In Boost to Online Shopping, Israel Takes Aim at Import Barriers

Economy Minister Naftali Bennett tells the story of a colleague who bought his son a puzzle on the Internet for $10 (less than NIS 40). In Israel, Bennett noted, the same item costs NIS 170 - after a 30% discount.

A Finance Ministry official who did not want to be identified tells another tale of consumer woe. "I wanted to buy speakers and went to compare prices. They cost $200 on Amazon, while the cheapest in Israel were NIS 3,500 [about $950].”

Another talks of stocking up on Gillette shaving products - enough to last him until his next trip - every time he goes abroad. "Prices overseas are 50% lower than in Israel," he gripes.

The personal experience of government officials no doubt has contributed to a new drive by the finance and economy ministries to battle import monopolies - companies that hold the exclusive rights to bring in and distribute a particular brand or product. According to preliminary studies, their hold on thousands of popular brand-name products means they can charge high prices and generate profits of hundreds of percent at the expense of consumers.

"There are large importers who have specialized in creating regulatory import barriers to prevent competition," says one member of a committee set up by Bennett and Finance Minister Yair Lapid, charged with removing a host of import barriers. Headed by Economy Ministry Director General Amit Lang, the committee works under the auspices of the cabinet group chaired by Bennett and tasked with lowering the cost of living.

Keeping eBay at bay

"There are importers who created import barriers to prevent companies like Amazon and eBay from selling directly in Israel," the committee member charges. "We aim to identify these barriers and remove them, one by one. I don't know if Amazon wants to open a logistics center in a market this size, but we'll make sure that, if it does, there won't be regulatory barriers preventing this."

According to the committee member, there are standards preventing the import of electrical devices with American-style plugs, and another barrier requiring the manufacturer to provide instruction booklets in Hebrew.

"Anyone selling in Israel today is required to meet regulations concerning spare-parts inventories, warranties and unique Israeli standards," he said. "The Israeli consumer is mature enough to decide if he wants to buy a television at a third of the price without a warranty, or go into a local store, pay three times the amount and receive a warranty where it isn't always clear what's included."

The Lang panel is scheduled to submit its recommendations within six months, but on the subject of personal imports it has been asked to make recommendations within six weeks. One of the committee's goals is to accelerate the growth rate of electronic commerce in Israel.

"In Israel, just 5% of commerce is carried out over the Internet, while in other countries it stands at 15% to 20%," according to a senior committee official. "Identifying the reasons that electronic commerce is depressed in Israel, managing in several steps to remove barriers, and seeing a considerable jump in trade will mean success.” One thing he says will be checked is the procedure for bringing personal imports through customs, which often unexpectedly raises the prices on items.

The cost of living cabinet committee also decided to charge the Economy Ministry with taking into consideration competition and the cost of living when setting import duties.

There has to be a balance

"We won’t agree to anyone making insane monopolistic profits receiving protection through import duties," says a participant in the group's deliberations. "There needs to be a balance, which we've put into the new duties procedure."

The commissioner for import duties is currently required to examine mainly import prices and, if these are low enough to hurt local industry, under certain conditions he can recommend imposing duties.

Until now, the commissioner was only required to consult the panel on import-dumping duties but, following the cabinet's decision, will also need the committee's input on any new duties whatsoever. Also, he won't be able to continue relying solely on figures presented by a complainant – as was the case until now – but will be required to conduct a thorough examination of his own.

Likewise, before any decision taken by the finance and economy ministers on this subject, they will seek advice from the antitrust commissioner concerning its effect on competition.

The idea is to make it harder for the state to impose import tariffs, according to Bennett. Protecting local industry will be weighed against cost of living considerations and consumer interests, he added.

Pointing out that half the country's workforce earns less than NIS 6,600 a month, Bennett said: "Folks are leaving Israel because it's simply too expensive here." He explained that hundreds of barriers must be removed to allow imports to flow unimpeded and compete with existing products.

"While over the last decade the national product grew by 24%, real [inflation-adjusted] salaries rose by just 2%," said Lapid. "The middle class is asking itself why it doesn't see anything from all that's produced this entire decade. We are committed to lowering the cost of living and we'll go product by product, store by store, until we do."