Free Export Zone Will Boost Israeli Economy, Say Supporters

Get ready, Israel. The capitalists are coming.

After a two-year struggle, a group of American Jewish business executives have succeeded in obtaining Knesset approval for a Free Export Processing Zone, where foreign companies can operate free of Israeli taxation and bureaucracy.

Now, the group — the Israel Export Development Co. Ltd. — is working to sign up tenants.

Access to Israeli workers and isolation from Israeli ministries, the group promises, will create a haven for research and development, financial services and light manufacturing that can compete with similar zones from Ireland to Hong Kong.

The group expects to start building by March of next year, after a few legal and technical hurdles are overcome. David Yerushalmi, IEDC’s chairman and chief exective officer, expects the first tenants to start moving in at the end of the following year.

IEDC’s board of directors reads like a who’s-who of American Jewish business executives, real estate developers and philanthropists.

Larry Silverstein, IEDC’s president, was just named chairman of the board of directors of the United Jewish Appeal-Federation of New York. His company owns and operates over 10 million square feet of office space.

‘THIS IS NOT CHARITY’

Among IEDC’s shareholders are Laurence Tisch, chairman of CBS, and Morton Mandel, billionaire Cleveland industrialist and past president of the Council of Jewish Federations.

Sy Syms, chairman of the New York-based clothing retailer that bears his name and a vice president of the IEDC, said the project had two goals: to create jobs for Russian immigrants and to make money for the investors.

“We said, somewhat jokingly, that this is not charity. We’re ugly Americans who happen to be Jewish and like excessive profit. We can give to UJA” if charity were the goal, he said.

Looking back on the efforts to approve the zone, which culminated this summer, Yerushalmi said that “two years is a long time to fight a government bureaucracy. But two years to go from an idea thought up by a think tank, to a policy, to a draft bill, to approval by the finance minister and prime minister, to Cabinet approval and passage by the Knesset — two years for this is revolutionary,” he said.

The think tank Yerushalmi referred to is the Institute for Advanced Strategic and Political Studies, a Jerusalem-based group headed by Alvin Babushka, a senior fellow at the Hoover Institution of Stanford University.

Wielding a scalpel of free-market economics, the think tank has explained how Israel’s milk cartel results in prices for Israeli cheese being lower in New York than in Tel Aviv, and denounced American loan guarantees as propping up Israeli bureaucracy.

For Babushka, much of the appeal of the Free Export Processing Zone lay in its elimination of Israeli bureaucracy, if only from 700 acres in the northern Negev.

If, as Yerushalmi insists, the project succeds, it could put Israeli bureaucrats on the run. As now enshrined in Israeli law, companies doing business within the export zone will be exempt from customs, tariffs, foreign currency restrictions and a gamut of economic regulations.

Companies will pay no taxes, except for a flat 15 percent on profits repatriated out of the zone.

How much will this cost Israel? Yerushalmi insists that it will cost little more than most foreign investments in the country, which are heavily subsidized by the government.

Where the Israeli tax collector will benefit is from the payroll taxes, because workers in the zone will be taxed just as any other Israelis.

And employment is what the zone is about.

For the Israeli legislators who signed on to the idea, Yerushalmi talks of 15,000 people being employed when the zone completes its first stage of development, in about two-and-a-half years.

And he predicts an additional three jobs created outside the zone for each job created inside it.

“That’s an enormous benefit” in a country where double-digit unemployment translates to around 150,000 people looking for work, said Yerushalmi.

Already, he said, the company has begun seeking potential construction workers among Russian Jews who have not yet made aliyah to Israel.

And an employment firm, which has been signed up to make available hiring and payroll services to zone tenants, has begun retraining Russian engineers and software developers to meet Western standards.

Yerushalmi believes the quality of the Israeli labor force is a major selling point for the zone.

“It’s a work force that is as sharp and as good as in Silicon Valley,” said Yerushalmi, referring to the high-tech zone in Northern California, “but much less expensive and less mobile.”

For Yerushalmi, the project has ramifications not only for the well-being of Israel, but for that of the American Jewish community as well.

“We’ve been able to pull a group of men together who have always found it in their hearts and time and pocketbooks to support Israel as a charity case,” Yerushalmi said.

“We’ve been able to turn their perspective, to say: ‘Israel does have an enormous potential; it’s another one of those incredible emerging markets, that if it’s just dealt with properly, could become an absolute gold mine.”

“I would venture to say, investing in the free export zone will be the next major mode to relate to Israel” he said.