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5. Significant Barriers to U.S. Exports

All duties on products from the United States were eliminated under the 1985 United States-Israel Free Trade Area (FTAA) Agreement as of January 1, 1995. The FTAA liberalized and expanded the trade of goods between the United States and Israel, and spurred discussions on freer trade in tourism, telecommunications and insurance services.

Non-tariff barriers, such as purchase taxes, variable levies, quotas, uplifts, standards and quantitative restrictions, continue to impede U.S. exports, especially in sensitive sectors like agriculture and processed food products.

Although Israel has liberalized imports of all bulk agricultural commodities except beef, extensive import restrictions remain, including variable levies on such U.S. ex ports as prunes, raisins, almonds, and baked goods. Quantitative restrictions, and in some cases, outright prohibitions, affect primarily U.S. beef, plywood, poultry, and dairy products.

In addition to these restrictions, the Government of Israel has two unique forms of protection for locally produced goods. The first is Harama, or uplift, applied at the pre-duty stage of import, and the second is TAMA, a Hebrew acronym standing for additional quota percentage, which applied after imposition of duty but before any assessment of purchase taxes.

Harama is a pre-duty uplift applied to the CIF value of goods to bring the value of the products to an acceptable level for customs valuation. Israel calculates import value according to the Brussels Definition of Value (BDV), a method which tolerates uplifts of invoice prices. For purposes of calculating duty and other taxes, the Israeli Customs Service arbitrarily uplifts by two to five percent the value of most products which exclusive agents import, and by 10 percent or more the value of other products. Israel has agreed to use only actual wholesale price for large importers after 1995. Israel is not a signatory to the GATT Valuation Code.

TAMA is a post-duty uplift designed to convert the CIF value plus duty to an equivalent wholesale price for purposes of imposing purchase tax. Cocflicients for calculation of the TAMA vary from industry to industry and from product to product.

In addition, purchase taxes that range from 25 to 95 percent are applied on goods ranging from automobiles to some agriculture and food items. The Government of Israel eliminated or reduced purchase taxes on many products in 1994, including consumer electronics, building inputs, and office equipment. Where still remaining, purchase taxes apply to both local and foreign products. However, when there is no local production, the purchase tax becomes a duty equivalent charge.

Israel has reduced the burden of some discriminatory measures against imports. Israel agreed in late 1990 to harmonize standards treatment, either dropping health and safety standards applied only to imports or making them mandatory for all products. Implementation of this promise has been slow. Enforcement of mandatory standards on domestic producers can be spotty and in some cases (e.g. refrigerators, carpets, and packaginglabeling for food items) standards are written so that domestic goods meet requirements more easily than imports. The Government of Israel is still reviewing the issue of package size standards to facilitate entry of some standard U.S. units. Israel has agreed to notify the United States of proposed new, mandatory standards to be recorded under the GATT.

The Standards Institution of Israel is proposing a bilateral Mutual Recognition Agreement of Laboratory Accreditation with the United States that could result in the acceptance of U.S. developed test data in Israel. The proposed program would eliminate the need for redundant testing of U.S. products in Israel to ensure compliance with mandatory product requirements.

The Israeli government actively solicits foreign private investment, including joint ventures, especially in industries based on exports, tourism, and high technology. Foreign firms are accorded national treatment in terms of taxation and labor relations, and are eligible for incentives for designated "approved” investments in prior. ity development zones. There are generally no ownership restrictions, but the foreign entity must be registered in Israel. Profits, dividends, and rents can generally be repatriated without difficulty through a licensed bank. About 100 major U.S. companies have subsidiaries in the Israel and some 170 Israeli companies have subsidiaries in the United States. Investment in regulated sectors, including banking, insurance, and defense industries, requires prior government approval.

Israel has one free trade zone, the Red Sea port city of Eilat. In addition to the Eilat Free Trade Zone, there are three free ports: Haifa (including Kishon), Ashdod, and Eilat. Enterprises in these areas may qualify for special tax benefits, and are exempt from indirect taxation.

Israel is a signatory to the Uruguay Round Procurement Code, which provides wide coverage of Israeli government entities to enable more open and transparent international tendering procedures. Legislation establishing the loan guarantee program envisions a substantial increase of U.S. exports of investment goods to Israel, as Israel makes use of the loan guarantee funds. To this end, the Israeli government provides information to the USG on existing and proposed tenders issued by government entities valued at over $50,000.

The Government of Israel frequently seeks offsets (subcontracts to Israeli firms) of up to 35 percent of total contract value for purchases by ministries, state-owned enterprises and municipal authorities. Failure to enter or fulfill such industrial cooperation agreements (investment, codevelopment, coproduction, subcontracting, purchase from Israeli industry) may disadvantage a foreign çompany in government awards. Although Israel pledged to relax osset requests on civilian purchases under the FTAA, U.S. firms may still encounter requests to enter into offset arrangements. Israeli government agencies and state owned corporations not covered by the Uru. guay Round Government Procurement Code follow this “Buy Israel" policy to promote national manufacturers.

Recent legislation codified and strengthened a 15 percent cost preference accorded domestic suppliers in many Israeli public procurement purchases, although the legislation explicitly recognizes the primacy of Israel's bilateral and multilateral procurement commitments. This preference can reach as high as 30 percent for domestic suppliers located in priority development areas.

In addition to its GATT multilateral trade commitments and its FTAA with the U.S., Israel also has FTAs with the European Union (EU) and European Free Trade Area (EFTA) states. With respect to all other countries, Israel substituted steep tariffs for non-tariff barriers previously applied to trade, and has gradually reduced these tarisss. The seven-year phase-in of Israel's import liberalization program has diluted, to some extent, U.S. advantages under the U.S.-Israel FTAA. Ås EFTA countries accede to the European Union, Israel's EFTA FTAA will be superceded by the E.U.-Israel Agreement, currently being renegotiated in an attempt to broaden and deepen the 1975 accord. Israel has also begun negotiations of FTAAs or other trade agreements with Canada, Turkey, Jordan, Egypt, and individual Central and Eastern European states. 6. Export Subsidies Policies

The U.S.-Israeli FTAA included agreement to phase out the subsidy element of export enhancement programs and not to institute new export subsidies. Israel has already eliminated grants, and in 1993 eliminated the major remaining export subsidy, an exchange-rate, risk-insurance scheme which paid exporters five percent on the FOB value of merchandise. Israel still retains a mechanism to extend long-term export credits, but the volumes involved are small-roughly $250 million. Israeli ex. port subsidies have resulted in past U.S. anti-dumping/countervailing duty cases. In 1994 the United States Government cited Israeli subsidy of butt-weld pipe fittings in an anti-dumping/countervailing duty investigation. Israel has been a member of the GATT Subsidies Code since 1985.

The Israeli Parliament passed legislation in May 1994 authorizing creation of free processing zones (FPZs). Qualifying companies operating in the (still undetermined) FPZs will be exempt from direct taxation for a twenty-year period, and imported inputs will not be subject to import duties or tariff or most health and safety regulations generally in effect throughout Israel. Companies will also be exempt from collective bargaining and minimum-wage requirements, although subject to other labor requirements. The legislation was originally intended to promote investment in export-related industries, but the wording of the legislation as passed does not limit applicant companies to exporters or providers of services to overseas clients. Accordingly, the FPZs will not violate the U.S.-Israeli FTAA export subsidies commitment. 7. Protection of U.S. Intellectual Property

Standards of Intellectual Property Rights (IPR) protection are adequate, but enforcement in some areas is weak. U.S. industry has complained that Israeli companies violate intellectual property rights by illegal duplication of video cassettes. Unauthorized showings of films and television programs by unregulated cable television systems has been reduced to some extent as legal cable services become available throughout the country. Legislation is currently being drafted to improve copyright protection in cable television broadcasts. This law provides for binding arbitration as the appropriate remedy for disputes over broadcast rights. 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.

Protection for software has been upgraded, and the two major movie distribution chains generally comply with copyright requirements. The Government of Israel

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hopes to pass a general overhaul of the copyright law in early 1995 to correct weak-
nesses in status quo protection of IPR. Israeli patent law contains overly broad li-
censing provisions concerning compulsory issuance for dependent and non working
patents. Israel is a member of the Paris Convention for the Protection of Industrial
Property, the Universal Copyright Convention, and the Berne Convention for the
Protection of Literary and Artistic Works. Further, as a signatory of the GATT Uru.
guay Round and World Trade Organization (WTO) agreements, including the Agree-
ment on Trade Related Aspects of Intellectual Property Rights (TRIPS), Israel is in
the process of making all legal and regulatory revisions necessary to meet all GATT
TRIPS requirements.
8. Worker Rights

a. The Right of Association.— Israeli workers may join freely established organizations of their choosing. Most unions belong to the General Federation of Labor in Israel (Histadrut) and are independent of the government. In 1994 about 70 percent of the workforce, including Israeli Arabs, are members of Histadrut trade unions

, and still more are covered

by Histadrut's social and insurance programs and collective bargaining agreements. Non-Israeli workers, including the approximately 57,000 nonresident Palestinians from the West Bank and Gaza currently working legally in Israel, may not be members of Israeli trade unions, but are entitled to some protections in organized workplaces. The right to strike is exercised regularly

. Unions freely exercise their right to form federations and affiliate internationally.

b. The Right to Organize and Bargain Collectively:-Israelis fully exercise their legal right to organize and bargain collectively. While there is no law specifically prohibiting anti-union discrimination, the Basic Law against discrimination could be cited to contest discrimination based on union membership. There are currently no export processing zones, although the Knesset has passed legislation authorizing creation of free processing zones, as discussed in section 6.

c. Prohibition of Forced or Compulsory Labor.--The law prohibits forced or compulsory labor, and neither Israeli citizens nor nonresident Palestinians working in Israel are subject to such practices.

d. Minimum Age for Employment of Children.-By law, children under the age of 15 may not be employed. Employment of those aged 16 to 18 is restricted to ensure time for rest and education. Israeli labor exchanges do not process work applications for West Bank or Gaza Palestinians under age 17. Ministry of Labor inspectors en. force these laws, but advocates of children's rights charge that enforcement is inadequate, especially in smaller, unorganized workplaces.

e. Acceptable Conditions of Work.- Legislation in 1987 established a minimum wage at 45 percent of the average wage, calculated periodically and adjusted for cost of living increases. Union officials have expressed concern over enforcement of minimum wage regulations, particularly with respect to employers of illegal nonresident workers. Along with union representatives, the Labor Inspection Service enforces labor, health, and safety standards in the workplace. By law, maximum hours of work at regular pay are 47 hours per week (8 hours per day and 7 hours the day before the weekly rest). The weekly rest must be at least 36 consecutive hours and include the Sabbath. Palestinians working in Israel are technically covered by the laws and collective bargaining agreements that cover Israeli workers.

Extent of U.S. Investment in Selected Industries.-U.S. Direct

Investment Position Abroad on an Historical Cost Basis-1993

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Total Manufacturing

Food & Kindred Products
Chemicals and Allied Products
Metals, Primary & Fabricated
Machinery, except Electrical
Electric & Electronic Equipment
Transportation Equipment

Other Manufacturing
Wholesale Trade .....
Banking .....
Finance Insurance Real Estate

(1) (1) 17 834

3 (1)

25 0 202

Extent of U.S. Investment in Selected Industries.-U.S. Direct Investment Position Abroad on an Historical Cost Basis—1993—Continued

[Millions of U.S. dollars)

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Income, Production and Employment:

Real GDP (1985 prices) 2
Real GDP Growth (pct.)
GDP (at current prices)?
By Sector:

Agriculture ....

Financial Services
Other Services
Government Health

Net Exports of Goods & Services
Real Per Capita GDP (1985 base)
Labor Force (000s)

Unemployment Rate (pct.)
Money and Prices (annual percentage growth);

Money Supply (M2)
Base Interest Rate 3
Personal Saving Rate
Retail Inflation
Wholesale Inflation
Consumer Price Index
Exchange Rate (USD/JD)

Balance of Payments

and Trade: Total Exports (FOB)

Exports to U.S.
Total Imports (CIF)5

Imports from U.S.
Aid from U.S.
Aid from Other Countries
External Public Debt .....
Debt Service Payments (paid)
Gold and Foreign Exch. Reserves
Trade Balance

Trade Balance with U.S.


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NIA-Not available. 1 1994 figures are estimates based on IMF targeta


6.3 3,321.0 369.3

50.0 206.1 7,804.7

490.2 1,501.7 -2,280.4

- 363.0


10.2 3,435.1 436.1

90.0 198.8 7,750.1

612.6 1,337.3 -2,485.3

- 425.9


11.3 3,550.0

470.0 120.0

347.0 6,500.0

400.0 2,155.7 -2,450.0


87-414 O



GDP at producers' prices. * Average rediscount rule. * Actual exchange rate. * Merchandise trade. 1. General Policy Framework

The Jordanian economy experienced sustained growth in domestic output in 1993–94. GDP increased by 5.8 percent in 1993, with the rate of investment to GDP stabilizing at 30 percent. For 1994, the IMF forecasted GDP growth at 5.5 percent. The construction sector has continued to dominate economic activity, while the financial, manufacturing, agricultural and trading sectors have also expanded. Overall, the Jordanian economy responded positively to the structural adjustment program formulated by the Government of Jordan and the IMF in 1992.

The government is beginning to adjust its economic policies in response to recent progress in the peace process. It is in the second year of implementation of a fiveyear Economic and Social Development Plan for 1993-97, but is now considering amendments to account for Jordan's peace treaty with Israel and plans for cooperation on economic issues with the Palestinian Authority.

In May 1994, the government entered into a three-year Extended Fund Facility with the IMF that requires a variety of sectoral policy reforms. Under this program, the government projects annual GDP growth will reach 5.5 percent, the annual inflation rate will 'fall below

percent, the current account deficit will decline to 9.7 percent of GDP and Central Bank reserves will rise to the equivalent of 2.4 months of imports, or 665 million dollars. To sustain development and reach these targets, the government has announced that increased public and private sector sav. ings and sustained investment levels are key priorities.

In January 1994, the government announced its intention to adopt an agenda of economic reforms affecting the legal environment of doing business in Jordan. The government plans to introduce a new investment law, amend the customs and income tax laws, harmonize the General Sales Tax with customs duties and simplify tariff schedules. In addition to reforming the civil service system, the government also plans to limit the growth of the public sector by freezing hiring during 1995.

As for monetary policy, the Central Bank of Jordan announced in July that it would begin exercising indirect control over the banking system through the use of dinar-denominated certificates of deposit. It also has encouraged holdings in dollardenominated CD's by offering interest at two points above the London Interbank Of. fered Rate (LIBOR), a move intended to enhance reserves and discourage capital flight. The Central Bank also plans to streamline its handling of deposit facilities and credits. By early 1995, it will eliminate commercial bank deposit requirements and no longer compel local banks to adhere to credit/deposit ratios. The Central Bank has not fully eliminated the double reserve requirement on interbank deposits, but has announced its intention to simplify its oversight of this market. 2. Exchange Rate Policies

The Central Bank regulates foreign currency transactions in Jordan and sets the banking system exchange rate. It also restricts moneychangers to dealing within a specified range of buying and selling rates. On October 13, 1994, the average exchange rate was one dinar equals USD 1.43, one cent lower than the average rate in 1993. The Central Bank has announced that it will not float the dinar despite its application to the IMF for assistance in implementing a system for partial dinar convertibility. In negotiations between the Jordanian government and the Palestinian Authority, the Central Bank has sought to assure West Bank residents holding dinars of the currency's continued stability. 3. Structural Policies

Pricing Policies: In general, market forces set prices. However, the government imports and subsidizes the prices of basic foodstuffs such as cereals, sugar, milk and frozen meat. It also controls the prices of other pon-strategic commodities such as automobile spare parts, construction materials, household cleaning materials and food and beverage served in restaurants. The Ministry of Supply may intervenc and set a maximum price ceiling on any consumer commodity. It operates a ration card system for consumer purchases of sugar, rice and milk for citizens whose monthly income is less than 715 dollars. Subsidized prices and controls have no impact on Jordanian imports of U.S. food staples. The Ministry of Supply has submitted a proposal to the Cabinet to eliminate price controls on non-subsidized, non-strategic commodities and limiting food subsidies to employees in the civil service and the military.

Tax Policies: The government remains dependent on customs duties and import taxes as its primary source of domestic revenue, which it collects on all imports. To stimulate export production, import tariffs are low for many raw materials, machin

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