New Directive for Imports
While international attention was focused on Tel Aviv’s hosting of the Eurovision song competition and national eyes remained glued to Prime Minister Benjamin Netanyahu’s attempt to form a new coalition government, the country’s Ministry of Economy quietly advanced its consumer and e-commerce-friendly agenda for the Start-Up Nation. On May 12, Minister of Economy and Industry Eli Cohen signed a directive that greatly expands the terms and conditions for Israelis to conduct personal imports—the importation goods for personal use (rather than commercial purposes) which are entitled to exemptions on import permits and licenses.
With a nod towards the average Israeli, who increasingly enjoys a standard of living comparable to other OECD countries—the IMF estimated Israel’s GDP per capita income in 2019 at USD 42,140, roughly within the average rate among advanced economies—and seeks high-quality products from abroad at affordable prices, the personal import ordinance applies to an estimated 90% of consumer goods. The items eligible for personal import represent an array of industries and products, including cosmetics, toiletries, wireless communications equipment, home building materials, automotive spare parts, and household appliances. It also includes products with a niche market in Israel, such as baby car seats and nutritional supplements. In parallel to the directive, the Ministry launched a website that clarifies all products covered in the directive, determines limitations and conditions that apply to particular products, and calculates the cost of the import after factoring in taxes and other fees.
Aiming to provide guidelines for a growing, but still largely unregulated, sector, the directive increases the maximum value of goods that can be imported in one shipment to USD 1,000, a jump of more than 1,300% from the previous limit of USD 75. Individuals are allowed to import up to five products per order, or as many as 30 items of the same product; larger maximum quantities are permitted for home renovation and construction equipment. The directive also establishes timetables for regulatory authorities to approve products that require prior authorization, setting a 48-hour deadline (except for more sensitive communication and transportation products, for which the deadline is 14 days).
Why Now, and Who Gains?
The Cost of Living is Paramount, For Citizens and Politicians: The new directive reflects Israel’s favorable attitude towards expanding market choice and encouraging competition as a means to lower the country’s high cost of living—which is among the most expensive in the OECD. Israel was rocked by widespread protests in 2011 over the issue of high consumer and home prices, involving months-long demonstrations that achieved the rare feat of uniting a usually divided citizenry from across the political and religious spectrums. Since then, the cost of living has remained a priority on the domestic political agenda, while the government’s performance in addressing the issue has in many ways been a litmus test for its credibility among the public. Successive governments have dealt cautiously with any measure that would raise the price of everyday expenses; most recently, a public outcry in December 2018 over planned price hikes in electricity and water eventually prompted state intervention in lessening the cost increases.
Minister of Economy and Industry Eli Cohen himself represents an economic-oriented party, Kulanu (“All of Us”), whose agenda is overwhelmingly devoted to bringing down the high cost of living through increased competition. The personal imports directive follows similar measures by the outgoing government to widen consumer choices and encourage greater consumption of foreign goods to drive reductions in consumer prices. This has included removing customs duties on footwear and clothing and permitting importation of second-hand and refurbished cell phones. With Minister Cohen’s Kulanu party once again likely to be a coalition partner with a Netanyahu-led government—this time with less than half the number of seats than it held in the previous coalition—now is an opportune time for him and his party to showcase their continued prioritization of this national consensus issue, all the more so in spite of reduced electoral strength.
Coinciding with the new measure, the Ministry of Economy and Industry released a batch of statistics that point to the success of personal imports in lowering the prices of various goods. The findings showed that between 2011-2017, sectors of the Israeli economy, for which personal imports of consumer goods have already been permitted, have witnessed considerable declines in average costs. The prices of consumer electronics fell by more than 50%, personal care products and cosmetics by nearly 20%, and furniture and domestic appliances by almost 15%.
The ministry’s report noted that during these years however, the average household spent only NIS 104 (USD 29) per month on personally imported goods. Imports constituted only 10% of the goods consumed by households in Israel, as opposed to the overall OECD average of 19%. In this regard, the new directive appears to encourage greater reliance on personal imports of everyday products, with a goal of raising Israeli consumption patterns to those of the OECD average.
E-Commerce as a Way Forward: Secondly, the directive seeks to capitalize on the growing popularity of online shopping among Israelis. AliBaba’s AliExpress has become a household name, accounting for 50% of all e-commerce purchases last year, while Amazon, Next, and Asos have also began to gain familiarity with Israeli buyers. An October 2018 government report noted that the average Israeli made 36 online purchases from an international destination in 2017, while the overall online retail market in Israel grew by 25% year on year between 2014 and 2016, reaching a value of USD 1.6 billion and amounting to 6% of the total retail market. The report forecasts that the use of online retail will double by 2020, accounting for 12% of the total market.
This expansion of the number of actors in the local retail landscape overlaps with similar changes taking place in the logistics and shipping sector. In July 2018, the Knesset approved a plan to partially privatize the national postal service: ultimately 40% of the company will be transferred to private ownership. Among the factors influencing this decision was the state-owned Israel Post’s growing difficulty over the past few years in handling the surge in packages arriving through Israelis’ e-commerce orders. In parallel, international logistics giants such as FedEx and UPS have expanded their market presence, in large part attuning their businesses to Israel’s. In this context, the new personal imports directive can be expected to benefit logistics providers, giving them increased opportunities to efficiently transport online purchases to customers.
Local media have emphasized that the new directive was declared less than two weeks after Amazon signaled an intent to significantly expand its activity in the Israeli retail market. In late April, the multinational e-commerce giant sent an invitation to select Israeli suppliers to join the Local Delivery program and sell their products through the Amazon e-commerce platform, so long as they can meet a five-day home delivery requirement. Amazon, subsequently, has been recruiting a target group of several thousand Israeli sellers ahead of its planned launch of a local Hebrew-language website this summer, and speculation is rife that the company intends to open a local logistics warehouse as a next step. Israeli regulators, in turn, have shown general favorability to Amazon’s hints of market expansion, mostly perceiving it as another vehicle to lower the high cost of consumer goods and diversify choices.
In the same vein, media reports note that Walmart has signaled an interest in entering the Israeli retail market. John Furner, president of Walmart’s members-only warehouse brand Sam’s Club, met with Prime Minister Netanyahu on the sidelines of the 2018 World Economic Forum, during which the Israeli premier offered to ease any regulatory burdens to encourage the retail multinational to establish local operations. This past spring, a senior Walmart delegation was reported to have conducted a low-profile visit to Israel to examine opportunities to open a domestic franchise and scout for cybersecurity start-up partners to help the company expand its e-commerce capabilities.
The Opposition – Established Retailers and Distributors: Together, these developments leave official import distributors, established retail franchises, and the industry associations representing them, with the most to lose. The Federation of Israeli Chambers of Commerce and the Manufacturers’ Association are the two notable groups spearheading efforts to stem market diversification. They previously had been successful in postponing the government’s launch of the personal import directive, which was initially scheduled for July 2018. Following the directive’s publication, the Federation launched a media blitz against personal imports, warning that they will harm the local business sector and create a black market for commercial distribution of household goods.
These interest groups have likewise expressed concern over Amazon’s impending arrival, believing that the retail giant will utilize personal imports for its own business purposes: Federation of Israeli Chambers of Commerce President Uriel Lynn personally appealed to Minister of Finance Moshe Kahlon to “prevent Amazon from entering Israel until equal competition terms are established between local and foreign suppliers through personal imports.” Some brick-and-mortar retailers have also voiced fears that their lack of an e-commerce presence will leave them vulnerable to Amazon.
In this climate, it is quite possible that the newly-elected Knesset and the next coalition government will be pressured to address Israel’s retail and import policies as a key agenda item, particularly after the parliament begins its long 2019-2020 winter session in early November. With global online commerce firms and sympathetic local allies pitted against traditional homegrown industries and their supporters, the Israeli legislature could become a battleground for debate and actions ultimately taken, with each side vying for the influence of key decision-makers.
Complementing the personal imports directive, e-commerce is expected to get a boost in coming years as Israel’s ports of entry undergo significant upgrades and expand their efficiency in transporting international shipments. In recent years, the government has advanced privatization reforms of Israel’s two primary Mediterranean ports—Ashdod and Haifa—as a means of increasing their cargo-handling capacities. In January 2019, the country dedicated a state-of-the-art civilian airport near the southern Red Sea city of Eilat, the first new airport built in Israel’s 71-year existence. In May 2019, the Ministry of Transport approved a large-scale, USD 840 million expansion plan for Tel Aviv’s Ben Gurion International Airport, in preparation for accommodating the forecast 30 million passengers per annum expected in 2024—up from the current 23 million. While the latter two developments primarily aim to address increases in passenger traffic, there is no doubt that they will also facilitate growth in the volume of freight traffic and make foreign e-commerce shipments more economically feasible for Israeli sellers and purchasers.
When factoring in these transportation and logistics advances alongside the personal imports directive, a clear warning is sent to local retail franchises and brick-and-mortar businesses: no matter the political assistance they may receive, Israel’s online purchases phenomenon is an irreversible trend. As the e-commerce wave grows into a tsunami, local enterprises’ digital adaptability is the key to weathering the storm.