Business Week International Spotlight on Israel

ISRAEL'S FREE-TRADE DESERT FLOWER...HAS A GINGRICH GOING FOR IT (int'l. edition)

Few Israelis have ever heard of Likit, the site of what may soon become the country's first "free processing zone"--a tax-free enclave for foreign trade. Likit lies 10 kilometers northeast of Beer Sheeba, in what is now desert. The government decided the zone should be located in the Negev, the most underdeveloped part of the country. But supporters believe that within two years, the 283-hectare tract will see a boom.

The idea is to eliminate red tape for foreign investors. Israeli Finance Minister Avraham Shohat overruled experts from his own ministry who opposed the proposal on grounds that the zone would not contribute much to the economy. But since Likit is backed by some of the Jewish state's biggest American supporters, Shohat could hardly refuse.

On June 20, 1994, the Knesset passed the Free Processing Zone Law. It states that within the zone there will be no corporate tax, no value-added tax, and no import or export duties. Businesses operating there will pay only a 15% tax on distributed profits. In addition to tax incentives, companies will have the benefit of deregulated utilities, including phones, and will be exempt from foreign currency rules and import and export restrictions.

The zone was first proposed in 1992. Lobbying was spearheaded by Israel Export Development Co. (IEDC), owned by such prominent Americans as Laurence A. Tisch, CBS chairman and CEO; Michael Steinhardt of Steinhardt Partners; Morton L. Mandel, chairman and CEO of Premier Industrial Corp.; and Robert Tishman, chairman of Tishman Speyer Properties.

Backers claim the zone will create thousands of jobs for immigrants from the former Soviet Union and for recently discharged soldiers. They also predict that dozens of multinational companies, which have stayed out of Israel for political reasons, will set up shop.

In late March, the Israeli government plans to issue a tender for building and operating the zone and expects to announce the winner within 90 days. "We're looking for someone who will bring the best companies possible into the zone," says Boaz Raday, senior adviser to Shohat.

The leading contender for constructing the project is IEDC itself, which has already spent nearly $7 million planning the proposed zone and marketing it to potential clients. The Finance Ministry's Raday concedes that IEDC is the only firm entrant but says he has talked with other groups that have expressed interest in joining the bidding.

THREE TIMES. In the meantime, IEDC continues to market the zone aggressively. "We've got over 50 letters of intent from medium-to-large American, British, and German multinationals," says David Yerushalmi, IEDC chairman. All are in high tech, with a predominance of information processing outfits.

IEDC has already signed an agreement with Sprint International for phone service. Under this deal, calls from the zone to the U.S. will cost only 30 cents a minute. Israel's state-owned Bezeq Telecommunications Co. charges three times as much.

Without doubt, IEDC's highest-profile employee is Marianne Gingrich, wife of Newt Gingrich, Speaker of the U.S. House of Representatives. Her weeklong visit to Israel in mid-February sparked a good deal of publicity.

Gingrich was hired by Yerushalmi in September as vice-president for business development. Her compensation: $2,500 a month, plus commissions. After the appointment, questions were raised about her qualifications for the job. In addition to tart comments in the U.S. media, it was suggested that her real function might be to help IEDC gain favor with the Israeli government.

Speaker Gingrich has come out in strong defense of his wife, insisting that there is no ethical problem with her new job. "She works for a private company," he said. "She does no lobbying of the U.S. government of any kind. And it seems to me that since no taxpayer funds are involved and it's an entirely private business, that she ought to be let alone."

"At the end of the day, companies are going to look at the benefits of the zone, and political pull is not going to sway them," says Yerushalmi. But with the Gingrich appointment, IEDC seems to be covering all bases.EDITED BY JOHN E. PLUENNEKE By Neal Sandler in Jerusalem

• Tweet
• Facebook
• LinkedIn
• Google Plus
• Comments
• Email
• Print