On 11 July 2002, Israel became eligible for adherence to the OECD Declaration on International Investment and Multinational Enterprises after a full examination of its foreign direct investment policies. The Declaration promotes national treatment of foreign direct investment, proposes voluntary standards of behaviour to multinational enterprises and encourages moderation and restraint in the use of investment incentives and conflicting regulatory requirements.

The OECD has invited Israel to join the Declaration in view of its general openness to foreign direct investment and liberal orientation of its macro-economic and structural policies. Since the establishment of the State of Israel in 1948, the Israeli economy has been progressively transformed from an underdeveloped agrarian economy to a technologically advanced and sevices-based economy. Trade liberalisation, abolition of exchange controls, adoption of modern corporate governance rules and intellectual property protection enhancement have led to the establishment of a generally enabling, transparent and non-discriminatory environment for domestic and foreign investment. Encouragement to high-tech industries and a wide network of international commitments have reinforced the beneficial effects.

Association with the OECD standards will also reinforce the Israeli government efforts to pursue business-friendly economic reforms. Particular attention needs to be given to reducing market access restrictions or distortions resulting from past heavy government involvement. Further progress may in fact largely depend on the acceleration of the privatisation process, the dismantling of monopolies and a less interventionist approach to business activity.

Adherence to the OECD Declaration represents an important step towards expanding Israel's co-operation with the Organisation and its Members. Upon adhering, Israel will be entitled to participate in the work related to the Declaration implemented by the OECD's Committee on International Investment and Multinational Enterprises, a Committee composed of officials from Ministries of Economic Affairs, Finance, Foreign Affairs, Trade and Industry.

This report assesses the role that foreign direct investment has come to play in Israel's economy and the policy measures susceptible of enhancing this role in the future. It is based on information current as of early June 2002.

It has been prepared under the auspices of the OECD Centre for Co-operation with Non-members and is published under the responsiblity of the Secretary-General of the OECD.

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