit: REUTERS)
Cutting down on burdensome import regulation is more important than lowering import duties, according to the findings of a report issued by the Finance and Economy ministries published on Thursday.
The Committee for Increasing Competition and Reducing Import Barriers, which was appointed in August 2013 by Finance Minister Yair Lapid and Economy Minister Naftali Bennett to examine why the cost of living was higher in Israel than other OECD countries, found in its final report that lowering import taxes had little effect on the final price of many goods. The greatest beneficiaries of cutting duties, the report said, were importers.
Instead, the web of red tape makes it costly and time-consuming for importers – especially small and medium ones – to bring new products to market. Getting rid of some of those policies would help spur competition, and bring down prices.
Although some 70 percent of goods people consume in Israel are imported, “the Israeli market is characterized by a high regulatory burden and a particularly heavy load of bureaucracy in comparison to significant import markets around the world,” according to the report.
For example, Israel requires importers to get a slew of certifications before they start importing, even for products that have been approved in the past or carry little risk of harm to consumers. Non-perishable food products, for instance, require approval before they can be imported, while the Health Ministry must give its stamp of approval for cosmetics.
While complying with safety standards is important, Israel’s standards are often more stringent or simply different from those in, say, Europe. That means an exporter who sells a European product has to get a separate set of approvals before he can sell to Israel. Soy milk and other milk substitutes, for example, are not allowed in because there is a regulation against calling such products “milk.” Restrictions on cribs and children’s beds are out of sync with those commonly accepted in the West.
When goods arrive at the ports, the number of test and checks carried out cause delays procedures and increases costs, giving an advantage to big importers who can stomach the extra financial burden.
Meanwhile, a study of World Bank data on the effects of lowering duties found disappointing results in final prices.
“Removing bureaucratic barriers will help reduce the cost of imports, will open the market and will be reflected in a reduction in private expenditures for the Israeli consumer,” Lapid said, throwing his weight behind the committee’s eight main recommendations.
Lowering the cost of living was the government’s central struggle, he added.
To ease the bureaucracy, the committee recommended more self-regulation for importers, shifting the onus from the state to them to ensure their products were up to standards. That would mean fewer checks, but also require tougher enforcement.
The local standards institute should also match Israel’s standards to those accepted by other countries, add more members to the board responsible for standards, and make them more accessible to the public. Setting up a website listing import information would increase transparency, promote parallel imports and prevent anti-competitive practices, helping more importers enter the market.
Labeling imports should not be required before they arrive in Israel, the committee suggested.
The government has already accepted one recommendation covering personal imports – the price of products that people can import for personal use without paying duties rose from $325 to $500.
Finally, the committee recommended putting all the policy controls under one roof: the Economy Ministry.
“The Lang Committee is breaking the monopoly of interests that has controlled Israel’s imports for many years, and is changing the equation by which the importer is guilty until proven innocent,” Bennett said, referring to the committee by the name of Economy Ministry director-general Amit Lang, who spearheaded it.