Tuesday, 03 Dec 2013
Overseas Business Risk - Israel
Political and Economic
The state of Israel declared its independence on 14 May 1948. Israel is governed by a democratically elected parliament with a traditionally high participation in elections. The head of state is the President, elected by parliament to serve a 7 year term, however power tends to lie with the Prime Minister and the Cabinet. Over the past 30 years no single party has gained a majority in the 120 seat parliament so Israel has been ruled by a succession of coalitions. Israel has been an associate member of the European Union since 1995 and became a full member of the OECD in 2010.
Israel’s armed forces occupied the West Bank, the Syrian Golan Heights and the Gaza Strip (along with the Sinai Peninsula) in 1967. Israel subsequently withdrew from Sinai in 1982 and from Gaza in 2005, but has formally annexed East Jerusalem and the Golan Heights. This has not been recognized by the international community, including the British Government, which considers all territory captured by Israel in 1967 as occupied and the status of Jerusalem as the capital of Israel as subject to negotiations with the Palestinians.
The Israeli economy functions like those in Western Europe, and Israel's gross national product of $31,800 per capita exceeds those of several EU Member States. It is a highly developed western orientated market whose business methods are comparable with much of Western Europe.
Israel is a technologically advanced market economy with rapidly developing high-tech and service sectors. In 2010 Israel had the 24th largest economy in the world, and ranks 17th among 187 world nations on the UN's Human Development Index, which places it in the category of "Very Highly Developed".
Relatively poor in natural resources, the Israeli economy depends on imports of petroleum, coal, food, uncut diamonds and production inputs. The country's near total reliance on energy imports may change with recent discoveries of large natural gas reserves off its coast. Israel is a world leader in software, telecommunication and semiconductors development. With Israel’s strong economic performance in terms of GDP growth, low inflation and a dropping unemployment rate, it continues to be a growing market for UK companies.
The UK Government is deeply committed to promoting our trade and business ties with Israel and strongly opposes boycotts.
Business and Human Rights
Israel enjoys a strong entrepreneurial culture which nurtures and develops new ideas, making Israel a technology powerhouse. Israel has a high density of start-ups and many of the major technology companies, such as Google, Microsoft and Motorola, have their R&D centres in Israel. Many factors contribute to the success of Israel’s technology industries including: co-operation between academia and business through university Technology Transfer Offices, the ability to commercialise from the defence industries to the civilian market, an entrepreneurial start-up spirit coupled with a powerful VC community, and a highly skilled and motivated workforce. Israel’s total number of patents granted positions it first place world-wide in patents per capita, and number four in the world in the absolute number of patents approved.
The UK has a clear position on Israeli settlements: The West Bank, including East Jerusalem, Gaza and the Golan Heights are territories which have been occupied by Israel since 1967. Settlements are illegal under international law, constitute an obstacle to peace and threaten to make a two-state solution to the Israeli-Palestinian conflict impossible. We will not recognise any changes to the pre-1967 borders, including with regard to Jerusalem, other than those agreed by the parties.
There are therefore clear risks related to economic and financial activities in the settlements, and we do not encourage or offer support to such activity. Financial transactions, investments, purchases, procurements as well as other economic activities (including in services like tourism) in Israeli settlements or benefiting Israeli settlements, entail legal and economic risks stemming from the fact that the Israeli settlements, according to international law, are built on occupied land and are not recognised as a legitimate part of Israel's territory. This may result in disputed titles to the land, water, mineral or other natural resources which might be the subject of purchase or investment.
EU citizens and businesses should also be aware of the potential reputational implications of getting involved in economic and financial activities in settlements, as well as possible abuses of the rights of individuals. Those contemplating any economic or financial involvement in settlements should seek appropriate legal advice.
We understand the concerns of people who do not wish to purchase goods exported from Israeli settlements in the Occupied Palestinian Territories. It was in order to enable consumers to make a more fully informed decision concerning the products they buy that, in December 2009, the Department for Environment, Food and Rural Affairs (Defra) introduced voluntary guidelines to enable produce from Israeli settlements in the Occupied Territories to be specifically labelled as such. See on the labelling of produce grown in the Occupied Palestinian Territories.
Since 1 February 2005, products produced in Israeli settlements are not entitled to benefit from preferential tariff treatment under the EU-Israel Association. On 3 August 2012, the European Commission published a revised Notice to Importers (see OJ C 232 page 5) concerning imports from Israel into the Union, including a revised list of non-eligible locations.
Bribery and Corruption
Businessman working at a computer
Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.
In addition, a commercial organisation operating a business in the UK can be liable for the conduct of a person who is neither a UK national nor resident in the UK, or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.
Israel recently ratified the OECD Convention on Combating Bribery of Foreign Officials in International Business Transactions. In July 2008 an amendment to the Israeli Penal Law incorporated the offence of bribery of a Foreign Public Official (Section 291A to the Israeli Penal Law 5737-1977). The offence prohibits bribery of a foreign public official for the purpose of obtaining, assuring or promoting a business transaction, directly or indirectly. Directly, for example, by bribing a foreign public official who can influence the decision regarding the conclusion of the transaction. Indirectly, for example, by giving a bribe for vicarious promotion of the business activity, or by paying a foreign public official for unlawful disclosure of information intended to provide the briber with an advantage in obtaining a business transaction.
An individual who commits such an offence may face criminal prosecution in an Israeli court of law. In the case of a corporation, the corporation itself, as well as the individuals involved, may face criminal prosecution.
The maximum penalty set for the offence of bribery of a foreign public official is seven years imprisonment and a fine of approximately NIS 1,100,000 for an individual and approximately NIS 2,200,000 for a corporation, or four times the benefit obtained by or intended to be obtained by the offence, whichever is higher.
For the latest advice on the risk of terrorism in Israel, please see the Foreign and Commonwealth Office travel advice.
Protective Security Advice
In general Israel is considered a safe place to do business and foreign business people are warmly welcomed. Israel now ranks 35th on the World Bank’s Ease of Doing Business index, with a particularly high ranking for protecting investors (6), obtaining credit (13), resolving insolvency (35) and starting a business (35).
For the latest travel and security advice, please see the Foreign and Commonwealth Office’s travel advice.
In Israel intellectual property rights fall under the aegis of the Ministry of Justice. Information can be found on the Ministry’s website.
Israel grants copyright protection to original literary, artistic, dramatic and musical works, as well as sound recordings and computer programs. Israel is a member of the Bern Convention on the Protection of Literary and Artistic Works and the Universal Copyright Convention and is also a signatory to the TRIPS Agreement. Accordingly, Israeli copyright law provides protection for foreign works in accordance with the provisions of these conventions. Israel's updated Copyright Act came into effect in May 2008.
Trademarks may be registered in Israel through the Patent and Trademarks Authority. The registration process entails filing of an application, payment of filing fees, examination by the Authority, publication, and possibly opposition. A valid registration accords the owner the exclusive right to use the trademark in respect of the goods or services for which it was registered. Under Israeli law, a trademark registration is valid for 10 years from the date of the trademark application. The registration may be renewed for further periods of 10 years each. Israel is a member of the Madrid Protocol; legislation implementing its provisions has been enacted accordingly, allowing for the filing of international trademark applications in Israel.
The Israeli Patent Authority grants patents for inventions which are new, useful, non-obvious and include an inventive step. Patents are available for products or processes in any field of technology. The term of patent protection is twenty years from the date of application.
Useful facts about patent filing in Israel:
Official languages: English and Hebrew
Average duration of a pending application: 3 – 5 years
International agreements: Israel is a member of the Paris Convention and a member of the PCT (Patent Cooperation Treaty)
Opposition to applications: following examination patents are published in the official Israeli Patent Journal and a 3 month opposition period commences. If no opposition is filed/and as long as any opposition is rejected, a patent will be granted
Design protection is available in Israel for original, previously unpublished designs of objects. Protection is granted for five years and may be renewed for two further terms of five years, for a total of 15 years. Design protection is important as Israel's copyright law denies copyright protection for the design elements of industrial articles.
Under Israeli law a trade secret is any information, the confidentiality of which provides its proprietor with an advantage over his competitors. Client lists, business plans and business ideas are examples of such information. Under the Commercial Torts law, a court may award statutory damages of up to NIS 100,000 to a successful plaintiff in a trade secret appropriation action.
There is very limited evidence of serious organised crime in the West Bank. There is some evidence of organised vehicle thefts being committed in Israel with the stolen vehicles being recycled in the West Bank, and the associated insurance pay-offs occurring in Israel.
As elsewhere, there is a drugs problem in the West Bank and Gaza. These are generally cannabis based drugs and to a lesser degree ‘designer’ drugs, such as ecstasy, and some harder drugs e.g. cocaine and heroin. This is reflected in the Palestinian prison population, whose drug-related inmate ratio is comparable to Europe.