Will retailers pass along their savings from the elimination of duty on clothing to the customer?
Will retailers pass along their savings from the elimination of duty on clothing to the customer? Photo by David Bachar
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Retail prices on imported clothing are expected to decline soon as a result of the repeal of customs duties on most apparel categories, effective from January 1.

Most industry figures agree that at least some of the reduction in wholesale prices will be passed on to consumers, although the extent of the impact on price tags is a matter of controversy. In any case the change will probably not affect items already in stock, which were delivered when the 12% customs fee was still in force.

The repeal, which Finance Minister Yuval Steinitz signed in September, does not include underwear or bathing suits. The measure followed the removal of import duties on other clothing items and certain fabrics.

Customers of the Fox fashion chain will start paying lower prices by the middle of next month according to Fox Group CEO Harel Wizel. "The elimination of the customs duties was taken into consideration when we priced our summer collection, which is launched in February. With the repeal of duties about a year ago, we priced the relevant items at lower prices and as proof, our gross profit has not increased. Now, too, we are acting in the same way too," Wizel said.

A senior executive at another local clothing-store chain, who did not want to be identified for this article, said he thought retail prices would only drop by about 3% as a result of the repeal of the import fee. "The 12% cut is on the price paid by the company, not the price to the consumer. The new prices will be felt in the coming months, when we bring new merchandise to the stores. There are also other countervailing factors like whether value added tax will increase again," he said. "We'll see what happens after the election and how prices will be affected."

Figures in Israel's textile industry expressed deep dissatisfaction with the repeal, saying their revenues will be severely affected by the boon to importers. Last week the High Court of Justice rejected a demand by local manufacturers to issue a temporary injunction against the customs repeal, although the court is to consider the petition at a later date.

"The government doesn't take Israeli companies into consideration," said Yehoshua Mausner. Mausner Fashion, which he owns and operates together with his wife, Rivka Mausner, has 13 women's clothing boutiques around Israel. "We can't compete with prices in the Far East and there are few Israeli manufacturers like us left," Mausner said, adding, "Now the competition will be that much more insane and unfair."

Another senior industry executive, who did not want to be named, said he does not believe consumers will benefit from the repeal of customs duties. "Prices won't go down. All of the chains have absorbed the increase in VAT tax last year [from 16% to 17%] and increases in rent, electricity, municipal taxes and personnel expenses. At the same time, prices also declined because of the entry into the market of international chains, so we can't go any lower," he said.

"Clothing prices in Israel are lower than in [the rest of] the world," he continued. "I won't pass along the repeal of the duty to the consumer and I think the other chains will handle it like I am. Anyone who talks about reducing prices is saying it because it sounds good and actually it will be impossible to track it and know what the price of the items would have been if the duties had not been repealed," he claimed.

"With respect to prior reductions in customs on products such as entertainment electronics, refrigerators and air conditioners, prices did not go down immediately but over time there absolutely was a price reduction, " said Gill Nadel, a lawyer specializing in international imports and exports.

"As it appears at the moment, the repeal of the duties will remain in place and the fact that the court did not issue a temporary injunction sends the message that the court will apparently support the government's economic policy."