Netanyahu Seeks Compromise on Preference for Local Goods

Critics say the plan, motivated by COVID-related joblessness, will make local industry less competitive and undermine innovation

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Prime Minister Benjamin Netanyahu and Finance Minister Yisrael Katz tour the Gilro factory in Bet Shemesh, August 12, 2020.
Prime Minister Benjamin Netanyahu and Finance Minister Yisrael Katz tour the Gilro factory in Bet Shemesh, August 12, 2020. Credit: Amit Shabi

Faced with competing demands of bringing back jobs and ensuring that Israel’s high cost of living and low labor productivity don’t worsen, Prime Minister Benjamin Netanyahu has been moving ahead with plans for the government to give more preference for locally made goods.

With Israel’s broad unemployment rate over 20% due to the coronavirus crisis, many government and business leaders insist that buying more “blue and white” would help create jobs and provide a lifeline to struggling businesses.

“The economy is in the midst of an employment crisis, which in addition to help for businesses to survive, requires government intervention with operative steps that will increase demand and enable workers to go back to their jobs,” said Dubi Amitai, chairman of the Presidium of Israeli Business Organizations.

But the Finance Ministry is opposed to the plan, estimating that blue-and-white preferences will cost the economy 1.3 billion shekels ($390 million) annually and have the perverse effect of making local industry less competitive. The Organization for Economic Cooperation and Development, it noted, opposed local preferences.

The Competition Authority is also opposed. “Broad protections against competition not only raises the cost of living but also undermines one of the main engines of efficiency and innovation, thus harming local productivity,” Michal Halperin, its head, warned in a recent opinion.

The Economy and Industry Ministry, on the other hand, supports preference. Avi Simhon, Netanyahu’s chief economic adviser, said he opposed the idea in principle but would support it for a limited period to help the Israeli economy cope with the coronavirus crisis.

Faced with differing opinions, Netanyahu ordered the sides to reach a compromise and the result is a plan that was hammered out by all the sides that satisfies the treasury to an extent. Netanyahu met with Arnon Bar-David, the Histadrut labor federation chairman, last week without telling Finance Minister Yisrael Katz, TheMarker has learned.

The plan has the support of some business groups but is firmly opposed by the Manufacturers Association of Israel. The association, which comprises Israel’s biggest industrial companies, calls it “bad and empty of content.”

Ministries currently award contracts to locally made goods even if they are 15% more expensive than competing imports. Under the original proposal to expand preferences, which the manufacturers have been lobbying for together with the Histadrut, the preference would be expanded to include local authorities and municipal corporations, health maintenance organizations, hospitals, mixed bidding processes for goods and services and main contractors for big infrastructure projects.

Last week, the Manufacturers Association launched an advertising campaign featuring 46 mayors belonging to Netanyahu’s Likud party calling for the original proposal to be adopted.

The compromise, whose terms were abstained by TheMarker, will allow only local authorities, municipal corporations and mixed bidding processes to give preference to blue and white bids. However, it will not allow them to award contracts that are up to 15% more expensive than overseas bids, but will allow Israeli bidders to resubmit to meet their foreign competitors’ price. The preference would be open-ended rather than for a one-year time frame as originally proposed in the compromise document.

Not only are Israel’s HMOs exempt for the preference rules under the compromise plan, but the Health Ministry has been free to go with the lowest bidder since the onset of the coronavirus crisis in order to give it more flexibility in awarding contracts.

As to giving blue and white preference in big infrastructure contracts, the compromise proposes handing over the decision to a government committee. The treasury remains opposed to the idea, saying it will raise costs and cause delays in executing projects.

The compromise also calls for launching a public campaign encouraging Israelis to buy locally made products and services.

Although Amitai supports the compromise, the Manufacturers Association has attacked it.

“The government doesn’t understand that the main issue today is employment. The public believes that taxpayer money should stay in Israel,” said Ron Tomer, the association’s chairman, calling for Netanyahu to adopt the original proposal. “The current plan is wrapping for an empty present.”

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