A

Global Country Study Report

On

“Israeli Industries”

Submitted To:

Gujarat Technological University

In Partial Fulfillment of the requirement of the award for the degree of

Master of Business Administration,

Gujarat Technological University, Ahmedabad.

Submitted By:

Students of S.Y.BMA

Shree Leuva Patel Trust MBA Mahila College, Amreli.

Academic year:

Batch 2011-2013

Shree Leuva Patel Trust MBA Mahila College, Amreli.

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Study

On

Aerospace Industry

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INTRODUCTION & THE ROLE OF AEROSPACE INDUSTRY IN

ECONOMY OF ISRAEL

INTRODUCTION

Israel Aerospace Industries was established in 1953 as Bedek Aviation

Company, five years after the establishment of the State of Israel. Contributing to

the defense of the embattled new country against neighboring Arab States, the

Company worked closely with the Israeli Air Force (IAF) to meet its needs. Bedek

Aviation was an "all-purpose service and supplies" outfit, situated in a hangar in

the coastal plains in the center of Israel.

Since the 1950s, IAI has developed its capabilities in the modification, upgrade

and improvement of fighter and commercial aircraft and helicopters, engines and

electronics systems. The experience gained in battle fostered the relationship

between IAI and the IAF, and accelerated the development of new, improved

systems and products. Israel Aerospace Industries' scope has expanded to

include technologically sophisticated solutions for battle in the air, at sea or on

land. These capabilities have contributed significantly to the Israel Defense

Force's strategic superiority in these arenas. Over the years IAI has applied the

skills and experience it has acquired in catering to Israel's security needs, in

order to capitalize on opportunities in export markets.

Israel Aerospace Industries (IAI) is a globally recognized leader in development

and production of military and commercial aerospace and defense systems.

IAI has accumulated nearly half a century of experience in creating and supplying

advanced systems for the Israel Ministry of Defense and for many demanding

customers worldwide. IAI is the largest aerospace & Defense Company and the

largest industrial exporter in Israel. IAI strives to be a world leader in all of its

main areas of activity.

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IAI'S VALUES:

1. OUR CUSTOMERS

2. INNOVATION AND TECHNOLOGY

3. OUR PEOPLE

4. ONE COMPANY

GROUPS OF AROSPACE INDUSTRY:

1. BEDEK Aviation Group

2. ELTA Systems Group

3. Military Aircraft Group

4. Commercial Aircraft Group

5. Engineering and Development Group

6. System Missiles and Space Group

7. Corporate divisions (TECHNICAL PUBLICATIONS AND TRAINING)

ROLE OF AEROSPACE INDUSTRY IN ISRAEL:

1. With five satellites in space launched from Israel, the country is one of only

eight nations in the world with an independent space-launch capability.

2. The country’s national aeronautical corporation – Israel Aircraft Industries

(IAI), which has led the country’s space program, has also developed the

Arrow, the world’s first-ever Anti-Tactical Ballistic Missile system.

3. Other Israeli firms like Elbit Systems also specialize in aerospace systems.

These systems include space and airborne reconnaisance systems, UAVs,

space cameras and thermal imaging systems, and the production of structural

components and parts for the world’s leading aerospace companies.

4. Israel Military Industries (IMI) specializes in rocket systems and through its

subsidiary Ashot Ashkelon Industries produces long and short shafts for jet

engines, products for aircraft high-lift systems, and switchboxes for the

aerospace industry.

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5. Other companies in Israel’s private aerospace sector include CONTROP

Precision Technologies Ltd., which specializes in the development and

production of electro-optical and precision motion control systems for

helicopters, UAVs and light aircraft.

ISRAEL TO SUPPLY RADAR SYSTEM FOR INDIAN JET

JERUSALEM: Israel Aerospace Industries (IAI) will be providing a radar system

for a new fighter plane being developed by India. The deal worth hundreds of

millions of dollars was recently agreed upon during the India visit of IAI head

Itzhak Nissan, daily'Yediot Ahronoth' said. IAI is also looking to get a share of an

expected contract, said to be worth over a billion dollars, to upgrade 51 Mirage-

2000 jets belonging to the Indian Air Force, the daily said.

India, Israel to jointly develop missiles

NEW DELHI: India will jointly develop and co-produce a new generation of

medium range surface-to-air missiles with Israel to secure the country's strategic

assests from growing threats posed by aerial attacks and the proliferation of

missiles in the region.

The setting up of a joint venture for producing the missiles at an estimated cost of

Rs 10,000 crore (2.5 billion dollars) was cleared by the Cabinet Committee on

Security, which met here on Thursday under the chairmanship of Prime...

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STRUCTURE FUNCTION AND BUSINESS ACTIVITY OF AEROSPACE INDUSTRY

BUSINESS ACTIVITIES OF IAI

IAI manages its activities and contacts on the basis of the following

important principles:

Abiding by all laws, agreements and business behavior guidelines

Behaving honestly and maintaining integrity

Practicing decency in all our activities

Supplying credible products of excellent quality

Standing by our commitments

Strictly guarding the credibility of documents

Being respectful of others

Maintaining loyalty to the Company as a place of employment, to

customers as providers of work and to suppliers as partners to the

realization of the Company's obligations.

THE COMPANY'S OBJECTIVES REGARDING BUSINESS CONDUCT

To develop the Company as a business-oriented, profitable body by

cultivating markets and contacts through long-term relationships and

partnerships with businesses worldwide.

To be efficient in management, production and support systems according

to accepted advanced criteria within the global industry.

To meet the needs of customers, in terms of product quality and reliability,

and by maintaining a high level of customer service.

Standing by our commitments

Strictly guarding the credibility of documents

Being respectful of others

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Maintaining loyalty to the Company as a place of employment, to

customers as providers of work and to suppliers as partners to the

realization of the Company's obligations.

CUSTOMER SERVICES OF IAI

The Corporate Customer Support Directorate is responsible for coordinating,

monitoring and auditing how to serve the customer through the following tasks:

Monitoring customer service levels to identify areas and opportunities for

improvement

Ensuring that IAI's high standard of excellence in customer support is

maintained across all divisions

Analyzing customer support activities across the company

Coordinating customer support surveys

Acting as an additional point of contact and, if needed, as an ombudsman,

for the company’s customers.

FUNCTIONS OF IAI

1. Procurement and Logistics

2. Quality Management

3. IAI Task Force

4. Design an Industrial Production System

5. Provide Security of Documents

6. Development of employee’s career

7. Management and Organizational Training

8. Technological Training

9. Intelligence Surveillance & Reconnaissance Systems (ISR)

10. Developing Innovative & Secure Information Technology Solutions to Meet

Our Customers’ Most Challenging & Important Needs

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11. Planning, Programming and Budgeting

12. Effective Decision Making

13. Cost Analysis, Estimating and Risk Analysis

ORGANIZATION STRUCTURE OF IAI

COMPARABLE POSITION ISRAEL INDUSTRY

The prominent position gained by Israel's aerospace industries is reflected in the

participation of Israeli industries in a growing number of projects, either as prime

contractors and system integrators or as team members and subcontractors.

Israel aerospace industries produce a new system and innovative product year

by year and it more accepted by the people and trough it cover a maximum

market in compare to other aerospace company

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THE ISRAEL EXPORT & INTERNATIONAL COOPERATION INSTITUTE

Founded in 1958 and supported by over 2,600 member firms, private sector

bodies, and the Israeli government, the Israel Export & International Cooperation

Institute promotes business relationships between Israeli exporters and overseas

businesses and organizations. This institute helps to build successful joint

ventures, strategic alliances, and trade partnerships. Israel's aerospace

industries joint this institute and after joint this institute increase a business

relationships between Israeli exporters and overseas businesses and

organizations.

MILITARY RELATION OF ISI AND INDIA

India and Israel have increased cooperation in military and intelligence ventures

since the establishment of diplomatic relations. The rise of Islamic terrorism in

both countries have generated a solid strategic alliance between the two. India

recently launched a military satellite for Israel through its Indian Space Research

Organization. In 1996, India purchased 32 IAI Searcher unmanned aerial

vehicles (UAVs), Electronic Support Measure sensors and an Air Combat

Manoeuvring Instrumentation simulator system from Israel. Since then Israel

Aerospace Industries (IAI) has serviced several large contracts with the Indian

Air Force including the upgrading of the IAF's Russian-made MiG-21 ground

attack aircraft and there have been further sales of unmanned aerial vehicles as

well as laser-guided bombs.

Pakistan feared intelligence relations between India and Israel threatened

Pakistani security. When young Israeli tourists began visiting the Kashmir valley

in the early nineties, Pakistan suspected they were disguised Israeli army officers

there to help Indian security forces with counter-terrorism operations. Israeli

tourists were attacked, with one slain and another kidnapped. Pressure from

the Kashmiri Muslim Diaspora in the United States led to his release. On

November 10, 2008, Indian military officials visited Israel to discuss joint

weapons development projects, additional sales of Israeli equipment to the

http://en.wikipedia.org/wiki/Islamic_terrorismhttp://en.wikipedia.org/wiki/Military_satellitehttp://en.wikipedia.org/wiki/Indian_Space_Research_Organisationhttp://en.wikipedia.org/wiki/Indian_Space_Research_Organisationhttp://en.wikipedia.org/wiki/IAI_Searcherhttp://en.wikipedia.org/wiki/Unmanned_aerial_vehiclehttp://en.wikipedia.org/wiki/Unmanned_aerial_vehiclehttp://en.wikipedia.org/wiki/Israel_Aerospace_Industrieshttp://en.wikipedia.org/wiki/Israel_Aerospace_Industrieshttp://en.wikipedia.org/wiki/Indian_Air_Forcehttp://en.wikipedia.org/wiki/Indian_Air_Forcehttp://en.wikipedia.org/wiki/MiG-21http://en.wikipedia.org/wiki/Laser-guided_bombhttp://en.wikipedia.org/wiki/Kashmiri_Muslimshttp://en.wikipedia.org/wiki/United_States

9

Indian military, and counter-terrorism strategies. The new round of talks was

seen as a significant expansion in the Indian-Israeli strategic partnership.

In 2008, Israel surpassed Russia as the largest arms supplier to India. In

December 2009, Lt.-Gen. Gabi Ashkenazi, Chief of Staff of the Israel Defense

Forces, made a historic state visit to India to cement the defense ties between

the two countries. He pledged every help to India in fighting terrorism.

MARKET GROWTH 0F 2009 TO 2013

According to Forecast International market research, the world aerospace market

is estimated to increase by over US$1.4 trillion over the next five years 83% of

which will be within commercial activities.

Over 150 Israeli companies, comprising 44,000 employees, are operating in

aerospace-related fields. In 2008 Israel's aerospace related export amounted

over US$5 billion in sales.

Market Growth 2009-2013

Aerospace Market

Segments

($ Billions)

Military 185

Commercial 934

Business 109

UVS 9

Space 136

Missiles 53

http://en.wikipedia.org/wiki/Lieutenant-Generalhttp://en.wikipedia.org/wiki/Gabi_Ashkenazihttp://en.wikipedia.org/wiki/Chief_of_General_Staff_(Israel)http://en.wikipedia.org/wiki/Chief_of_General_Staff_(Israel)

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AEROSPACE REVENUE GROWTH

From the top 14 companies Israel Aerospace Industries second in revenue

growth. Israeli platforms, including satellites, special mission aircraft, business

jets, and unmanned aerial systems, are operating, or under production, for

customers around the world. Israeli made subsystems are being integrated in the

world's leading passenger planes, fighter aircraft, military transports, helicopters,

and trainers. Follow table for revenue growth of top companies.

POLICIES AND NORMS OF INDIA FOR IMPORT OR EXPORT TO

THE ISRAEL INCLUDING LICENCING/PERMITION TAXATION

EXPORT-IMPORT NORMS OF INDIAN AEROSPACE INDUSTRY

Indian Customs Imports Data is a systematic and consolidated report based &

compiled from Bill of Entry & Invoices filed with Indian Customs. It contains all the

import records of Sea & Air Shipments coming to Indian Sea ports, ICDs, CFS, &

Airports.

Derived from Indian Customs, India Exports data contains important details like

Indian Exporters name & address, Quantity, Price, HS Code etc. which will help

you in getting actual market intelligence for any product or HS Classification.

EXPORT-IMPORT NORMS OF ISRAEL AEROSPACE INDUSTRY Free import

250 cigarettes, 250 grammes of other tobacco products, 1 Litre of spirits, 2 litres

of wine 250 ml of perfume, Legal gifts valued up to 125 USD.

Prohibited

Import:- Any cats, dogs and other animals being imported will require a written

statement declaring that they have owned the pet for more than 90 days prior to

beginning their flight, a general health certificate from the country of origin and a

rabies vaccination certificate. Pets coming from the UK will require a rabies

vaccination after no more than 5 days inside the country.

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Export:-

•Dogs and cats less than 3 months old are restricted from entering the country

• Antiquities and items of great cultural significance will require a special permit

from the Israel Antiquities Authority in order to leavel the country.

• Fresh meat, bananas and pineapples; fruit and vegetables from the African

continent, especially South Africa are also restricted without appropriate

permission.

• Religious material being imported for the purpose of preaching is expressly

prohibited.

Restricted

Illegal drugs, Weapons, Explosives and ammunition, Knives and deadly

weapons, Plant and plant products – unless permission has been obtained, Soil,

Milk and Dairy products, Fresh Meat and meat products, Games of chance and

gambling machines, Cordless telephones with a range of up to 900 MHz,

Counterfeit money and goods, Pornographic material.

TAXATION TAXATION FRAMEWORK FOR AEROSPACE IN INDIA India has a federal tax structure whereby both the Central and the State

Governments impose a range of taxes.

The complex and multi-tiered tax structure in India makes domestic

manufacturing uncompetitive in a range of situations.

The Indian Government has significantly liberalized the civil aviation sector. It

welcomes domestic private participation in manufacturing and R&D in the

aerospace sector with 100 percent Foreign Direct Investment (FDI) allowed on

the automatic route in most areas, the exceptions being air traffic services.

The defence sector has more restrictions: while 100 percent domestic private

investment is allowed, subject to licensing, in the manufacture of defence

equipment, there is a cap of 26 percent on FDI.

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INDIRECT TAX: INCENTIVES FOR INDIAN AEROSPACE AND DEFENSE

The current indirect tax rules seem to be skewed against the private sector in

terms of taxes and duties collection and refund procedures vis-à-vis Foreign and

Defense Public Sector Undertakings (DPSUs).

SERVICE TAX

No exemption from Service tax on taxable services is provided to domestic

defense sector including services received from overseas consulting, training,

maintenance, etc. However service tax on services exported.

CUSTOMS DUTY

Full Customs and Excise duty exemption is available to DPSUs and their

ontractors orsub-contractors and their work centres engaged in specified defense

programmes like Brahmos and Fifth Generation Fighter Aircraft, onimport of

defense equipment and defense related imports.

VAT

Apart from certain specified exemptions on sale of notified goods such as

telecommunication equipment, motor vehicles, arms like rifles, revolvers etc to

specified defense establishments, no general concessions are currently provided

under VAT laws.

TAXATION FRAMEWORK FOR AEROSPACE IN ISRAEL

Personal income tax

Residence - An individual is resident if his "centre of life" is in Israel. If an

individual spent 183 days or more, in Israel during the current tax year or; if an

individual spent 30 days or more in Israel during the current tax year and the total

days spent in Israel during the current tax year AND the preceding two years

were 425 days or more.

Filings - A married couple will generally file a join assessment. Individuals must

file their annual tax returns by the 30 April of the 2011

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Taxable Income - All income from employment and business is taxable. Passive

income from bank deposits and savings, both in Israel and abroad are also

taxable.

Capital Gains - Capital gains may arise on the sale of assets; for individuals this

is generally 25%.

Corporate tax

Residence - A corporation is deemed to be resident if its activities are managed

and controlled within the State of Israel or established under its laws.

Scope - Israeli resident companies are taxed on their worldwide profits, with

credits granted for overseas taxes paid.

Tax Rate - In 2011 the corporate tax rate was 24%. In 2012; in accordance with

the Knesset passing an amendment pursuant to the Law for Change in the Tax

Burden passed on December 6, 2011; raised the expected corporate tax rate in

2012 to 25%, with future expected reductions being repealed.

VAT

Value Added Tax (VAT) in Israel, is applied to most goods and services,

including imported goods and services. The standard rate is 17%, it rose from

16% on 1 September 2012.

National insurance (social Security)

A returning citizen is someone who has either resided overseas for at least 10

years; or resided overseas for 5 years and returned to Israel during 2007-2009;

or were considered foreign residents on January 1 2007. Special benefits also

exist for returning scientists, and entrepreneurs. The law was introduced in order

to persuade many Israelis, who had made yerida (left the state of Israel) to

return.

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LICENCING

LICENCING POLICIES OF INDIAN AEROSPACE INDUSTRY

Industrial licensing is compulsory for the following industries:

1. Large and Medium Industries: Items reserved for the Small Scale Sector

2. All Industries:

All items of electronic aerospace and defense equipment.

All items related to the production or use of atomic energy including the

carrying out of any, under the Atomic Energy Act, 1962.

Comprehensive list for which industrial licensing is compulsory:

1. Coal and lignite

2. Petroleum and its distillation products.

3. Sugar

4. Animal fats and oils, partly

5. Cigars and cigarettes of tobacco and manufactured tobacco substitutes

6. Motor cars

7. Electronic aerospace and defence equipment: all types

8. Hazardous chemicals

9. Drugs and Pharmaceuticals

10. Entertainment electronics (Color TV's, CD players, tape recorders)

11. White goods

INDUSTRIAL LICENSING

All industrial undertakings are exempt from obtaining an industrial license to

manufacture except .

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LOCATIONAL POLICY

Relaxation in the aforesaid locational restriction is possible if an industrial license

is obtained as per the notified procedure.

The location of industrial units is further regulated by the local zoning and land

use regulations as also the environmental regulations.

LICENCING POLICIES OF ISRAEL AEROSPACE

ISRAELI PLANE GETS FAA CERTIFICATION

Israel Aerospace Industries' new executive jet, G280, has received a civil

licensing certificate from the US Federal Aviation Administration and the Israel

Civil Aviation Authority.

The IAI has received orders for dozens of such jets, with the cost of an

accessorized aircraft ranging from $16 million to $24 million.

The plane offers impressive performance and advanced technologies, and

features a spacious passenger compartment fitted for 10 people in two seating

areas, and a flying range of 3,600 miles.

Giora Romm, director of the Civil Aviation Authority of Israel, noted that "during

the licensing period, the Aviation Authority invested some 60,000 engineering

working hours and some 150 flight hours in this project of technological

innovation in a series of systems."

ISRAEL AEROSPACE INDUSTRIES FINED NIS 1 MILLION FOR TRYING TO

EXPORT WITHOUT PERMIT

The Defense Ministry fined Israel Aerospace Industries NIS 1 million in 2011 for

conducting negotiations to sell military equipment to an unnamed foreign country

without first obtaining ministry approval.

Israeli defense exports were valued at around NIS 6 billion last year. Of the few

thousand such export deals carried out in 2011, the conducted in-depth

examinations of 161 for possible noncompliance with the terms of their permits.

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The administrative disciplinary process is conducted by a committee within the

department. The company under review has the right to a hearing and also to a

court appeal. The punishments can include fines as well as the temporary or

permanent suspension of the firm's export license. Fines range from a minimum

of NIS 100,000 to a maximum of about NIS 1 million.

PRESENT POSITION AND TRENDS OF AEROSPACE (EXPORT /

IMPORT) WITH INDIA AND ISRAEL

INTRODUCTION

There has been an upsurge of companies that provide competitive intelligence

reports on export import data India, as this has become an integral part of

international business. This export import India data is assembled, arranged and

standardized on the basis of shipping bills and import bills and then made

available to the companies registered members on the web.

In India, Gujarat has always been a pioneering state with all its initiatives in the

process towards economic development. It plays a pivotal role in terms of

creating and enabling atmosphere of entrepreneurship, giving incentives to

transform entrepreneurial qualities into development activities, thus, improving

the economic status of the state as a whole. Gujarat, a state with 5 crore people,

has witnessed Gross State Domestic Product (GSDP) of Rs. 169,354 crore in

2005-06 at constant (19992000) prices. In the year 2004-05, the percentage

share of Gujarat in India's fixed capital investment was 16.98%, that in value of

output was 15.59% and in net value added was 13.86% (Source: Statistical

Information; Industries In Gujarat, 2007).

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PRESENT POSITION OF AEROSPACE INDUSTRY IN INDIA

• The Indian aerospace and defense industry is unique due to the

overwhelming involvement of the government in the demand and supply of

defense and aerospace products. The industry is predominantly government-

owned and the domestic needs have been fulfilled largely through imports

from Russia, Israel, and the United States.

• The Indian aerospace and defense industry shipments are expected to grow

substantially over the period 2006-2010 due to the increased outsourcing

opportunities coupled with the export competitiveness drive initiated by the

government. Imports are gradually expected to decline with export growth led

by the aircraft and spacecraft parts and navigation instruments

segments/sectors.

TRENDS OF BUSINESS OF INDIAN AEROSPACE INDUSTRY

• An increase in private owned airlines

• Increased outsourcing/manufacturing activities occurring in India

• Government’s easing of regulatory norms that would further increase the

pace of activity in Indian aerospace

• An increased defense acquisition program over the next 10 years.

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IMPORT AND EXPORT BETWEEN INDIA AND ISRAEL

PRESENT POSITION OF AEROSPACE INDUSTRY IN ISRAEL

• The Israel aerospace industry booked a relatively strong performance in 2011,

remaining one of the most significant contributors to the national economy.

Despite persistently sluggish market conditions around the globe, annual sales

are expected to top $218 billion in 2011, marking the eighth consecutive year of

growth. The industry’s robust workforce also points to the vital role played by

aerospace in the U.S. economy.

• Israel Aerospace Industries (IAI) will present its new military secure

communication solution a broadband cellular network based on the 4th

Generation Long Term Evolution (LTE) cellular standards. This unique multi-

purpose solution is designed to answer the advanced military and security

forces' communication needs.

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TRENDS OF BUSINESS IMPORT AND EXPORT DATA OF ISRAEL

Imports Exports Balance

of

Trade

Service

s

Good

s

Total Service

s

Good

s

Total

2010 18.1 58.0 76.1 24.2 56.1 80.3 +4.2

2009 17.1 46.0 63.1 21.4 46.3 67.7 +4.6

2008 19.8 64.4 84.2 23.9 57.7 81.6 -2.6

2007 17.5 56.0 73.5 20.3 50.8 71.1 -2.4

2006 14.7 47.2 61.9 18.3 43.9 62.3 +0.4

2005 13.8 43.9 57.7 16.9 40.4 57.3 -0.4

2004 12.9 39.5 52.4 15.4 36.9 52.3 -0.1

2003 11.2 33.3 44.5 13.1 30.4 43.5 -1.0

2002 10.8 32.0 42.8 11.7 27.6 39.3 -3.5

2001 11.9 31.7 43.6 12.5 28.0 40.5 -3.1

2000 12.1 34.7 46.8 15.7 30.9 46.6 -0.2

1999 10.3 30.6 40.8 12.3 25.5 37.8 -3.0

1998 9.3 26.6 35.9 10.1 22.8 32.9 -3.0

1997 9.0 28.2 37.2 9.2 22.6 31.8 -5.4

1996 8.9 28.7 37.6 8.3 21.3 29.6 -8.0

1995 8.3 27.0 35.3 8.0 19.5 27.5 -7.8

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IMPORT AND EXPORT BARRIERS OF AEROSPACE INDUSTRY

ISRAEL-FOREIGN TRADE

In 1988 Israel had a quasi-open economy. Its chronic trade imbalance reflected

the country's military burden, its need to import capital and raw materials, and its

excess civilian consumption. This trade deficit had long been covered by

transfers and loans of various sorts. Despite drops in the prices of oil and other

commodities (the effects of which were felt mainly in 1986) and improvement in

Israel's terms of trade because of the fall in value of the United States dollar and

the parallel strengthening of European currencies, the balance of trade worsened

in 1986. The drop reflected a surge in inventory rebuilding after the 1984-85

recession.

From 1970 to 1986, Israel's primary exports consisted of basic manufactures,

machines, and transportation equipment, chemicals, and miscellaneous

manufactures. Primary imports were basic manufactures, machines, and

transportation equipment. The United States has been Israel's single largest

trading partner, providing a market for approximately 25 percent of Israel's

exports and supplying about 20 percent of its nonmilitary imports.

Israel-United States trade was far less distorted by tariff and nontariff barriers, at

least from the United States' side. The overwhelming majority of Israeli exports

entered the United States market duty free. By contrast, a large share of United

States exports to Israel not only were subject to substantially higher tariffs, but

also were subject to a variety of nontariff barriers, including a substantial "hidden

tariff."

Informed sources claimed that an elimination of United States duties under the

United States-Israel Free Trade Area (FTA) Agreement on these products would

lead to an estimated increase of approximately 1 percent of total Israeli exports

to the United States. The major categories affected will be agricultural products

such as cheeses, olives, and processed tomato products, and textile and apparel

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items such as swimsuits, knitwear, undergarments, and thread. Very few high-

technology products will be affected by the FTA agreement.

ISRAEL-FOREIGN RELATIONS

The cabinet, and particularly the inner cabinet, consisting of the prime minister,

minister of foreign affairs, minister of defense, and other selected ministers, are

responsible for formulating Israel's major foreign policy decisions. Within the

inner cabinet, the prime minister customarily plays the major role in foreign policy

decision making, with policies implemented by the minister of foreign affairs.

Other officials at the Ministry of Foreign Affairs include, in order of their rank, the

director general, assistant director’s general, legal and political advisers, heads

of departments, and heads of missions or ambassadors.

Israeli foreign policy is chiefly influenced by Israel's strategic situation, the Arab-

Israeli conflict, and the rejection of Israel by most of the Arab states. The goals of

Israeli policy are therefore to overcome diplomatic isolation and to achieve

recognition and friendly relations with as many nations as possible, both in the

Middle East and beyond. Like many other states, throughout its history Israel has

simultaneously practiced open and secret diplomacy to further its main national

goals. For example, it has engaged in military procurement, the export of arms

and military assistance, intelligence cooperation with its allies, commercial trade,

the importation of strategic raw materials, and prisoner-of-war exchanges and

other arrangements for hostage releases. It has also sought to foster increased

Jewish immigration to Israel and to protect vulnerable Jewish communities in the

Diaspora.

ISRAEL-AIR FORCE

By a tremendous effort, Israel assembled a motley group of combat aircraft when

Arab air forces attacked it after the declaration of independence in 1948. The first

airplanes came from Czechoslovakia, which furnished propeller-driven

Messerschmitt and reconditioned Spitfires from World War II. Czechoslovakia

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also trained the first Israeli pilots, although these few were quickly supplemented

by hundreds of experienced volunteers from a number of countries. The prestige

of the air force was enhanced after its spectacular success during the June 1967

War, and the subsequent decade saw an unprecedented increase in its

manpower and equipment resources. Since 1971 the air force has also assumed

full responsibility for air defense.

In 1988 the air force consisted of about 28,000 men, of whom approximately

9,000 were career professionals, and 19,000 were conscripts assigned primarily

to air defense units. An additional 50,000 reserve members were available for

mobilization.

Israel has an extensive arms industry and is competing with France over the

position of fourth global biggest arms exporter (after the US, Russia and

Germany).

ISRAEL - INTERNATIONAL TRADE

Until the 1990s, high tariffs and strong non-tariff barriers characterized Israel's

trade policy, and several barriers are still in place in particular with regard to

processed food and agricultural products. Israel has free trade agreements with

the European Union (since 1975), the United States (signed in 1985, fully

effective since 1995), the European Free Trade Association (EFTA, effective

since 1993), Canada (1997), and Turkey and has concluded bilateral agreements

with a number of other states.

Israel is the sole country in the world to have both European Union and U.S. free

trade agreements. In June 2000 an association agreement between the EU and

Israel came into force. In line with WTO regulations, Israel gradually began

exposing the domestic market to foreign imports since September 1991. This

process allowed administrative limitations on imports from third countries to be

canceled, imposed higher rates of customs tariffs that since have been reduced,

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according to their degree of influence on local production, and allowed Israeli

industry time to adjust to competition.

The largest state companies are Israel Military Industry (IMI), Israel Aerospace

Industry (IAI) and Rafael Advanced Defense Systems. IAI is about to be (partly)

privatized.

TARIFF BARRIERS

Some failing aerospace industries of Israel receive a protection with an effect

similar to subsidies in that by placing the tariff on the Aerospace industry, the

Aerospace industry is less enticed to produce goods in a quicker, cheaper, and

more productive fashion. The third reason for a tariff involves addressing the

issue of dumping. Dumping involves a country producing highly excessive

amounts of goods and dumping the goods on another foreign country, producing

the effect of prices that are "too low". Too low can refer to either pricing the good

from the foreign market at a price lower than charged in the domestic market of

the country of origin. The other reference to dumping relates or refers to the

producer selling the product at a price in which there is no profit or a loss. The

purpose (and expected outcome) of the tariff is to encourage spending on

domestic goods and services.

NON-TARIFF BARRIERS

Licenses

Quotas

Embargo

Standards

Administrative and bureaucratic delays at the entrance

Import deposits

Foreign exchange restrictions and foreign exchange controls

http://www.google.com/url?sa=t&source=web&cd=1&ved=0CBwQFjAA&url=http%3A%2F%2Fwww.imi-israel.com%2F&rct=j&q=israeli%20military%20industries&ei=vMvkTYLpO4boOY6dtbYG&usg=AFQjCNG5-IWiQYMlUNF378-Fg0TlON3fIA&cad=rjahttp://www.google.com/url?sa=t&source=web&cd=1&sqi=2&ved=0CCUQFjAA&url=http%3A%2F%2Fwww.iai.co.il%2F&rct=j&q=israel%20aerospace%20industries&ei=5svkTdWmBIfsOZ6Ezc0G&usg=AFQjCNFt1J9ezxx4e__ICFra_f0ZFY_2lw&cad=rjahttp://www.google.com/url?sa=t&source=web&cd=1&sqi=2&ved=0CCUQFjAA&url=http%3A%2F%2Fwww.iai.co.il%2F&rct=j&q=israel%20aerospace%20industries&ei=5svkTdWmBIfsOZ6Ezc0G&usg=AFQjCNFt1J9ezxx4e__ICFra_f0ZFY_2lw&cad=rjahttp://www.google.com/url?sa=t&source=web&cd=1&sqi=2&ved=0CCUQFjAA&url=http%3A%2F%2Fwww.rafael.co.il%2F&rct=j&q=rafael%20advanced%20defense%20systems&ei=C8zkTcftA8yeOt6R0McG&usg=AFQjCNEs2CPiXA2-GWfDMdacbtxYvg-eSA&cad=rjahttp://www.aviationweek.com/aw/generic/story_channel.jsp?channel=defense&id=news/awx/2011/04/13/awx_04_13_2011_p0-310232.xml&headline=Israel%20Plans%20To%20Sell%2020-30%20Pct%20of%20IAI%20in%202012http://www.aviationweek.com/aw/generic/story_channel.jsp?channel=defense&id=news/awx/2011/04/13/awx_04_13_2011_p0-310232.xml&headline=Israel%20Plans%20To%20Sell%2020-30%20Pct%20of%20IAI%20in%202012

24

CONCLUSION

The growth of the Israeli defense industry was a combination of policy and

circumstances. The realization that, despite the traumatic experience of the

Holocaust, the Jewish state was still subjected to existential threats by the

Muslim world, have led to the psychological as well as material institutionalization

of the Centrality of Security concept. This perception has been strengthened by

various arms embargoes and broken agreements inflicted by foreign suppliers.

Consequently, Israel's policymakers allowed a rapid expansion of the state-

owned arms industries and their involvement in the production of indigenous

state-of-the-art weapon systems. The industries became the largest

manufacturing and technological sector in Israel, employing tens of thousands,

most of them organized in strong unions, and contributing enormously to the

Israeli military qualitative edge, the nation's diplomatic efforts and its economy.

The growing dependence on American weaponry deprived the Israeli companies

of their most important client and sales promoter, and forced them to rely on

foreign customers to ensure sufficient revenues. This exposed them to the

cyclical nature of the arms exports market and to fluctuations in the official rate of

exchange. The simultaneous drop in domestic and foreign orders in the late

1980s and at the beginning of the 1990s revealed the industries' vulnerability.

Their inherent weaknesses threatened their very existence and contributed to

their financial downfall.

The government stabilized their financial condition but refrained from addressing

their basic structural and labor deficiencies due to a combination of political cost

calculations, incoherent policies and a chronic problem of agenda congestion.

Restructuring, consolidation and privatization of the state-owned sector have

25

been kept firmly off the agenda despite their commercial and financial benefits.

Policymaking toward this sector was (and still is) crisis-driven and responsive

rather than pro-active. Following the government's massive handout, the state-

owned industries showed signs of recovery in the second half of the 1990s, but

there are major question marks as to their long-term viability.

Privately owned industries emerged as strong and viable competitors, both

domestically and internationally, while the IDF continued to reduce its local

purchasing considerably across the entire industry. The substantial cut in Israel's

defense R&D budget and the decline in research partnerships with foreign clients

will restrict the industry's capacity to develop successful--and export worthy--

weapons systems. The arms exports restrictions imposed by the United States,

Israel's patron and main benefactor, will deter foreign consumers, while the

Israeli industries, both private and state-owned, would have to face as

competitors the giant firms now existing in Europe and the United States.

Israeli companies are not permitted to join or merge with multinational alliances

in the defense sector, and this position is unlikely to change in the near future. In

light of the above, the long-term viability of the Israeli defense industry remains

questionable. Unless the government would devise and implement a plan for the

restructuring and preservation of the state-owned industries, which seems

improbable under the prevailing circumstances, their demise--especially in the

case of the technology-starved IMI--is likely.

26

A Study on Diamond Industry

27

About Israel’s Diamond Industry

The Israeli Diamond Industry is one of the most important and largest diamond

centers worldwide. In addition to its status as a leading polishing center, the

Israeli Diamond Industry has developed into an international trade center through

which rough and polished diamonds pass regularly and subsequently adorn a

significant volume of the diamond jewelry sold all over the globe. The Israeli

Diamond Industry is based on a tradition that goes back hundreds of years. It

prides itself on its skillfulness and uniqueness as well as its unprecedented

creativity and cutting-edge technology. It adheres to a strict ethical code and

offers buyers a wide variety of merchandise and services all under one roof.

Israel is one of the diamond world’s leading centers – a hub for both the trade

and manufacture of polished diamonds. Processing a great amount of the world’s

gem-quality rough in dollar terms, Israeli diamond companies supply the stones

that garnish a vast amount of the diamond jewelry sold worldwide.

The Israeli Diamond Industry is based on a tradition that goes back hundreds of

years. It prides itself on its skillfulness and uniqueness as well as its

unprecedented creativity and cutting-edge technology. It adheres to a strict

ethical code and offers buyers a wide variety of merchandise and services all

under one roof.

Among the various entities that function within the Israeli Diamond Industry is the

Israel Diamond Institute Group (IDI), which plays a central role in promoting the

Industry in the world market. The Group, along with its subsidiaries and various

units, acts effectively to develop new horizons and innovative methods that help

to position the Israeli Diamond Industry at its fitting place in the forefront of the

world industry and sophisticated technological research. IDI Group activity is

conducted via offices in Hong Kong as well as through the Harry Oppenheimer

Diamond Museum, and the Israel Diamond Technology Center (IDT).

http://www.israelidiamond.co.il/english/http://www.israelidiamond.co.il/english/http://www.israelidiamond.co.il/english/news.aspx?boneID=377http://www.israelidiamond.co.il/english/news.aspx?boneID=393http://www.israelidiamond.co.il/english/news.aspx?boneID=1657http://www.israelidiamond.co.il/english/news.aspx?boneID=489http://www.israelidiamond.co.il/english/news.aspx?boneID=489http://www.israelidiamond.co.il/english/news.aspx?boneID=405

28

The Hub of the Diamond World

Israel is one of the diamond world’s leading centers – a hub for both the trade

and manufacture of polished diamonds. Processing a great amount of the world’s

gem-quality rough in dollar terms, Israeli diamond companies supply the stones

that garnish a vast amount of the diamond jewelry sold worldwide.

Know-How and Expert Craftsmanship

Israel’s diamond polishing factories – considered the most advanced in the world

– are equipped with sophisticated diamond processing technologies – many of

which were developed locally. Israeli technological advances such as lasers for

diamond cutting, brutting machines, automatic polishing machines and computer

aided design systems are used today throughout the global diamond industry.

Specialties

Exploring new markets for diamonds and gemstones linking diamond traders with

buyers and retailers worldwide Providing vital information regarding diamond

prices and sales worldwide Marketing Israeli diamonds worldwide.

Contributing to Israel’s Economic Development

The Israeli Diamond Industry contributes approximately $800 million annually to

Israel’s balance of payments. More than 20,000 families earn their livelihood

directly through the Israeli Diamond Industry. Moreover, approximately 330,000

visitors and foreign buyers visit the complex annually.

In addition to the 20,000 employed directly, the Israeli Diamond Industry

contributes indirectly to other branches of the economy such as tourism, banking,

aviation, communications and security, and is responsible for creating many

more employment opportunities.The Israeli Diamond Industry has also been

instrumental in the urban and economic development of Ramat-Gan. "Ramat-

Gan City" one of the most important and vibrant business centers in Israel was

built around the diamond complex.

29

The Israeli Diamond Industry works in close cooperation with the Ramat Gan

municipality on a wide range of activities aimed at developing the city and

promoting the welfare of its citizens. Similarly, the industry has a long history of

cooperation with Shenkar College of Engineering and Design for the

advancement of industry, art, design and higher education in the city.

Structure, Functions and Business activities of Israel Diamond

Industry

As the umbrella organization of The Israeli Diamond Industry, the Israel Diamond

Institute (IDI) Group of Companies has a clear philosophy with goals that are

deeply rooted in daily implementation and practice.

Leading Israel’s diamond industry into the 21st century and maintaining its

position at the apex of the global diamond industry through exceptional, round

the clock, comprehensive, all-inclusive services.

Constantly ensuring that the industry’s services maintain their reputation as

exceptional and extraordinary.

Canvassing the global market, searching for new rough diamond sources,

markets, ventures, clientele as well as new technologies and manufacturing

techniques.

Monitoring the international diamond industry for new trends, phenomena and

events, as well as parallel and relevant luxury industries such as fashion,

beauty and leisure.

Maintaining and strengthening our brand through new and innovative

branding methodologies, advertising strategies, and ground breaking creative

campaigns and online portal coverage.

The structure of the diamond industry is like a pyramid: at the top are a small

number of large modern factories, each employing between 4,000 to 5,000

workers; below them there are the medium units, employing up to 500 workers;

and at the bottom are a large number of small units, employing up to 50 workers.

30

The large units are registered under the Factories Act. These units are keen to

be registered, as they cannot export or import directly without the DTC (De Beers

Trading Company) Certificate, which can be accessed only if they are registered.

Comparative Position of Diamond Industry with India and

Gujarat

STRENGTHS

• Availability of cheap and skilled labor

• Experience

• Pricing and inventory management

• Supportive government policy

• Low cost of production

WEAKNESS

• Less emphasis on quality

• Low productivity

• No contracts

• Lack of standardization

• Insolvency

OPPORTUNITIES

• New markets

• Colored diamonds

• Scope in domestic market

• Outsourcing of diamond jewellery

THREATS

• Entry of China and Thailand in the diamond sector

• Conflict diamonds

• Use of child labor

• Anti social activities and threat of terrorism

Swot Analysis

31

Present Position and Trend of Diamond Industry (Import/Export) with India

The diamond industry consists of segments that mine, processes and markets

gem diamonds and industrial diamonds. Gem quality diamonds are mined

primarily in Botswana, Russia, South Africa, Angola, Namibia, Australia and

Democratic Republic of the Congo.

It takes an average of 250 tons of mined ore to produce one carat of finished

diamond. 92% of diamond pieces cut in 2003 were in Surat, Gujarat, India. Other

important centers of diamond cutting and trading are Antwerp, London, New

York, Tel Aviv, Amsterdam. More than 50% of the world’s production of rough,

polished and industrial diamond passes through Antwerp. 8 in 10 of all rough

diamonds in the world are handled in Antwerp. 1 in 2 of all cut diamonds passes

through Antwerp. The Antwerp diamond sector has an annual turnover of 39

billion U.S. dollars.

The Diamond Trade Company (the distribution arm of De Beers) sorts and

distributes 45% of the world’s rough diamond supply. The balance is sorted and

sold in centers’ such as Antwerp and more recently Mumbai. The DTC

exclusively sells to 93 clients that are called “Sight holders”. The best quality

diamonds in terms of color and clarity are distributed to the gem market with an

accompanying Kimberley Process certificate to prove that they are from conflict

free sources. The remainder is ultimately used for industrial purposes, such as

cutting and drilling.

Present Trade Barriers for Import/Export of Diamond Industry

What is mean by trade barriers?

Various types of barriers /restrictions are imposing by different countries on

international business activities. Such imposed artificially restriction on import

and export is called Trade barriers. Trade barriers are imposing on import and

32

also on export by large majority of country including developed, developing and

undeveloped/LDC. Trade barriers are Man –made obstacles on free movement

of goods among the countries.

Barriers to trade are regulations and measures imposed by authorities that

unduly impede trade in goods or services, in export or import. Various restrictions

on investments can also be counted among trade barriers. Loss of business

opportunities is the most serious impact of a trade barrier, but even their minor

effects may require extra time and trouble and cause additional expenses.

Trade barriers can be e.g. the following: various standards and technical

regulations inspection, testing or certification requirements import licensing,

import quotas, import bans customs procedures, special border documentation

requirements high customs duties.

Tariff and Non-tariff Barriers

Licenses

The most common instruments of direct regulation of imports (and sometimes

export) are licenses and quotas. Almost all industrialized countries apply these

non-tariff methods. The license system requires that a state (through specially

authorized office) issues permits for foreign trade transactions of import and

export commodities included in the lists of licensed merchandises. Product

licensing can take many forms and procedures. The main types of licenses are

general license that permits unrestricted importation or exportation of goods

included in the lists for a certain period of time; and one-time license for a certain

product importer (exporter) to import (or export). One-time license indicates a

quantity of goods, its cost, its country of origin (or destination), and in some

cases also customs point through which import (or export) of goods should be

carried out. The use of licensing systems as an instrument for foreign trade

regulation is based on a number of international level standards agreements. In

particular, these agreements include some provisions of the General Agreement

on Tariffs and Trade and the Agreement on Import Licensing Procedures,

concluded under the GATT (GATT).

33

Import restrictions

In December 2009, the International Trade Administration of the DOC published

a final rule notice that extended the Diamonds Import Monitoring and Analysis

(DIMA) system until March 21, 2011. In this report they publish about the import

rules or some prohibition to export and import of diamonds. Government of Israel

set the import quotas and set the percentage for FDI which is maintain certain

30% of the diamond products of the Israel (Domestic) and remaining are of

different countries.

Barriers to customs procedures

The Israel Customs requires that exporters should provide additional documents

and information on goods waiting for customs clearance. For certain products,

such as Diamond and jewellary products, textiles, clothing or footwear, the

information required goes quite beyond that necessary for normal customs

clearance. These formalities, which are both complicated and costly, have

constituted barriers to exporters, particularly to small exporters.

The Israel Customs also requests confidential processing information for the

imports of Diamonds and Jewellary products under certain circumstances. For

example, when the Diamonds Jewellary is made of more than one Different

diamonds, information must be provided on the respective weight, value and

Color and features of each jewellary. Such requirement has in practice resulted

in an increase of cost.

Labeling

The Israel maintains stringent requirements on Diamonds labeling. The stringent

labeling requirement has considerably increased the cost to exporters in

developing countries, constituting a practical import restriction to those countries

not in a position to conduct diamond analysis.

34

The new requirements will inevitably increase the burden to exports to the US.

Israel raises its concern as to whether these specific labeling requirements are

either excessively burdensome or not entirely necessary.

Standards

Standards take a special place among non-tariff barriers. Countries usually

impose standards on classification, labeling and testing of products in order to be

able to sell domestic products, but also to block sales of products of foreign

manufacture. These standards are sometimes entered under the pretext of

protecting the safety and health of local populations.

Tariff escalation

The Israel imposes tariff quotas on imports of certain Diamonds or Jewellary

products in order to control the quantities of import and protect the interests of

domestic producers. Products subject to tariff quotas in fiscal year 2005 included

almost all Diamonds and related products etc. High tariffs are imposed on

products exceeding the established quota. For instance, the average tariff rate

for in-quota non-effect diamonds is 2.2 percent, while that of off-quota is 52.6

percent.

POLICIES AND NORMS OF INDIA FOR DIAMOND INDUSTRY

Israel’s tax laws took a major change from 1/1/2003.According to Israel’s tax

reform tax is levied on personal basis, instead of the previous territorial basis,

Israelis pay tax on all sources of income in Israel and abroad. In 2013 Israel’s

corporate income tax rate is 25%.Individual income tax rates in 2013 are 10% -

50%.There are reduced tax rates for passive income,e.g.flat rental and interest

India has a large number of institutions to support the designing and

development of diamond industry in India. Various institutes across the country

offer diploma courses in diamond industry. Some of the institutes offering these

courses are NIFT (Mumbai), Indian Diamond Institute (Surat), Jewellery Design &

Training Institute (Noida), The Gemmological Institute of India (Mumbai) etc.

35

GOVERNMENT REGULATIONS AND SUPPORT

The Government of India (GOI) has been working to develop the diamond

industry in India through several initiatives.

• The Indian diamond export industry had its modern beginning in the 1960s,

when the Government of India introduced the Replenishment (REP) license,

allowing an importer to import rough diamonds worth 80 per cent of the value of

his exports.

• The EXIM Policy for 2002-07 contains a special focus on exports of diamond

• Through market access initiative schemes, duty free imports and appropriate

adjustments in value addition norms.

• The government has set up various special economic zones (SEZ) for diamond

industry with specific incentives provided to units in SEZs. Diamond units in

SEZs and Export Oriented Units (EOUs) can receive precious metal, viz,

gold/silver/platinum prior to exports or post exports equivalent to value of

diamond exported.

• Lowering import duty on platinum from US$ 12.2 per 10 gms to US$ 4.64.

• Exempting rough colored precious gems stones from customs duty at the first

stage itself instead of claiming reimbursements later.

• Rough semi precious stones are already exempt, aimed to further increase the

exports of studded diamond.

The policies for this sector announced in the Foreign Trade Policy include:

• Duty free re-import entitlement for rejected diamond up to 2 per cent of Freight

on Board (FOB) value of exports.

• Increased duty free import of commercial samples of diamond to US$ 2232.1.

• Import of gold of 18 carat and above under the replenishment scheme.

36

EXIM policy for diamond industry

Some new clauses that may boost exports

Free import & export of roughs and cut & polished diamonds through bonded

warehouses to be set up by anyone

Free import schemes for silver and platinum jewellery

Wastage norms relaxed, delinked from export obligations

Partial permission to sell gold jewellery from EOUs/EPZs to the DTA

EOUs permitted `unlimited' re-export of imported goods free of any value

addition, against 5% for others

Relatively high rate of replenishment for licenses continues

Revised value addition norms for silver jewellery and articles and

gold/platinum/silver unstudied chains made out through mechanized process

Extension of value based replenishment policy to platinum/silver jewellery

*personal carriage of samples of precious metals jewellery articles up to

$100,000 for export promotion tours

Personal carriage by foreign buyers from EPZ/EOUs and from DTA

Finance ministry -- the rate of duty at which EOUs/EPZs will be permitted to sell

their wares in the Customs -- fresh notifications for free import/export norms on

silver/ platinum

Commerce ministry - guidelines on who could set up bonded warehouses and

where

Commerce ministry - tightening of norms for free trade in diamonds to give

sufficient time to large section of diamond traders

The government imposed the 2% duty on 17 January as part of a broader

revenue-generating exercise but also in seeming acknowledgement of circular

trading, or “round tripping” in the diamond sector—deals in which the same

goods are traded over and over to raise cheap capital, defraud banks, pad a

37

company’s volumes or launder money. Industry insiders are optimistic about this

doing so without hindering the country’s robust diamond business.

Diamond Export promotion schemes

Scheme for Gem and Jewellery

Exporters of gem and jewellery are eligible to import their inputs by obtaining

Replenishment (REP) Licenses and Diamond/ DTC Imprested Licenses from

the licensing authorities in accordance with the procedure specified in this

behalf.

Diamond and DTC Imprest Licenses

Diamond Imprest License and DTC Imprest License may be issued, in advance,

for import of rough diamonds. Such licenses shall carry an export obligation

which has to be discharged in accordance with the procedure specified in this

behalf. These licenses or the materials imported against them shall be freely

transferable after the export obligation has been fulfilled.

Diamond Imprest License

An exporter may apply for a license

(a) against the best export performance of cut and polished diamonds in a

licensing year during the preceding three licensing years plus 25% thereof, if he

has a minimum of three preceding licensing years of export performance.

However, the value of cut and polished diamonds exported towards fulfillment

of export obligation under DTC Imprest License shall be excluded for the

purpose of calculation of his entitlement for Diamond Imprest License;

Commission/ Brokerage

The DTC Imprest License holders are allowed to pay commission/brokerage

charges up to 1.5% of value of import provided there is a corresponding

increase in the export obligation.

38

Export Obligation

The export obligation against each sight under DTC Imprest License shall be

completed within a period of five months from the date of import of the first

consignment against such sight.

Exports from EPZs/EOUs

An exporter shall also be required to achieve an additional value addition of 5%

over the value of cut and polished diamonds, precious and semi-precious

stones, pearls and synthetic stones used as studding’s over and above the

value addition prescribed for the gold/silver /platinum content.

The minimum value addition for units exporting loose cut and polished diamonds

and precious and semi-precious stones shall be calculated on the basis of the

corresponding replenishment rates available to such exports from DTA as given

in Appendix 30-A of the Handbook .

Re-export/supply of dead-stock or broken stones/rough diamonds upto 5% of the

value of import/indigenously procured such items by holder of valid

REP/Diamond Imprest License may be allowed by the Development

Commissioner of the EPZ/EOU concerned.

Export license administration

The DOC exercises control over the export and re-export of American products

through export licensing. The Israel ranks export destinations in China by levels

of cooperation in export licensing. Easiest to deal with are Western subsidiaries

operating in China, followed by new Chinese entities that operate on a

transparent Western business model. Generally, the average time needed for

obtaining a license from submission of the application to the issuance of the

license is three months at shortest, and one year at the longest, much more

lengthy than in other countries, such as Germany and Japan. This time-

consuming process has in fact increased the cost of exporting to US. The US

government also sets forth specific requirements for commercial contracts,

requiring that all contracts which US high technology exporters sign with

39

Chinese clients carry a clause which reads, "All exports must identify the end

use or end-user, and allow for on-site verification by the US for the end use and

end user of the technology or product". In 2004, China and the US signed the

Memorandum of Understanding on on-site verification of end-users. On the

basis of the MOU, the US has made several requests for coming to Israel to

conduct on-site verification of suspected products.

FUTURE PLAN OF THE ISRAEL

Israeli Diamond Industry Sees China in its Future

The Israel Diamond Institute on Thursday officially affirmed China as one of its

leading priorities, with the launch of a new strategic campaign focusing on the

Chinese diamond market. The campaign is being introduced in a weeklong

series of events in Beijing, Shanghai, and Hong Kong that includes:

- An official delegation of The Israeli Diamond Industry representatives to China

-Formal launch of the campaign in Beijing at an event held at the Israeli Embassy

in Beijing

-Inauguration of the IDI Chinese Portal in Shanghai in conjunction with the

Shanghai Diamond Exchange.

-Official opening of representative office IDI Asia Pacific Ltd in Hong Kong

-Ongoing trade show participation in China

-Developing activities with the media .The new campaign is being launched at

the culmination of a six-month strategic planning process, IDI created for the

Israeli Diamond Industry.

-The Chinese economy is undergoing historical changes of fast paced growth

and the emergence of a strong consumer market," said IDI Chairman Moti Ganz.

"The Israeli diamond industry believes in the enormous potential of this market.

We will strive to duplicate the spirit of cooperation and partnership that has

characterized Israel-China relations for so many years in the areas of technology

and agriculture.

40

-We believe that China represents the future of The Israeli Diamond Industry,"

added IDI managing director Eli Avidar. "We want to enhance the presence of

The Israeli Diamond Industry in this market, and we know that in order to do so

we must reach out to the Chinese people in their own language and on their own

territory. It is for that reason that we are launching the first Chinese language

portal Web site of any diamond center in the world, and opening an office in

Hong Kong to serve the entire region.

The Israel Diamond Industry Portal in Chinese creates a B2B marketplace for the

exchange of business contacts that lead to actual transactions. Geared to the

needs of this market it offers, in Chinese

Israeli diamond companies by type of goods, a "Diamond Needs Board" with a

real-time alert system, continuously updated industry news from Israel, and the

world and information on how to do business with Israel.

IDI has expanded its annual trade show participation in China to five shows,

including pavilions of up to 40 companies under the roof of The Israeli Diamond

Industry. The expansion encompasses two trade fairs in Hong Kong, and one

each in Shanghai, Shenzhen and Macau. The IDI strategic agenda in China for

the development of cooperation between the Chinese and Israeli diamond

industries will employ ongoing Public Relations and media activities.

POTENTIAL FOR IMPORT/EXPORT IN INDIA

India recorded US$ 15.6 billion worth of exports in the gems and jewellery sector

in 2004-05, up by 26.44 per cent from the previous year. The industry is

expected to achieve exports of US$16 billion by 2007. India exported cut and

polished diamonds worth US$ 11.18 billion in 2004-05, up from US$ 8.62 billion

in 2003-04, registering a growth of 29.6 per cent. India has also started exports

of rough diamonds, which formed 4 per cent of gems & jewellery exports in 2004.

the Special Economic Zones (SEZs) and Export Promotion Zones (EPZs).

41

BUSINESS OPPORTUNITIES IN FUTURE

The entire diamond world knows that India has a virtually complete dominance in

smalls, and that the country has for long been the world’s leading manufacturer

of cut and polished diamonds.

Selling cut and polished diamonds yields margins of just 5 per cent to 10 per cent

but selling finished diamond jewellery pieces to wholesaler’s overseas yields

margins of between 20 per cent to 40 per cent. And retailing overseas offers

margins of between 40 per cent and 60 per cent depending on the value of the

diamonds. But there are challenges ahead. One is the lack of skilled manpower

and technology to create and produce designs for the international markets. The

council is hoping to tackle his by setting up a training institute. Indian firms will

have to tightly control costs and prices.

CONCLUSION

On the basis of whole GCR report we came to conclude that Israel is the main

hub of the diamond in the world. Israel import the rough diamond from the major

trading partners and export it after cutting and polishing to the U.S which is major

consumption of the diamonds and related products.

Israel is the leading center of the diamonds and Israeli government support the

diamonds industries in export and import. They make the EXIM restrictions

somewhat liberal to increase the growth of the Diamonds Industry in the Israel.

Israel is considered to be the major player when it comes to production of cut

diamonds, which are sold wholesale to different countries. As a matter of fact,

two-thirds of diamonds that are of gem quality come from Israel.

The miners and organizations that are regulating the production and quality of

diamonds also see to it that their products are always first-class in their quality.

They are pure diamonds, which means they are all-natural diamonds. They are

also active participants in the Kimberly Process. Their main job is to ensure that

there are no blood diamonds that can get into the market. The Israeli Diamond

42

Industry contributes approximately $800 million annually to Israel’s balance of

payments. More than 20,000 families earn their livelihood directly through the

Israeli Diamond Industry.

In addition to the 20,000 employed directly, the Israeli Diamond Industry

contributes indirectly to other branches of the economy such as tourism, banking,

aviation, communications and security, and is responsible for creating many

more employment opportunities.

Israel do the 59% export of diamonds to the U.S and think to make this

proportion to the 70% In future and want to open new industries in the China

because in China there is no any Israeli diamonds Industries also want to take

advantage of low labor cost.

SUGGESTIONS

On the onslaught of any such severe recession the diamond units owner

should not totally closed down the industry. Rather they can employ the same

number of workers for lesser number of days as well as hours. They can keep

the factory open for two weeks and each day for few hours. Even if they get a

less wage they will not go back to native place or switched over to any other

alternative employment. This will help the diamantaries during the recovery of

the industry.

Inculcating the consumption of diamond among domestic consumer. Some

initiatives are already taken by GJEPC to increase diamond consumption in

Israel. This will help in keeping the diamond industry buoyant.

Modernizing the diamond industry with a skilled manpower and technology up

gradation is the need of hour. Although there are Institutes like Israel Diamond

Institute, , a separate ITI specializing training diamond workers has to be set up

in strategic location to train the semi literate work force to cater the need of the

industry. The Modular Employable Skills related to gem and jewellery can be

integrated to this and train the workers. Apart from skill training there should be

43

training on personality development, English speaking, housekeeping and

computer literacy. This will help the industry to tackle the challenge posed by

Chinese diamond cutting and polishing industry.

In order to address the challenges of recession in case any in future a detail

survey of the workers is indeed important. All the workers should have an

identity card so that policy can be implemented quickly and easily.

To train the workers on issues related to Financial literacy and Planning so

that they can utilize their hard earned money properly.

Housing facility in the line of rehabilitation of slum dwellers can keep the

worker back home. A roof on the head helps workers to withstand difficulties for

a prolonged period.

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Study on Textile industry

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ABOUT TEXTILE INDUSTRY IN ISRAEL

During the mid-1950s, Israel, like other developing countries, promoted the textile

and apparel industry to be a ready source of employment. By 1985 the textile

and clothing industry was represented by 1,523 establishments. These

businesses employed about 46,000 workers (representing 15 percent of

industrial workers) and earned revenues equal to approximately US$13 million,

or 8.8 percent of total industrial earnings. In 1988 Israel continued to promote this

industry as a source of employment for unskilled and semiskilled immigrants and

for local Israeli Arab labor.

The textile industry became one of the largest industrial branches in Israel,

second only to the foodstuff industry. The output in 1969 was 10% of the total

industrial output, amounting to IL 925,000,000. At the same time textile products

constituted about 12% of industrial exports, totaling $66,000,000, the second

largest export branch after diamonds. By 1965, 25% of the textile workers were

employed in the three large cities – Jerusalem, Tel Aviv, Haifa

Export of textiles was expanded, and in 1971 exports had increased to one-fifth of the

industry's output. In 1965 there were 1,007 textile factories employing 26,300 workers.

Contribution of textile industry in Israel market

21%

26% 40%

13%

Contribution of textile industry in Israel market

Coton Products

RMG Products

Garment Products

Other Products

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ABOUT TEXTILE INDUSTRY IN INDIA

Textile industry plays a significant role in the economy. The Indian textile industry

is one of the largest and most important sectors in the economy in terms of

output, foreign exchange earnings and employment in India. It contributes 20 per

cent of industrial production, 9 per cent of excise collections, 18 per cent of

employment in industrial sector, nearly 20 per cent to the country’s total export

earnings and 4 per cent in the GDP. The sector employs nearly 35 million

people and is the second highest employer in the country. The textile sector also

has a direct link with the rural economy and performance of major fiber crops and

crafts such as cotton, wool, silk, handicrafts and handlooms, which employ

millions of farmers and crafts persons in rural and semi-urban areas. It has been

estimated that one out of every six households in the country depends directly or

indirectly on this sector.

Contribution of textile industry in Indian market

3%

55%

13%

29%

Contribution of textile industry in Indian market

other

RMG

Man made Textile

Cotton Textile

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Structure, Functions and Business activities of Israel Textile Industry

Israel’s textile and apparel sector is characterized by a few large, vertically

integrated companies and many small firms.

The vertically integrated firms are integrated, from product design and

development through spinning yarn, fabric production and finishing, cutting and

sewing, packaging, and shipping.

For almost all textile segments, dyeing, printing, and finishing is carried out in

Israel. In the apparel industry, Israeli firms tend to concentrate on niche and

high-end products in order to remain competitive in the global marketplace.

Function of textile industry

Operational

As there are a number of items and different types of raw material i.e. cotton,

polyester blends, viscose, etc. used by the RMG industry, it is not possible to

give value chain analysis for all the products.

Manufacturing

Dozens of Israeli companies manufacture a range of items including swimwear,

home Textile, underwear, casual and formal apparel, domestic textiles and

military/security textiles as well as dyeing products, knitwear, carpets and rugs

and raw materials

Processing of cotton based textiles

Spinning

Knitting

Weaving

Finishing

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PRESENT POSITION OF THE INDIA AND ISRAEL

Indian Present Growth Trends

The total textile exports during April-July 2010 (provisional) were valued at US$

7.58 billion as against US$ 7.21 billion during the corresponding period of the

previous year. The share of textile exports in total exports was 11.04 per cent

during April-July 2010. Cotton textiles has registered a growth of 8.2 per cent

during April-September 2010 -11, while wool, silk and man-made fiber textiles

have registered a growth of 2.2 per cent while textile products including apparel

have registered a growth of 3 per cent. Textiles and apparel industry exports,

valued at US$ 20.02 billion, contributed about 11.5 per cent to the country's total

exports in 2008–09. The total textiles imports into India in 2008–09 were valued

at US$ 3.33 billion.

Israel Present Position in Textile Industry

In August 2010 the Bank of Industry released 30bn ($198m) in grant money to

the textile industry, as part of the Cotton, Textiles and Garment Industry Revival

Scheme passed at the end of 2009. In total, 100bn ($659m) will be injected into

the industry. As the center of the Israel textile industry, Kaduna state will receive

the lion’s share of these federal funds – 24bn ($158m), according to local press.

Israel import

Israel’s imports by group were more diverse than exports. Imports included

wadding, felt, nonwovens, yarns, twine and cordage; impregnated, coated or

laminated textile fabric; manmade staple fibers; made textile articles, sets and

worn clothing; manmade filaments; and special woven or tufted fabric, lace and

tapestry. Isarel’s top imports of textiles from India were imports of wadding, felt,

nonwovens, yarns, twine and cordage accounting for 53%; impregnated, coated

or laminated textile fabric (26%); and manmade staple fibers (12%)

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Israel export

At a product level, cotton, not carded or combed, was the largest export product

from Israel at 2.4bn in 2010. Other top exports were woven fabric of cotton,

synthetic staple fibers, cotton yarn and sacks and bags of a kind used for the

packing of goods. Between 2008 and 2012, the fastest growing export product

among the top ten exports was woven fabric of cotton growing at an average of

1,131% year on year. In 2010, exports of woven fabric of cotton grew by 614%.

Indian Textile Export/Import

Indian textile industry has produced many of the products which is export to

various countries like USA, EU Member States, Canada, Israel, Japan, Saudi

Arabia, and Republic of Korea, Bangladesh, Turkey, etc. it’s all are exporting of

fiber, yarn, cotton, fabrics, made ups, Carpet, jute, etc. are export and India has

also provide other textile product during the 2010-11.

During the 2010-12 textiles increase that growth up to the 75-80% for import.

Basis on that textile produced the fiber is 31% but yarn and ready mate garment

ratio is only 4% during the 2010-12.also the yarn ad fabrics is increases 27% for

FY10-12 basis and other then they are producing the other textile product which

is up to 33%.

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POLICIES AND NORMS OF ISRAEL FOR IMPORT/EXPORT

Trade Policy

Since Israel previous Review, the institutional and legal structures for trade policy

formulation and implementation in Israel have remained broadly the same. The

main changes in trade and related legislation since 1994 have been pertinent to

Israel's implementation of its WTO commitments. Israel's commitments under the

General Agreement on Trade in Services (GATS), which are quite extensive

particularly in the financial services area, provide legal security for market access

in the form of assurances not to increase the level of restrictions covered by the

GATS Schedule. Israel's continued moves towards a liberal and open foreign

direct investment

Tariff policy

In 2005, Israel's average applied MFN tariff was 8.9%, down from 10.8% in 2000.

MFN tariff rates on non-agricultural products (WTO definition) are generally lower

(5.1% on average), with the highest rates (up to 34.4%) on fish and fishery

products, and textiles and clothing. Applied MFN tariffs on agricultural products

remain high, with an average tariff of 32.9%, and rates vary considerably among

product groups.

Interest Rate Policy

Currently deposit (savings) rates range between 4 % to 12.5% while average

lending rates vary between 18% and 20%, thus giving a much wider spread than

before the deregulation. Bank depositors are thereby placed at a disadvantage.

Import licensing of Israel

According to relevant Israel laws and rules, the Federal Ministry of Finance and

the Ministry of Industry work together in the examination and issuance of import

licenses for Certain Products. Applicants of such import licenses must possess a

production line of the complete set of production services， and meet certain

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requirements including the credit ranking， annual capacity， investment

capital， and number of employees.

• Automatic

• Non Automatic

Automatic import licensing

The Agreement requires approval or license to be granted immediately, on

receipt of the application, and in any case “within a maximum period of 10

functioning days”.

Non-automatic import licensing

Non-automatic licenses, which are generally used to administer quantitative

restrictions, must be granted within a maximum period of 30 days from receipt of

application where licenses are issued on a first-come first-served basis and 60

days if all applications are considered simultaneously.

POLICIES AND NORMS OF INDIA FOR IMPORT &EXPORT

Government trade policy

India has been historical protected their textile as well as the apparel industry

from the outside countries competition through the high tariff & the quantitative

restriction. India claimed all the restriction under the balance of payment

provision of the general agreement of trade &tariff.

India has been reducing the tariff as well as the liberation trade barriers,high

customs duty, additional taxes and also the clearance charges at customs

continues to the custom textile as well as of the exporting activity.

Trade policies

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The India reached agreement on reciprocal market access commitments for

textiles and apparel in connection with the negotiation of the WTO Agreement on

Textiles and Clothing, which provides for the phase out of textile and apparel

quotas. Under the India Textile Agreement of, India agreed to reduce tariffs on

textiles and apparel and remove all import restrictions on these products.

India agreed to bind tariffs at 20 percent advalorem for yarns, fibers, industrial

fabrics, and home furnishings, 35 percent for most apparel fabrics, and 40

percent for apparel goods Effective, the reduced tariffs on manmade fibers and

filament yarns from 35 percent to 20 percent ad valorem; cotton yarn, from 25

percent to 20 percent.

Non Trade Policy

The Non-Trade Policy of India has been involves the mainly policy regarding of

the technology up gradation fund, cotton technology mission and National textile

policy etc. has been involves in this. The GOI has set up a Technology Up

gradation Fund (TUF) to alleviate the problem of high capital costs in India and to

encourage modernization of the textile and apparel industry.

Export import policy

The new EXIM Policy is geared towards doubling India’s present exports of

around US $ 45 billion to more than US $ 80 billion over the Tenth Five Year

Plan by 2007, envisaging a compound annual growth rate of 11.9%

Sample fabrics permitted duty free within the 3% limit for trimmings and

embellishments.

Duty Entitlement Passbook (DEPB) rates for all kinds of blended fabrics

permitted. Such blended fabrics to have the lowest rate as applicable to

different constituent fabrics.

Present Trade Barriers for Import / Export of Textile Industry in Israel

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Financial and access barriers

Non-active exporters tended to be mostly concerned with financial and access

barriers whereas firms with export experience had increased concerns regarding

their operating business environment.

Import tariffs barriers

The practice of tariff escalation10 is of importance to Israel often sold processed

goods rather than semi-processed or raw materials. Tariff rates differ across

individual sectors and countries, in at times unexpected patterns.

Other Barriers