(Facebook; via playtech.ro)

Israel Flirting With Protectionist Economic Policies

Jerusalem looks to reassess technology exchanges with China and levy taxes on multinational companies

Israel’s economic relations with China and multinational giants such as Google and Facebook have come under scrutiny in recent weeks as Jerusalem seeks to both appease the U.S. amid the latter’s ongoing “trade war” with Beijing and chart a more advantageous path forward on the tech front.

Washington has been pressuring Israel to scale back its technology exchanges with the Far East powerhouse, fearing American and Israeli knowhow could end up benefiting China’s military. Israel and the U.S. cooperate closely on defense matters as evidenced by the countries’ 2016 Memorandum of Understanding—negotiated under former president Barack Obama—which authorizes $3.8 billion in annual aid for the Jewish state.

Meanwhile, Israeli authorities have presented Google, Facebook and other multinational tech companies with new assessments of how much they will need to pay in taxes beginning in a few months. In the past, amended tax schemes for global behemoths have stalled over how exactly to levy such fees.

Google’s operations in Israel, for example, are expected to generate a net profit of some $151 million this year.

In a recent report, Israel’s Anti-trust Commissioner Michal Halperin sought to get a better grasp of the fiscal impact of U.S. heavyweights such as Apple, Microsoft, Google, Amazon and Facebook on the local economy with a view to protecting Israeli companies from foreign competition.

It is well known that Google and Facebook make their money from selling advertisements on their platforms, as both companies together control about half of the world’s digital advertising market. The revenues generated in Israel are not insignificant, with the Israeli parliament’s research center pegging the combined value at $350 million dollars in 2017.

The recent developments have sparked speculation that Israel is opting for an increasingly protectionist economic framework, perhaps following President Donald Trump’s lead.

Dr. Alex Coman, a technology and economics specialist at the Adelson School of Entrepreneurship within the Interdisciplinary Center Herzliya, believes that Israel’s policy towards multinationals could be better aligned with standard practices.

“When it comes to taxes on Facebook and Google, this is a worldwide trend. These companies are making enormous amounts of money ruling the advertising industry; there is no reason not to tax them. Nor is this necessarily protectionist,” he contended to The Media Line.

However, protectionism does exist in certain sectors of the Israeli economy. “There is a very strong ‘milk board’ or a commission which is basically a dairy mafia that greatly influences quotas and prices,” Coman elaborated. “The result is that even though Israeli cows produce some of the highest quantities of milk in the world, dairy products are nevertheless expensive compared to other markets.”

In the transportation sector, Uber, the U.S. ride-hailing service, was not allowed to enter into the Israeli market, he further noted. “This was an obvious example of the government preferring to maintain good relations with taxi drivers over allowing more competition.”

When it comes to Beijing, Coman highlighted that “Israel loves cultivating relationships with the Chinese, who are very appreciative of Israeli innovation. It’s a situation where Jerusalem needs to choose between getting in trouble with President Trump and making business. But this dilemma did not arise out of an ideological preference for protectionist policies.”

Eyal Winter, Professor of Economics at Jerusalem’s Hebrew University, told The Media Line that “small Israeli start-ups with technologies that merely touch the capabilities of Facebook or Google have no chance of surviving, either because these large companies can destroy them or alternatively buy them out.

“As Israel is the so-called ‘Start-Up Nation,’ the government wants to give these small enterprises a much fairer chance of thriving. This is why the anti-trust authorities are getting involved.”

Regarding China, Winter believes that Israeli corporations are also concerned about intellectual property theft but not to the same degree as the U.S. “For Israel, the economic relationship with [Beijing] is so important that many businesses and policymakers are willing to focus less on the security risks that such a partnership creates.”

For the Jewish state, he concluded, “the benefits are so huge, exceedingly more important than they are for the U.S., that Israelis are looking at the relationship from a different perspective.”

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