You Can Import It, Just Don’t Call It Milk

Reams of insane government regulation on imports stifle competition and help make Israel one of the most expensive countries in the world to live in

Dan Keinan

Yet another committee devoted to examining living costs in Israel completed its assigned task last week. The Committee to Intensify Competition and Eliminate Import Barriers, chaired by Economy Ministry Director General Amit Lang, determined just how expensive it is to live here.

According to a survey of household spending from 2003-13 that was based on World Bank figures and considered household income, living costs in Israel are 18% higher, on average, than other developed nations. In only three of the 10 years surveyed were prices in Israel appropriate to income levels. In the other years, prices here were between 6% and 20% above their anticipated levels.

Interestingly, the survey included consumer goods that were imported, and whose prices should be comparable with those charged abroad. But this was not the case. Of 279 items whose prices in 31 developed states were compared, 59% were more expensive in Israel — of these, 31% were significantly more expensive. Most of the items surveyed cost more in Israel than in some of the wealthiest countries in the West — Denmark, Britain, Australia and Germany. The survey accounted for differences in sales and value-added taxes between countries.

Opening the country to imports made Israel an exporting power, allowing it to weather the 2008 global economic crisis nearly unscathed. But importshave not sufficiently contributed to reducing prices in Israel despite sweeping import reforms in the 1980s.

One result of Israel’s greatly relaxed import policy is that 70% of private consumption in Israel originates in imported goods. But with the exception of a few categories that have seen impressive price drops, such as shoes and clothing, retail prices in Israel have remained high in comparison to much of the world.

The committee concluded that this happened because regulatory and business obstacles have gradually pushed out smaller importers, leaving an ever-smaller number in control of the supply of goods. “Instead of offering a solution to the problem of economic concentration, imports have become part of the problem, further reducing competition and the range of goods available to consumers,” the committee said in its conclusions.

Unnecessary tests

How did imports, which were supposed to be a tool to boost competition and reduce economic concentration in our tiny market t, end up perpetuating the ills they were expected to ameliorate? For the answer, look not to Israeli corporate conglomerates such as Tnuva, Osem and Strauss, but rather to government agencies.

After a near-Sisyphean effort, the committee to intensify competition discovered that there are no less than 37 governmental bodies issuing import licenses, each of which sets guidelines based on perceived risks, product safety, public health and environmental risk, wrote the committee. “Naturally, when determining criteria and oversight regulations, each agency gives more weight to areas in its purview, with little or no consideration to the effect of its demands on price, competition and cost of living.”

These agencies put all their effort into protecting consumers from a product with a sharp edge or one that wastes electricity, but ignore the need to protect them from high prices.

In their zeal for protecting Israelis, a number of agencies have imposed standards and regulations that are uniquely rigid and sometimes downright absurd. For example, the Energy Ministry’s energy efficiency standards for electrical appliances are unique to Israel, requiring importers to conduct special tests to obtain permits.

The Communications Ministry, meanwhile, must approve the radio frequencies used by any imported device, including baby monitors and garage door openers. It does not maintain records of previous tests, necessitating repeat tests each time an import permit is renewed.

These follies pale beside those of the Standards Institute of Israel, the sole body authorized to determine standards and compliance. Standards are determined by a committee with professional and industry representatives. And, according to the committee to intensify competition, “local industry dominates the standards committees, precluding representation by other interested parties, such as importers or the public ... raising concerns that local manufacturers exploit their disproportionate representation on the standards committees in order to put up obstacles to imports.”

Examples? Israel must be the only developed country with an absurd prohibition against putting an image of fruit on a bottle of juice with less than 10% fruit concentrate. Since the overwhelming majority of bottles of fruit juice sold worldwide have labels picturing fruit, this regulation effectively precludes importing most fruit juices, leaving the market under the control of local producers or a few very large importers.

Similarly, the standards for playpens means that even giant companies like Ikea can’t sell these in Israel. Israel has unique standards for vehicle steering columns and brake fluids, too. In addition, imported electrical appliances must undergo electromagnetic testing, since Israel does not recognize the test carried out in the best electrical labs in the world, or by the manufacturers themselves.

Spares the grief

The Transportation Ministry allows only agents of the vehicle manufacturers to import original spare parts. Other importers are required to carry out dozens of tests to prove they are identical to the original part. Because the Health Ministry does not allow anything that was not taken from an animal’s mammary glands to be described as “milk,” importers must affix a special label to containers of soy, rice and almond milk, for example, specifying that the liquid inside is a “beverage.”

If all this sounds ridiculous, that’s because it is.

“The determination of standards by each body is not coordinated with requirements made by other bodies” says the committee. “There is no overall vision of policy objectives or considerations of competition and cost of living.

The same criteria that are used for high-risk products are applied to low-risk ones. There is no common methodology for setting procedures for lawful imports — the authorities don’t employ a uniform risk-management strategy that determines the oversight required in relation to the risk level. The documents pertaining to import regulation are not organized in an easily accessible manner in one place, so that familiarity with the requirements demands expertise and much experience.”

Knowledge and experience are basic conditions for importing, so it’s no wonder that imports are concentrated in the hands of a few giant companies. They exploit their large market share, making the lives of Israeli consumers miserable and sending them to buy their chocolate pudding in Germany, where government regulation is more effective and tidy.