In recent years, parallel and private imports have become an important factor in the public debate surrounding the cost of living in Israel. Since Israel has a small economy, concentration at the manufacturing level in many product markets is significant. The level of competition (and ultimately prices) in these markets is heavily dependent on imports. Such imports are made predominantly through the local representative of a foreign supplier (an official importer). Official importers may have a dominant position themselves when competition from local manufactures is limited and the importer exclusively represents a strong brand. In such cases, competition from parallel or private imports could be an important competitive constraint, without which product prices could increase.
The report of the Governmental Committee for the Increase of Competition and Removal of Import Barriers, published in November 2014, indicated that barriers on imports – and barriers on parallel and private imports in particular – contribute to the relatively higher prices of consumer products in Israel. Some of these barriers were attributed to inadequate regulation. Others were traced to anti-competitive practices adopted by some official importers, with the purpose to force parallel imports out of the market.
The recent amendment to the Restrictive Trade Practices Law 5748-1988 (the Antitrust Law) aims to provide the antitrust commissioner with the authority to prevent conduct by official importers that may hinder competition from parallel and private imports.
On 17 July 2018 Parliament passed the amendment to the Antitrust Law as a temporary order which will automatically expire three years from the day on which it entered into force. The amendment provides the antitrust commissioner with the authority to issue directives to direct importers. A 'direct importer', previously referred to as an 'official importer', refers to a party that:
- imports goods based on an arrangement with a foreign manufacturer;
- distributes goods imported under an agreement with a foreign manufacturer; or
- manufactures goods in Israel under an arrangement with a foreign entity.
The antitrust commissioner can issue directives to direct importers if the following conditions are met:
- The direct importer's market position or business conduct raises a concern that parallel or private imports may be harmed.
- Such harm to parallel or private imports may result in significant harm to competition in the sector in which the direct importer operates.
The antirust commissioner has similar authority to give specific instructions to monopolies pursuant to Section 30. Further, Section 30(c) of the Antitrust Law (with regard to activities deemed harmful to competition) will also apply to the amendment. The most important provision in the current framework is arguably Section 30(c)(5), which infers that any activity resulting in "a barrier to entry to the sector or switching barrier within the sector" may be considered harmful to competition.
The amendment also adopts the procedural rules that govern the commissioner's authority under Section 30 of the Antitrust Law. Accordingly, the commissioner's directives are subject to an appeal process and the exercise of authority will be preceded by a hearing.
Non-compliance with the commissioner's directives may expose direct importers and their corporate officers to criminal or administrative fines.
Implications for existing direct importers
The amendment imposes no direct restrictions on the business conduct of direct importers – rather, it provides the commissioner with powers to intervene to prevent harm to competition from parallel or private imports. This is a significant change from the initial intention of lawmakers to explicitly prohibit certain practices by direct importers.
While it is difficult to predict the Israel Antitrust Authority's (IAA's) enforcement policy with respect to its new powers, the following initial observations can be made:
- The purpose of the amendment is to prevent harm to competition in a relevant market as a result of the exclusion of parallel or private imports. This scenario normally requires that a direct importer has a meaningful market position. It is therefore reasonable to assume that the antitrust commissioner will focus first and foremost on direct importers with market shares in the range of 30% to 50% (firms below this threshold will normally lack market power, while firms above it are already subject to monopoly restrictions). However, this does not mean that the IAA will not exercise its authority with regard to direct importers that possess smaller market shares, since the assessment is always market specific.
- Practices that block parallel or private imports and are unlawful under the Antitrust Law will likely be enforced through administrative penalties (or even criminal penalties in exceptional circumstances). Therefore, direct importers that possess a monopoly position or are party to arrangements restricting parallel or private imports should seek advice to ensure compliance with the Antitrust Law.
- In recent years, the government has promoted sector specific regulation in several markets, which aims to facilitate competition from imports. These sectors are less likely to be impacted by the amendment. In such markets, the need to apply the commissioner's powers seems more limited. Additionally, if the commissioner is concerned that a certain practice in these sectors, which is currently legal, could hinder parallel or private imports, it may be more efficient to advocate changes to such regulations than exercise the new powers with respect to all relevant importers.
For further information on this topic please contact Shai Bakal or Alexander Wolf at Tadmor & Co Yuval Levy & Co by telephone (+972 3 684 6000) or email ([email protected] or [email protected]). The Tadmor & Co Yuval Levy & Co website can be accessed at www.tadmor.com.
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