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RESTRICTED WT/TPR/G/376 12 June 2018 (18-3634) Page RESTRICTED WT/TPR/G/376 12 June 2018 (18-3634) Page: 1/19 Trade Policy Review Body Original: English TRADE POLICY REVIEW REPORT BY ISRAEL Pursuant to the Agreement Establishing the Trade Policy Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the World Trade Organization), the policy statement by Israel is attached. Note: This report is subject to restricted circulation and press embargo until the end of the first session of the meeting of the Trade Policy Review Body on Israel. WT/TPR/G/376 • Israel - 2 - Contents 1 THE ISRAELI ECONOMY: RECENT DEVELOPMENTS ...................................................... 3 1.1 Main Developments ..................................................................................................... 3 1.2 Foreign Trade.............................................................................................................. 5 1.3 Israel's Monetary Policy ................................................................................................ 9 1.4 Employment and the Labour Market ..............................................................................10 2 FOREIGN INVESTMENT .............................................................................................. 10 3 STRUCTURAL AND SECTORAL REFORM INITIATIVES ................................................. 11 3.1 Main Initiatives ..........................................................................................................11 3.2 Reducing the Regulatory Burden and Regulatory Impact Assessment (RIA) .......................11 3.2.1 Regulatory impact assessment ..................................................................................12 3.2.2 Standardization .......................................................................................................12 3.3 Antitrust and Competition ............................................................................................12 3.4 Digital Israel ..............................................................................................................14 4 TECHNOLOGICAL INNOVATION ................................................................................. 14 4.1 Research and Development .........................................................................................14 4.2 Israel NewTech ..........................................................................................................16 4.3 Digital Health .............................................................................................................16 5 ISRAEL'S TRADE POLICY ........................................................................................... 16 5.1 Introduction ...............................................................................................................16 5.2 Trade Policy ...............................................................................................................17 5.3 WTO .........................................................................................................................17 5.4 Bilateral Trade Agreements ..........................................................................................18 5.5 Unilateral Trade Liberalization ......................................................................................19 5.6 Conclusion .................................................................................................................19 WT/TPR/G/376 • Israel - 3 - 1 THE ISRAELI ECONOMY: RECENT DEVELOPMENTS 1.1 Main Developments 1.1. The State of Israel is an open, industrialized democracy. Since 1990, Israel has seen improvements in most economic indicators. Gross Domestic Product ("GDP") increased on average by 3.3% annually from 2012 through 2017. This rate has exceeded the average growth rate of many advanced economies. 1.2. The Israeli economy grew at a healthy pace in 2017 as consumption has led the economic growth in recent years and is expected to contribute to growth in the medium term. In the first quarter of 2017, GDP increased at an annual rate of 1.1% (as a result of a correction due to large scale car purchases in fourth quarter of 2016), however, it followed by an increase at an annual rate of 3.1%, 3.9% and 3.6% in the second, third and fourth quarters of 2017, respectively. In addition to GDP, there were significant improvements in the labor market with a notable decrease in the unemployment rate and an increase in the participation rate. In 2017, GDP per capita stood at a level of $36,250, ranking Israel 23rd among OECD countries. GDP is expected to grow by 3.4% in 2018 and by 3.5% in 2019, according to the Bank of Israel's forecast. 1.3. Since 1990s, Israel’s fiscal and monetary policies have been formulated and coordinated with the overarching goals of enhancing economic growth, reducing tax burden, narrowing the Government’s fiscal deficit, and maintaining low levels of inflation. The efforts made by the Government to reduce the cost of living in Israel have also influenced the rate of inflation (year- end compared to previous year end), which stood at 0.4% in 2014, -1.0% in 2015, -0.2% in 2016 and 0.1% in 2017. Figure 1. CPI Inflation Rate (Year end- compared to previous year end) Figure 1: CPI Inflation Rate (year end- compared to previous year-end) 5.0% 3.9% 4.0% 3.8% 3.4% 2.7% 3.0% 2.4% 2.2% 1.8% 2.0% 1.6% 1.0% 0.1% 0.0% -0.1% -0.2% -0.2% -1.0% -1.0% -2.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Israel Central Bureau of Statistics (CBS). Source: Israel Central Bureau of Statistics (CBS). 1.4. As presented below in Figure 2, since 2013, the budget deficits are maintained below the ceiling which was also lowered between 2013 and 2015. The budget deficit amounted to 2.0% of GDP in 2017, well below the budget deficit target of 2.9% for that year. WT/TPR/G/376 • Israel - 4 - FigureFigure 2.2 :Central Central government government budget budget deficit as deficit % of GDP as % of GDP 7.0% Actual Ceiling 6.0% 6.0% 5.5% 5.0% 4.8% 4.7% 3.9% 4.0% 3.5% 3.3% 3.1% 3.1% 3.0% 2.9% 2.9% 2.9% 3.0% 3.0% 2.1% 2.0% 2.7% 2.1% 2.1% 2.0% 2.0% 1.7% 0.9% 1.0% 1.5% 0.0% 0.0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: CBS, MOF. Source: CBS, MOF. 1.5. The public debt measured as percentage of GDP, which in the past was considered a substantial liability to the Israeli economy, continued to decrease gradually during the past 6 years reaching a historical low of 61.1% in 2017. This indicator was consecutively reduced every year since 2009. Figure 3. Public debt as % of GDP Figure 3: Public debt as % of GDP 105% 100% 97.9% 95.9% 95.6% 93.9% 95% 92.9% 91.3% 89.6% 90.2% 90% 88.2% 83.7% 85% Global Economic 80.2% 79.5% Crisis 80% 74.8% 75% 73.1% 72.2% 71.0% 70% 69.0%68.4% 67.0% 66.0% 63.8% 65% 62.4% 61.1% 60% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: MoF, CBS, The Chief Economist Department calculations. Source: MOF, CBS, The Chief Economist Dept. calculations. 1.6. In March 2018, the OECD published an Economic Survey1 on Israel which also addressed various aspects of the Israeli economy. The findings were summarized by the following: Israel’s economy continues to perform well both in terms of macroeconomic and fiscal outcomes. Growth has averaged 3.3% since 2000, higher than in many OECD countries. The external surplus is comfortable, and the public debt-to-GDP ratio, already well below the OECD average, is still falling. This success is largely attributed to a long history of effective macroeconomic policy settings and bold structural reforms, including the successful absorption of the wave of immigrants from the former Soviet Union, the 1 OECD (2018), OECD Economic Surveys: Israel 2018, OECD Publishing, Paris. http://dx.doi.org/18.1787/eco_surveys-isr-2018-en. WT/TPR/G/376 • Israel - 5 - promotion of venture capital financing for the nascent high-tech sector and the liberalisation of higher education, all dating back to the 1990s, as well as improvements in work incentives in the early 2000s. These good results are expected to continue, thanks to the persistently dynamic high-tech sector and the forthcoming development of new gas fields. Against this backdrop, Israelis remain on average more satisfied with their lives than residents of most other OECD countries, even though wellbeing results are mixed in several respects, including the environment. They enjoy remarkable health and labour market outcomes, with historically low overall and long-term unemployment rates. Employment growth has been the main factor reducing the gap in average living standards with the most advanced countries these last 15 years. 1.2 Foreign Trade 1.7. Exports of goods and services2 remain a crucial element of the economy's overall performance and competiveness. The Israeli exports of goods and services reached an historical high of $102.3b in 2017 compared to imports of $96.7b (a surplus of $5.7b following a surplus of $6.6b and $9.0b in 2016 and 2015 respectively). 1.8. The annual growth rate of exports of goods and services in 2017 stood at 6.4% after a growth rate of 2.9% in 2016 and a decline in 2015 of 5.9%. Services continue to constitute a large share of Israeli export and in 2017 constituted 43.3% ($44.3b) of total export, and goods constituted 56.7% ($58b) of total export (see figure 4). Export of goods grew by 3.3% and export of services grew by 10.8% in 2017. Figure 4. Exports of goods and services in millions of
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