RESTRICTED
 GENERAL AGREEMENT ON                  BOP/187                        12 May 1978
 TARIFFS AND       TRADE                                         Limited Distribution
 Balance-of-Payments Committee                               Original: English
 ISRAEL - BALANCE-OF-PAYMENTS IMPORT RESTRICTIONS
 Basic Document for the 1978 Consultation¹
 1.   Legal and administrative basis of the import restrictions
 The Import, Export and Customs Powers (Defence) Ordinance,1939 provides
 the legal basis for the control and regulation, by the Government of Israel, of
 the country's foreign trade.
The Licensing of Imports Order, 1939 submits all imports to licensing.
However, the bulk of imports is now covered by the Free Imports Order, 1977 made
 by the Minister of Industry, Commerce and Tourism on 25 November 1977.
Individual import licenses, where still required, are issued by the
 "Competent Authorities" - officials designated for that purpose by the Ministers
 concerned (Industry, Commerce and Tourism, Agriculture, Transport, Health,
 Welfare, Communications and Finance).
Persons desiring to engage in the import trade must register for that
 purpose, in order to obtain an importer's number.
2.   Methods used in restricting imports
 As of 1 December 1977, the Free Imports Order permits the import of all
 commodities, except those specifically mentioned in the first annex to that
 order.  Commodities included in that annex are subject to licensing and the
 necessary import licences are issued at the discretion of the "Competent
 Authority".  In the exercise of this discretion the following points, inter alia,
 are taken into consideration:
 (a) the need to reduce the current account deficit,
 (b) the necessity to protect infant industries,
 ¹Material supplied by the Israeli authorities. BOP/187
 Page 2
 (c) programmes to safeguard agricultural incomes,
 (d) other relevant considerations of public policy covered by Article XX
 of the General Agreement.
 Foreign exchange required to pay for imports, whether covered by the
 Free Imports Order or individual licence, can now be purchased by the
 importer from "Authorized Dealers" (banks) without restriction.
3.   Treatment of imports from different sources
 Israel's foreign trade policy is based on the principle of non-
 discrimination and the "Competent Authorities" do not, in general, interfere
 in the choice of the source of supply made by the importer. Furthermore,
 Israel no longer maintains any bilateral trade agreements which would
 necessitate such interference.
The Free Imports Order specifically excludes imports from countries
 which "prohibit or limit, expressly or otherwise, the imports of commodities
 from Israel". A list of such countries was published in the Official
 Gazette on 27 January 1977. The list includes a number of contracting
 parties and is subject to review. Imports from these countries require
 individual licences.
The choice of the source of supply by the importer is at times
 influenced by the availability of credit facilities offered by the supplier
 or by banking channels in the country of origin. In addition, purchases of
 major items of capital equipment are on occasion directed to bound sources
 of finance extended as development assistance to Israel.
4.   Commodities affected by import restrictions
 The list of commodities contained in the first annex to the Free Imports
 Order 1977 and therefore subject to import licensing is included in Annex I
 to this document.
 5.   The use of State trading in restricting imports
 The Government is the sole importer of a limited number of essential
 foodstuffs and animal feeds. These imports are carried out by the Government
 Trade Administration in order to assure the orderly supply of basic
 foodstuffs at stable prices.      The Government Trade Administration
 also ensures the maintenance of adequate emergency stocks. BOP/187
 Page 3
 Particulars of its activities, including the list of commodities involved,
 the purchases effected from local sources and the quantities imported, are
 contained in Annex II. In effecting purchases from abroad, the Administration
 makes use of facilities which might be available for purchases on conces-
 sionary terms under surplus disposal schemes.
Since the last consultation, sugar imports have been removed from the
 list of State trading.
 6.   Measures taken since the last consultation in relaxing import
 restrictions
 On 28 October 1977 the Government of Israel instituted a New Economic
 Policy: relaxation of foreign exchange controls and transformation of the
 Israeli pound into a convertible currency. The previous exchange rate
 system, which involved frequent small depreciations was abandoned and
 replaced by a floating exchange rate system. Details of the new policy were
 provided to the CONTRACTING PARTIES at a meeting of the Council on
 11 November 1977 (C/M/123, page 26). The new economic policy introduces a
 liberalization programme relating to foreign trade, which includes the
 following elements:
 (a) foreign exchange control on almost all foreign trade transactions has
 been abolished;
 (b)  the import régime has been further liberalized:  the number of
 commodities still subject to licensing has been greatly reduced;
 (c)  the import licensing system has been changed substantively:  instead of
 a list of "Free Imports" there is a list of commodities subject to
 licensing;
 (d)  the temporary import surcharge of 15 per cent has been abolished;
 (e)  the scope of government imports is being reduced;
 (f)  ad valorem duties were reduced on an across-the-board basis by 20 per cent
 of the rates in force until then. Specific duties were adjusted upwards
 though to an extent much smaller than that of the effective devaluation
 of the Israeli pound;
 (g) the system of refunds of indirect taxes on exports has been abolished.
 In addition, the two remaining "bilateral" trade arrangements with Brazil and
 Portugal have been terminated. BOP/187
 Page 4
 7.   Effects of the import restriction on trade
 Final trade figures for 1976 showed a substantial trade deficit of
 US$1,771 million. In 1977, exports continued to expand but the trade
 deficit remained practically unchanged at US$1,796 million. This was due
 to a surge in imports, which increased by nearly 17 per cent - from
 US$4,076 million in 1976 to US$4,760 million in 1977 - and that at a time
 of stagnation of economic activity. (Growth in real GNP, which had
 averaged over 8 per cent prior to 1974, dropped to 0.5 per cent.) Figures
 on the structure of imports (by economic destination) included as Annex III,
 show the increase in imports fairly evenly divided amongst all categories,
 except consumer durables and machinery and equipment. As most items in
 these two categories had already been fully liberalized previously ("free
 imports"), it is obvious that the liberalization measures notified in 1976
 are now fully effective.
 8.   General policy in the use of restrictions
 A note on economic developments, policies and prospects 1976-1978 is
 attached as Annex IV to this document. A review of the government's
 general policy in the use of import restrictions for balance-of-payments
 reasons will be included by the representative of Israel in his opening
 statement. BOP/187
 Page 5
 ANNEX I
 IMPORTS SUBJECT TO LICENSING
 BTN                              DESCRIPTION
 01.02          Live animals of the bovine species
 01.04          Live sheep and goats
 01.05          Live poultry
 Ch. 2          Meat and Edible Offals (Entire chapter)
 02.02          Animals within headings 01.01, 01.02, 01.03, 01.04, fresh,
 chilled or frozen
 02.02          Dead poultry (i.e., fowl, ducks, geese, turkeys, guinea fowl)
 and edible offals thereof (ex. liver) fresh, chilled or frozen
 02.03          Poultry liver, fresh, chilled, frozen, salted or in brine
 02.04          Other meat and edible meat offals, fresh, chilled or frozen
 02.05          Unrendered pig fat free of lean meat and unrendered poultry
 fat, fresh, chilled, frozen, salted, in brine, dried or smoked
 02.06          Meat and edible meat offals (except poultry liver), salted
 in brine, dried or smoked.
Ch. 3.         Fish, Crustaceans and Molluscs
 03.01          Fish, fresh (live or dead), chilled or frozen. Entire heading
 except 03.01.4010, 0301.4030.
03.02          Fish, dried, salted or in brine; smoked fish, whether or not
 cooked before or during the smoking process. Entire heading.
Ch. 4          Dairy Products: Birds Eggs: Natural Honey. Edible products
 of animal origin, not elsewhere specified or included.
Entire chapter, except 04.02.1010
 05.04          Guts, bladders and stomachs of animals (other than fish)
 thereof, whole or pieces.
 05.05          Fish waste
 05.14          Ambergris, castoreum, civet and musk; cantharides; bile,
 whether or not dried; animal products, fresh, chilled or frozen
 or otherwise provisionally preserved, of a kind used in the
 preparation of pharmaceutical products. DESCRIPTION
 05.15
 06.01
 06.02
 06.04
 07.02
 Ch. 8
 Ch. 10
 11.01
 11.02.2020
 12.01.1000
 12.01.3500
 12.01.5500
 12.01.9900
 12.02. 1000
 12.03
 15.01
 15.02
 15.03
 15.06
 15.07
 15.07.1031
 15.07.1032
 15.07.1034
 15.07.1035
 Animal products NES or included; dead animals of Chapter 1 or
 Chapter 3, unfit for human consumption.
Bulbs, tubers, tuberous roots, corms, crowns and rhizomes,
 dormant, in growth or in flower.
Other live plants, including trees, shrubs, bushes, roots,
 cuttings and slips.
Foliage, branches and other parts (other than flowers or
 buds) of trees. Entire heading.
Vegetables (whether or not cooked), preserved by freezing.
Edible Fruits and Nuts; Melon Rinds or of Citrus Fruits.
Entire chapter, except: 08.01.30000, 08.05.2000
 Cereals. Entire chapter except: 10.04, 10.07.1000, 10.07.3000
 Cereal flours
 Crushed or ground wheat
 Poppy seeds
 Cotton seeds
 Soya beans
 Other
 Of poppy seeds
 Seeds, fruit and spores, of a kind used for sowing.
Lard, other pig fat and poultry fat, rendered or solvent-extracted.
 Fats of bovine cattle, sheep or goats, unrendered (Entire heading)
 Lard stearin, oleostearin and tallow stearin (Entire heading)
 Other animals oils and fats (Entire heading)
 Vegetable oils, not fixed, fluid or solid
 Soya bean oil
 Cotton seed oil
 Olive oil
 Sunflower seed oil
 BOP/187
 Page 6
 BTN DESCRIPTION
 15.07.1036
 15.07.1037
 15.07.1090
 15.07.9990
 15.12
 15.13
 Ch. 16
 17.01.1000
 17.01.9900
 17.04.5000
 18.06
 19.02.9900
 19.03
 19.07
 19.08
 20.07.9900
 21.03
 21.04
 21.05
 21.06
 21.07
 22.03
 22.04
 Coconut (copra) oil
 Palm oil, palm kernel oil, rape oil, colza oil and mustard oil
 Other
 Other oils and fats; other
 Animal or vegetable oils and fats, wholly or partly hydrogenated
 or solidified or hardened by any other process (Entire heading)
 Margarine, imitation lard and other prepared edible fats
 Preparations of Meat, Fish, Crustaceans or Molluscs.
Entire chapter except 16.04.2010, 16.04.3000
 Raw Sugar
 Other
 Halva
 Choclate and other food preparations containing cocoa.
Entire heading, except chocolate
 Other
 Macaroni, spaghetti and similar products.
Breads, ships' biscuits and other ordinary baker   wares, not
 containing added sugar, honey, eggs, fats, cheese or fruit.
Except 1000
 Pastry, biscuits, cakes and other fine baker's wares, whether
 or not containing cocoa in any proportion.
Other
 Mustard flour and prepared mustard
 Sauces; mixed condiments and mixed seasonings
 Soups and broths, in liquid, solid or powder form; homogenized
 composite food preparations.
Natural yeast (active or inactive); prepared baking powders
 Food preparations not elsewhere specified or included
 Beer made from malt
 Grape must, in fermentation or with fermentation arrested
 otherwise than by the addition of alcohol
 BTN
 BOP/187
 Page 7 DESCRIPTION
 22.05
 22.06
 22.08
 22.09.1000
 22.09.9900
 22.10
 23.01
 23.04
 23.05
 24.01.9900
 24.02.3000
 24.02.9900
 26.01
 27.02
 27.04
 27.06
 27.09
 27.10.1500
 27.10.2500
 27.10.3000
 27.10.3500
 27.10.4000
 27.10.5500
 27.10.6000
 27.10.9990
 Wine of fresh grapes; grape must with fermentation arrested by
 addition of alcohol.
 Vermouth and other wines of grapes flavoured with aromatic
 extracts.
Ethyl alcohol or natural spirits. Entire heading.
Compound alcoholic preparations. Entire subheading.
Other. Entire subheading.
Vinegar and substitutes for vinegar.
Flours and meals, of meat, offals, fish, crustaceans or molluscs
 unfit for human consumption.
Oil cake and other residues (ex. dregs) resulting from the
 extraction of vegetable oils.
Wine lees: argal
 Other
 Manufactured tobacco
 Other
 Lignite, whether or not agglomerated.
Coke and semi-coke of coal of lignite or of peat.
Tar distilled from coal from lignite or from peat. Entire heading.
Petroleum oils and oils obtained from bituminous minerals, crude.
Petrol. Entire subheading.
Kerosene
 Solar
 Mazut
 Diesel
 Lubricating oils
 Greases
 Other
 BOP/187
 Page 8
 BTN BOP/187
 Page 9
 BTN                               DESCRIPTION
 27.11          Petroleum gases and other gaseous hydrocarbons.
27.14.9900     Other
 27.15          Bitumine and asphalt.
27.16           Bituminous mixtures based on natural asphalt, etc. Entire
 heading.
28.04.9900     Other
 28.32          Chlorates and perchlorates. Entire subheading.
28.39          Nitrites and nitrates.
28.50          Fissile chemical elements and isotopes; other radio-active
 chemical elements, etc. Entire heading.
28.51          Isotope and their compounds, inorganic or organic, etc.
Entire heading.
28.52          Compounds, inorganic or organic, of thorium of uranium, etc.
Entire heading.
29.16.2000     Citric acid and its salts
 29.16.4000
 29.42          Vegetable alkaloids, natural or produced by synthesis, and
 their salts, etc.
29.45          Other organic compounds
 30.01          Organo-therapeutic glands or other organs, dried, whether or
 not powdered, etc.
30.02          Antisera; microbial vaccines, toxins, microbial cultures (including
 ferments, etc.), and similar products.
30.03          Medicaments (including veterinary medicaments).
34.01          Soap; organic surface-active products and preparations for use as
 soap, etc. Entire heading.
34.02 9920     Organic surface - active agents:  in packing cont. more than 25 kg.
35.01          Casein, caseinates and other casein derivatives;  casein glues.
35.02          Albumins, albuminates and other albumin derivatives.
 35.03          Gelatin (including gelatin rectangles, whether or not coloured
 or surface worked) etc. Entire heading. DESCRIPTION
 36.06
 38.11.1000
 39.01.3510
 39.02.5590
 39.07.1410
 39.07.3400
 39 .07.3700
 44.15.2000
 48.01.1010
 48.10
 Ch. 49
 53.07.1000
 53.08.1000
 53.09.1000
 53.10.1000
 56.01.1010
 56.01.1091
 56.01.2010
 56.02.1010
 56.02.1091
 56.02.2010
 56.04.1011
 56.04.1021
 56.05.1091
 Matches (ex. Bengal matches).
Substances of a kind used in the prevention and control
 or plant pests and diseases. Entire subheading.
. . .made of spongy layers of phenolic and aminiplastic
 Other.
of animal
 resins.
. . .made of spongy layers of phenolic and aminoplastic resins.
Laboratory ware.
Articles specialized for medical, dental and veterinary purposes.
Plywood
 Released before 1.1.78
 Cigarette paper, cut to size, whether or not in the form of
 booklets or tube.
Printed books (in Hebrew).
which contains acryls or modacryls in any percentage.
which
 which
 which
 Acryls
 which
 which
 Acryls
 which
 which
 Acryls
 which
 contains acryls
 contains acryls
 contains acryls
 or modacryls.
contains acryls
 contains acryls
 or modacryls.
contains acryls
 contains acryls
 or modacryls.
contains acryls
 or modacryls
 or modacryls
 or modacryls
 or modacryls
 or modacryls
 or modacryls
 or modacryls
 in
 in
 in
 in
 in
 in
 in in
 any
 any
 any
 percentage.
percentage.
percentage.
any percentage.
any percentage.
any percentage.
any percentage.
or modacryls in any percentage.
Acryls or modacryls.
Others which contain acryls or modacryls in any percentage.
BOP/187
 Page 10
 BTN
 56.05 .1092 DESCRIPTION
 56.05.2094
 56.06.1091
 56.06.1092
 56.06.2094
 59.05.1000
 69.08
 69.11
 69.12
 71.02.1099
 71.07
 71.08
 71.09
 71.10
 71.11
 71.12
 71.13
 71.14
 72.01.9910
 73.10.3500
 73.10.9992
 73.10.9999
 73.15.2010
 73.15.2099
 Yarn listed under Sec. 2093 which contains acryls or modacryls
 in any percentage.
Acryls or modacryls.
Others which contain acryls or modacryls in any percentage.
Yarn listed under Sec. 2093 which contains acryls or modacryls
 in any percentage.
Nets, netting and made-up nets of a kind, etc.
 Glazed setts, flags and paving, hearth and wall tiles.
Tableware and other articles of a kind commonly used for domestic
 or sanitary purposes.
Tableware and other articles of a kind commonly used for domestic
 or sanitary purposes of other kinds of pottery.
Other/worked diamond less than 1 carat and over 0.02 carat.
Gold including platinum-plated gold, unwrought or semi-manufactured
 (Entire heading).
Rolled gold on base metal or silver, unworked or semi-manufactured.
Platinum and other metals of the platinum group, unwrought or
 or semi-wrought.
Rolled platinum or other platinum group metals on base metal
 or precious metal, etc.
Goldsmiths', silversmiths; and jewellers' sweepings, residues, etc.
Articles of jewellery and parts thereof, etc. Entire heading.
Articles of goldsmiths' or silversmiths' and parts thereof, etc.
Entire heading.
Other articles of precious metal or rolled precious metal.
Gold coins.
Idented bars
 Bars of a diameter of 8 mm released before 1.10.78.
Other.
Wire rod.
Other.
BTN
 BOP/187
 Page 11 DESCRIPTION
 73.20.4000
 73.36.1000
 76.03.9900
 84.15.9900
 84.20.5020
 84.20.5050
 84.20.5060
 84.20.5090
 84.20.9010
 84.20.9090
 84.22.2010
 84.22.3000
 84.22.5010
 84.22.5020
 84.22.5031
 84.22.6000
 84.22.8091
 84.22.9930
 84.23
 84.24
 84.25
 84.26
 84.28
 Cast fittings.
Heated by petroleum oils or oils obtained from bituminous minerals.
Other.
Other.
Table scales showing the weight as well as the amount.
With automatic regulation of flow into packaging containers.
For weighing mixtures of building materials providing they are
 mechanically equipped, etc.
Other.
Scale beams, with or without casings for weighing incorporating
 electric printing mechanism.
Other.
For temporary installation during construction.
Jacks, including those for tipping lorry bodies.
Cranes of total weight exceeding 100 T each.
Cranes, which the director of the port authority, etc.
Used for conveying flour in flour mills for the preparation of
 fodder mixtures for animals, etc.
Machinery mounted or adapted for mounting on a tractor, etc.
 Of kinds used for earth, stone, road making or building work.
Safety frames or safety cabines, etc.
Machinery stationary or mobile, for earth, minerals or ores, etc.
Entire heading.
Agricultural and horticultural machinery for soil preparation
 or cultivation, etc.
Harvesting and threshing machinery, etc. Entire heading.
Dairy machinery, etc.
Other agricultural, horticultural, poultry-keeping and bee-keeping
 machinery, etc. Entire heading.
BOP/187
 Page 12
 BTN DESCRIPTION
 84.29
 84.40.3010
 84.47.9910
 84.52.2000
 85.03.1099
 85.13.1010
 85.13.1050
 85.13.1090
 85.15.1000
 84.15.2000
 84.15.3000
 85.15.4500
 85.16
 85.17.1000
 85.17.2000
 85.17.9900
 85.20.1090
 87.01.1000
 87.01.9930
 87.02.1020
 87.02.1062
 Machinery of the kind used in the bread grain milling industry and
 other machinery. Entire Heading.
Having a washing tank of a volume not exceeding 150 LT.
Wood nailing machines.
Cash registers.
Other
 Telephone apparatus with amplifier, etc.
Carrier-current line systems.
Other.
Radio telegraphic and radiotelephonic transmission and reception
 apparatus.
Radio-navigational aid apparatus, radar apparatus and radio remote
 control apparatus.
Transmitters not specified in paragraph 1000. Entire subheading.
Television receivers whether or not combined with other
 apparatus. Entire subheading.
Electric traffic control equipment for railways, roads or inland
 waterways and equipment, etc.
Electric fire alarms.
Specially designed for aircraft or vessels.
Other.
Other.
Tractors for agricultural or earth work, etc.
Tractors for trailers and semi-trailers driven by a compression
 ignition (diesel) engine.
Buses.
Unused, propelled by a compression ignition (diesel) engine.
BTN
 BOP/187
 Page 13 DESCRIPTION
 87.02.1090
 87.02.1500
 87.02.2510
 87.02.3010
 87.02.3030
 87.02.3052
 87.02.3054
 87.02.3093
 87.02.3097
 87.02.3099
 87.02.6000
 87.03.1000
 87.03.3000
 87.03.4000
 87.03.5000
 87.03.6000
 87.03.6500
 87.03.6600
 87.03.7000
 87.03.8000
 87.04
 Other passenger cars for a piston displacement in: (used).
Entire subheading.
Motor vehicles used for burial purposes, etc.
Ambulances
 Motor vehicles imported with the approval of the chief fire brigade
 inspector, etc.
Dumpers, bitumen tankers, cement bulk distributors. Entire subheading.
Fire engines if imported with the approval of the chief fire
 brigade inspector.
 Vehicles specially built for street cleaning, etc.
Delivery vans having an authorised total weight not exceeding
 2,200 kg. Used.
Where its authorized total weight does not exceed 2,200 kg
 excluding delivery vans. Used.
Other.
Commercial vehicles propelled by a compression ignition engine,
 etc. Entire subheading.
Lorries specially constructed and used for cleaning streets, air
 field runways, etc.
Mobile derricks (i.e., lorries fitted with a derrick assembly, etc.).
Fire engines and fire escapes imported with the approval of the
 chief fire brigade inspector, etc.
Van specially built for the preparation or sale of food and
 drinks (e.g., mobile canteens, etc.).
Refuse vehicles.
Concrete mixer vehicles except those under 6600.
Concrete mixer vehicles which fulfill all the following conditions:
 A. Mixer whose capacity does not exceed 3600 LT.
B   Equipped with hydraulic apparatus for self-loading, etc.
Concrete pumps, mobile.
Cranes, mobile, mounted on a chassis specially constructed for
 carrying cranes.
Chassis fitted with engines, for the motor vehicles falling within
 heading No. 87.01, 87.02 or 87.03.  Entire heading.
BOP/187
 Page 14
 BTN DESCRIPTION
 87.05
 87.05.2000
 87.07.1000
 87.07.9910
 87.11
 87.14
 88.02
 89.01
 90.17.7010
 90.19.3000
 90.26.1000
 Ch. 93
 98.05.5000
 98.05.9900
 98.08.9900
 Bodies (including cabs) for the motor vehicles falling within
 heading No. 87.01, 87.02 or 87.03, used.
Safety frames or safety cabines, etc.
Fork lifts and parts thereof. Entire heading.
The trucks.
Invalid carriages.
Other vehicles (including trailers), not mechanically propelled,
 and parts
 Flying machines, etc. Entire heading.
Ships, boats and other vessels not falling within any of the
 following headings of this chapter.
Certified by the Director General of the Ministry of Health as not
 produced in Israel and released before 1.4.78.
Hearing aids; heart pacemakers.
Electricity supply or production meters.
Arms and ammunition; parths thereof. Entire chapter.
Pencils covered by any material, where the cover is thicker than
 1 mm.
 Other
 Typewriter and similar ribbons. Other.
BTN
 BOP/187
 Page 15 BOP/187
 Page 16
 ANNEX II
 State Trading
 ACTIVITIES OF THE GOVERNMENT TRADE ADMINISTRATION
 (Quantities in thousand metric tons)
 ¹/Government purchases of sugar were
 15 February 1978.
discontinued
 Commodity                                    Source  Fiscal year (April/March)
 Wheat                      local                 250                200
 import                510                450
 Coarse grains              local
 import              1,350              1,250
 Soybeans                   local
 import                420                450
 Edible oils                local                   6                  1
 import                  4                  3
 Frozen beef                local
 import                 32                32
 Sugar¹/                   local                  36                 35
 State import           70                100
 private import         80                60
 as from BOP/187
 Page 17
 ANNEX III
 Imports by Economic Destination
 ($ million)
 Economic destination                    1976              1977
 TOTAL                                      4,140.4          4,845.2
 Consumer goods for direct con-              319.3              341.6
 sumption
 Non-durable goods                         204.2              230.3
 food                                    142.8              158.3
 other                                    61.4               72.0
 Durable goods                             115.1              111.3
 Production inputs (raw materials)        3,189.5            3,853.9
 Rough diamonds                            670.3            1,011.7
 Fuel and lubricants                       684.8              737.7
 Spare parts, accessories, tools           276.2              369.9
 for current use
 Production inputs, other                1,558.2            1,719.0
 Investment goods                            619.7              632.9
 Machines, equipment, implements            493.3             466. 4
 and their accessories
 Transport equipment                       126.4             166.5
 Thereof: ships and aircraft                53.3               94.7
 Commodities, n.e.s.
16.8
 11.9 BOP/187
 Page 18
 ANNEX IV
 Economic Developments, Policies and Prospects 1976-1978
 (a) Economic developments and policies in 1976-1977
 The extent of Israel's foreign debt burden, and the large deficit in
 the current account are prime considerations in determining Israel's
 economic policies. Efforts  to cut back excessive demand and encourage
 reallocation of resources to export sectors were supported by a process of
 frequent, small depreciations of the Israeli pound in order to maintain
 the competitive position of Israel's exports. These efforts brought a
 significant reduction in the trade and current account deficits in 1976
 and 1977.
Efforts to reduce internal imbalances, however, were disappointing.
 The restrictive monetary policy could not effectively offset the large
 deficits in Government spending. High rates of inflation continued despite
 sluggish real growth of production.
Growth in real GNP, which had averaged over 8 per cent prior to 1974,
 dropped to 0.9 per cent in 1976 and to half a per cent in 1977. Public
 consumption, excluding direct defence imports, fell by 2.6 per cent in 1976
 and by 1.2 per cent in 1977. Private consumption increased by 4.1 per cent
 in 1976, and inched up by a mere 1.7 per cent in 1977, thus implying a
 drop in real per capita consumption.
Gross domestic investment fell by 14.3 per cent in 1976 and by
 12 per cent in 1977. The downward trend was led by a 28 per cent
 reduction of investment in public housing and construction in 1976 and a
 further reduction of 45 per cent in 1977. The downward trend of investment
 reflects the policy of restraining public investment to depress local
 demand and to curtail the current account deficit.
 The stagnation in economic activity in 1976 and 1977 slightly depressed
 demand for labour; unemployment rose to 3.6 per cent of the labour force
 in 1976 and to 3.9 per cent in 1977. Despite efforts to restrain the rise
 of wages in the public sector, as part of the policy to shift resources to
 export use, the three-year cumulative deterioration of public sector wages,
 relative to those of the private sector, led to an eruption of wage demands
 in late 1976 and early 1977. The 15 per cent wage increases in the public
 sector, part of which were retroactive payments for 1976, did not change
 net wages in the public sector. However, these increases primed additional BOP/187
 Page 19
 wage demands in the private sector, where real wages rose by 4 per cent;
 these increases, in turn, reduced the growth of export profits and
 dampened the goal of reducing imports through depressed demand.
The accelerated rate of price rises continued in 1976-1977, as in
 previous years, and the consumer price index rose by 38 per cent in 1976 and
 42 per cent in 1977. The cost-push inflation stemmed, mainly, from
 Government action: the higher prices of imports, the deterioration in the
 terms of trade and the persistent deficits in the current account called
 for periodic devaluations of the Israeli pound, the cutting of subsidies
 on essential commodities and increased taxes which added to the price rises.
A restraining monetary policy, designed to depress these inflationary
 pressures, strived to contain the growth of money supply at a rate lower
 than that of nominal incomes and prices. Increased interest rates were
 employed to serve this objective. The effectiveness of monetary policy,
 however, was constrained by the large deficits in Government spending.
 The current account of the balance of payments improved in both 1976
 and 1977. The civilian deficit fell by $540 million in 1976 and by
 $270 million in 1977. The major factors leading to this improvement in the
 current account over the last two years were attributed to the expansion
 of exports. An additional factor which helped to reduce the deficit in
 1976 was a significant reduction of investments in inventories. The greater
 part of the reduction in the deficit in 1976 is attributed to the
 improvement in the balance of trade, whereas in 1977 it can be attributed
 mainly to the services account. The total deficit in the current account
 fell by $550  million, which includes a reduction of $300 million in direct
 military imports.
Total exports increased by 11 per cent in real terms in 1977, compared
 to a 12 per cent increase in 1976. Of this, however, exports of goods
 increased in 1977 by 10 per cent, compared to a 23 per cent increase in
 1976. Exports of services increased significantly in 1977, by 13 per cent
 vs. 3 per cent in 1976. The major increases were in the export of transports-
 tion services (mainly aviation), and in tourism.
The $450 million increase in unilateral transfers in 1976 was followed
 by a reduction of $200 million in 1977, due, for the most part, to the
 reduction in ODA extended to Israel.
The reduction in the current account deficit enabled the economy to
 reschedule its debt structure and to resort less to short-term foreign loans.
 This was achieved despite the reduction of unilateral transfers and the BOP/187
 Page 20
 significant increase in debt repayments. Total net capital imports fell in
 1977 by $650 million in comparison to 1976. Net foreign currency reserves of
 the Bank of Israel increased from $1,156 million at the end of 1976 to
 $1,380 million at the end of 1977. Total foreign debt in 1976 was
 $9,281 million and $10,425 million at the end of 1977.
At the end of the period surveyed, on 28 October 1977, the Government
 of Israel instituted a New Economic Policy, characterized by the abolishment
 of most foreign currency restrictions, the adoption of a floating exchange
 rate régime, and supported by a wide liberalization of import policies.
From June 1975 to October 1977 Israel followed a flexible exchange-rate
 policy of small, frequent depreciations. As of 28 October 1977, the
 Government of Israel has ceased to determine administratively the rate of
 the Israeli pound. With the adoption of a floating exchange rate régime,
 the Government of Israel has decided to remove almost all foreign exchange
 controls. The export rebate arrangements, the temporary import surcharge,
 the tax on import of services and the tax on foreign travel were abolished.
Instituting the floating exchange rate régime brought about an immediate
 effective devaluation of approximately 45 per cent.
 To support the liberalization programme, the Government and the Bank of
 Israel introduced a variety of restrictive fiscal and monetary measures, to
 prevent a rapid growth  of the money   supply and to restrain domestic
 demand. The Value Added Tax was increased by 4 per cent; purchase tax on
 raw materials was reduced; budgetary subsidies on staple consumer items
 will be gradually reduced, and the first three months of the New Economic
 Policy were accompanied by a credit freeze imposed by the Bank of Israel.
(b) Prospects for the economy
 The principal economic prospects for 1978 are renewed growth, renewed
 domestic and foreign investments in the main economic sectors, and a further
 reduction of the non-military deficit in the balance of payments.
Following three years of economic slack, a resurgence of economic growth
 is forecast for 1978; this will be led by rapid growth of exports and a
 more measured growth of public and private consumption. A 4 per cent increase
 in real GNP is expected. Exports, which are expected to rise at a 10 per
 cent rate, will contribute 3 per cent to this increase. The expected impetus
 for export growth is attributed to industrial exports, followed by non-citrus
 agricultural exports and tourism. BOP/187
 Page 21
 Imports are expected to rise by 7 per cent in real terms.
Consequently, an increase of $150 million is forecast in the current
 account deficit, despite a further reduction of $216 million in the non-
 military current account deficit. This will be the third consecutive year
 to register an improvement in the civilian balance of payments; the
 accumulated improvement in these three years is expected to be $1,000 million.
 Total capital import of $4,300 million will enable the economy to
 finance the current account deficit, to meet the debt repayment schedules,
 to improve the structure of foreign debt and to provide for a slight
 increase in the net foreign currency reserves of the Bank of Israel. The
 country's foreign debt will grow by some $800 million, to a total of
 $11,200 million. Repayment of the principal and interest in 1978 will be
 $1.5 billion.
 The deficit in 1978 will represent 15.9 per cent of total national
 resources, compared to 16.7 per cent in 1977. Exports will finance
 66 per cent of imports, compared to 64 per cent in 1977, and 85 per cent
 of the civilian imports, vs. 80 per cent in 1977. ANNEX V
 Israel's Balance of Payments 1976-1978
 ($ million)
 1976               1977 (corrected)          1978 (forecast)
 Credit Debit     Net     Credit  Debit    Net     Credit  Debit     Net
 Goods and services (f.o.b. and c.i.f)             4,601 7,870 -3,269           5,675   8,370      -2,695  6,175 9,560   -2,845
 Goods (excl. defence imports)                         2.281    3.974  -1,693      2,870   4,595   -1,725    3,505    5,160   -1,655
 Defence imports                                          -      1,603   -1.603      -    1,300   -1,300     -          1.660 -1,660
 Services 1,861                                               1,062   - 101    2,253        2,135 118   2,615   2,380 235
 thereof:   Transportation                              789       488     301      910     590      320   1,040      660     380
 Travel                                       291      152      139     435      175     260      520     210      310
 Insurance                                   264       278    -14      295     310  -    15     340      350  -   10
 Investment income                           302       691  -  389      365     720  -   355     410     715   -  375
 Government                                    24      125  -   101      24       95  -   71       30     105  -    75
 Other services                               191      228  -    37     224      245  -   21      275     270        5
 Trade with administrated territories                   459       331     128      552       340    212     595      360 235
 Unilateral transfers   2,281                       -     2,281    2,084     -       2,084  2,355      -  2,355
 Restitution from Germany                               314       -       314      340     -        340     350              350
 Personal and institutional remittances                 771         -      771     720     -        720     730              730
 Government transfers                                 1,196       -     1,196   1,024      -     1,024    1,275            1,275
 Capital movements, long and medium term                 2,102 716 1,386 1,750 850 945 1,915  1,065     850    A
 Independence aned devlopment bonds                     328      -        3283    l70 -    .       370      360     -        360
 United States Government loans                        921      -        921     882      -        882   1,060     -  1,    ,060
 Other loans                                            762               762      398     -        398     375      -       375
 Investments                                             91       61       30     100       50      50      120      65       55
 Repayoment f loans                                     -         655  -  655      -       755  -   75-5            1,000  0-1,00
 omissions a hrt398      -   -    _       399     -   -             364     -
 GRAND TOTAL                                          8,984     8,984     -     9,509    9,509-          10,989   10,989     -
  _-            .-                -       -.
