STATUS ON ISRAEL'S ACCESSION TO THE OECD

UNCLAS TEL AVIV 001994 SENSITIVE SIPDIS PARIS PLS PASS USOECD EEB FOR MUDGE, SCHOLZ NEA/IPA FOR ASACHAR, DZIMMER E.O. 12958: N/A TAGS: ECON ETRD OECD IS SUBJECT: STATUS ON ISRAEL'S ACCESSION TO THE OECD REF: A. A:TEL AVIV 1978 ¶B. B:TEL AVIV 1845 ¶1. (SBU) SUMMARY: Ministry of Finance (MOF) Senior Deputy Director General Oded Brook noted to Econ officers during a meeting on August 27 that Israel was using the Organization of Economic Cooperation and Development (OECD) accession process to accomplish domestic goals on the environment, taxation, and intellectual property rights (IPR). He expressed some concerns about OECD best practices with regard to sovereign wealth funds and expectations for official development assistance. Brook said that Israel had made progress on incorporating environmental criteria in public tenders and fostering "green policies." He recognized, however, that certain Israeli tax programs would raise questions at the OECD. On IPR, Brook was less sanguine. While the OECD does not have a formal instrument on IPR, Israeli IPR policies will still be examined in several OECD committees. END SUMMARY. ENVIRONMENT ¶2. (U) During Israel's initial phase as an OECD candidate country, many Israeli policy makers were concerned that Israel's biggest stumbling block towards full membership would be adhering to the bribery convention. Israel quickly overcame that barrier by ratifying the convention, one of the OECD's most important legally binding instruments. In fact, the environment, and notably Israel's lack of environmental legislation, quickly eclipsed bribery as one of the most important issues that Israel has to address before it can become a full OECD member. Brook admitted to EconCouns that this was a "problematic area" for Israel, but added that Israel is trying to demonstrate its excellent technical capabilities in areas such as recycling and agriculture. As an example, he mentioned a "garbage sorting machine" which divides recyclable materials as one invention that shows Israel's seriousness about addressing its environmental problems. ¶3. (U) Partly in reaction to the OECD's requirements, the GOI has aggressively moved to pass legislation to strengthen Israel's environmental protection regime and cover the gaps. (NOTE: For details, see REF B. END NOTE.) In addition, the Knesset is now taking "green policies" into account when making decisions. Israel also recently began incorporating environmental criteria in public tenders; in Haaretz, one of Israel's leading dailies, the Ministry of Environment published a tender announcement for an advisor to write background documents related to Israel's participation in the OECD. Brook also said that an "environment committee" would be formed within the GOI to track implementation of Israel's environment policies. TAXATION ¶4. (U) Taxation is another area that poses challenges for Israel's OECD accession. Brook mentioned that certain unique Israeli tax practices -- like giving tax breaks to new immigrants to Israel -- would not viewed positively by OECD members. There is also a notable lack of transparency and exchange of information regarding taxes in Israel, which requires legislation to fix. INTELLECTUAL PROPERTY RIGHTS ¶5. (SBU) While recognizing that there is no specific OECD instrument on IPR, Brook raised IPR in the context of Israel's accession to the OECD and highlighted its importance in several different OECD committees including trade, investment and science and technology. Israel is working on completing a survey from the Trade Committee that specifically asks about IPR. The EU has also begun raising this issue with the Israelis. (NOTE: A full reporting of IPR and Israel can be found in REF A. END NOTE.) INVESTMENT ¶6. (SBU) Israel expressed some concern with recent OECD work on sovereign wealth funds. A recent OECD best practices document highlights transparency for investment transactions by foreign countries, a demand that Israel could not adhere to because of fears of compromising national security. EconCouns was quick to note that a detailed explanation of a rejection of foreign investment on clear national security grounds might go beyond the requirements of the OECD document. Brook said that only Israel and Russia had voiced reservations about agreeing to the best practices, and realized that Israel might stand out in the accession process due to its rejection. OFFICIAL DEVELOPMENT ASSISTANCE ¶7. (SBU) Brook also voiced some concern over the amount of official development assistance that Israel currently offers and whether it met the criteria of the non-members of the Development Assistance Committee (DAC). Present figures for non-DAC members suggest that 0.2 per cent of GDP should be devoted to development assistance, but Israel was far from reaching this mark. COMMENT ¶8. (SBU) Brook remarked that the OECD accession was having an impact on Israel's domestic economic policies by promoting changes and awareness on issues that have in the past been problematic and neglected by Israel. Israel seems willing to move on several entrenched economic issues to accomplish its goal of membership in the OECD; the desire to gain OECD status and recognition as a developed market economy is serving to press Israel's fractious political parties to compromise for the national good. Post sees the accession process as useful in bringing pressure in several key areas of USG concern like IPR and environmental legislation. ********************************************* ******************** Visit Embassy Tel Aviv's Classified Website: http://www.state.sgov.gov/p/nea/telaviv You can also access this site through the State Department's Classified SIPRNET website. ********************************************* ******************** CUNNINGHAM