Israeli Free-trade Zone Wins Support of Finance Minister

Advocates of free enterprise in Israel have won a crucial victory in their battle to create a tax-exempt industrial park.

Israeli Finance Minister Avraham Shohat this week announced he supports the plan and will submit the necessary legislation to the Knesset.

Shohat’s decision has pleased American Jewish investors sponsoring the project, who say their plan will create 20,000 jobs badly needed by Israel.

If the plan overcomes the substantial remaining hurdles — including approval by the Knesset — it will create a manufacturing enclave in which Israel’s voluminous tax and labor regulations would not apply.

“What has happened is a miracle,” said Robert Lowenberg, president of the Institute for Advanced Strategic and Political Studies, a Jerusalem-based think tank that promotes free-market economics and provided the idea for the project.

“Israel has a rather thick bureaucracy,” said Sy Syms, who heads the New York-based Israel Export Corp. sponsoring the project and is a former chairman of the State of Israel Bonds organization.

“It’s a question of whether or not the ministers and bureaucrats in the government can see the good and welfare of creating free export zone jobs,” said Syms, chairman of Syms Corp., the New York-based clothing retailer.

Shohat’s endorsement of the project came in the face of opposition from senior officials in his ministry and the Bank of Israel.

He apparently rejected fears that the zone would create unfair pressures on local industries, and would offer unfair benefits to its investors at the expense of regular investments in the Israeli economy.

Proponents of the free-trade zone argue that foreign investors currently receive benefits that outweigh the tax revenue Israel eventually collects from them.

AT LEAST 30 U.S. FIRMS INTERESTED

The Israeli government would make no investment in the proposed zone and would collect no taxes from it other than income taxes on those employed there.

“Many (existing Israeli) industries are not profitable,” said Larry Silverstein, one of the 27 investors in the Israel Export Corp. “They require enormous subsidies to keep them running. It’s a methodology that’s terribly wasteful.”

Under the plan, the Israel Export Corp. would purchase several hundred acres of land, on which it would build an industrial park.

The corporation would finance the infrastructure, including roads, buildings, electricity and communications facilities for the park. It would then rent out space and facilities to other companies, which would manufacture for the export market.

“Thirty to 40 American companies have expressed interest,” said Syms, who said he envisioned a mixture of 80 percent biomedical and other high-technology firms and 20 percent apparel manufacturers in the park.

The total investment in the zone is estimated at $750 million. The investors promise that within 14 months, they will create 20,000 jobs.

The investors, who include real-estate magnate Robert Tishman, New York financier Ludwig Jesselson and Cleveland industrialist Morton Mandel, a former president of the Council of Jewish Federations, say that behind the investment lies another form of Zionism.

“This would be a profit-making venture, but the real rationale is that this is the State of Israel. We’ve all been so deeply involved in the fabric of the Jewish community for many, many decades. This is something we feel firmly about,” said Silverstein.

COULD LEAD TO ‘MASSIVE EXPORT GROWTH’

For decades, American Jewish business executives have tried to do business in Israel, only to be discouraged by the bureaucratic hurdles.

As philanthropists, these same executives have raised their concern with Israeli leaders in meetings of the Council of Jewish Federations and other groups. But the reforms, in such areas as privatization of government-owned companies, seldom came as swiftly as promised.

Improving Israel’s economy by reforming it is the goal of the Institute for Advanced Strategic and Political Studies, which is headed by Alvin Rabushka, a fellow at Stanford University’s conservative Hoover Institute.

A study issued by the institute last year said that a free-trade zone would “foster prospects for massive export growth along the lines of the success stories of Hong Kong, Singapore, Taiwan and Korea.”

But beyond the immediate growth prospects, the report said that in other countries, the effects of the zones “gradually percolated through the economy, reinforcing competitive and liberalizing tendencies.”

This was the seed of the current free-trade zone proposal, although another plan had been proposed in 1989 by Knesset member Amir Peretz of the Labor Party.

“Basically, it was the group of lay people who were on the board of the institute that got so excited about the concept that they decided to put it into practice,” said Michael Papo, executive director of the San Francisco-based Koret Foundation, which funds the institute.

(Contributing to this report was JTA correspondent David Landau in Jerusalem.)

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