Recent legislation shows a trend toward enhancing competition. These laws have expanded the Competition Authority’s powers, increased restrictions on importers, and broadened the scope for imposing monetary sanctions. As part of this general trend aimed at promoting competition, new legal provisions have been enacted to prohibit harm to parallel imports. These provisions will come into force in mid-September 2023 (Economic Competition Law (Amendment No. 23 and Temporary Order), 5783-2023)).
According to the bill’s explanatory notes: ‘Imports play a crucial role in fostering competition in the Israeli economy through two primary channels: authorized imports and parallel imports.’ Typically, an importer of goods contracts with a supplier, who grants them authorized importer status. In contrast, a parallel importer does not purchase goods directly from the original supplier but through other means, such as surplus stock from distributors in other countries or retail chains. An additional import channel, which has gained competitive importance in recent years, is direct personal imports by end consumers, primarily via the internet.
Parallel imports play a crucial role in price competition. They can reduce consumer prices through international arbitrage: parallel importers purchase goods either from markets where international suppliers charge lower prices than in Israel, or from large wholesalers with surplus stock and significant purchasing power. The discounted purchase price may, in turn, benefit the Israeli consumer. Competition from parallel imports may even be the primary source of competition for consumers in situations where, for various reasons, there is no intense inter-brand competition and an authorized importer holds market power over the brands they import.”
The law defines a direct importer as a person who either:
- Imports or distributes goods in Israel under an arrangement with a foreign manufacturer;
- Manufactures goods in Israel under an arrangement with a foreign entity.
The law stipulates that a direct importer shall not engage in any of the acts specified in the appendix (to be detailed below) if one of the following applies to the specified acts: 1 – the result of the act may harm parallel imports or personal imports in the sector in which the direct importer operates, potentially damaging competition in the sector. 2 – the primary purpose of the act is to prevent or reduce competition from parallel imports or personal imports. 3 – It may prevent or reduce competition from parallel imports or personal imports and is not necessary for the primary purpose of importing goods as a direct importer.
The prohibited acts for direct importers, if they meet any of the above-mentioned criteria, are as follows:
- The direct importer being party to an arrangement;
- Conditioning or demanding specific commercial terms;
- Changing commercial terms, either by agreement or unilaterally;
- Interfering with retailers’ labeling or presentation of parallel-imported goods;
- Refusing to supply goods or services;
- Tracking or reporting on parallel-imported goods in a way that reveals their supply chain;
- Changing the characteristics or properties of goods.
The explanatory notes provide the following clarifications:
The amendment prohibits acts resulting in harm to parallel imports and competition in the sector. It forbids a direct importer from engaging in any act that may harm parallel imports or personal imports in the sector where the direct importer operates, potentially damaging competition in the sector.
The amendment also prohibits acts primarily aimed at harming parallel imports or that are unnecessary for the main purpose of importing goods as a direct importer. It forbids a direct importer from engaging in any act primarily intended to prevent or reduce competition from parallel imports or personal imports, or an act that may prevent or reduce such competition and is not necessary for the primary purpose of importing goods as a direct importer. This section prohibits acts by direct importers primarily aimed at reducing or preventing competition from parallel imports, without a substantive examination of the act’s potential impact on overall competition in the sector.
An action may be prohibited even if its primary purpose is legitimate, if it could reduce competition from parallel imports. Such actions are only permitted when they are essential for the direct importer’s core business operations and no alternative methods are available that would avoid harming parallel import competition. In other words, unless the direct importer has no other way (that is not likely to harm competition from parallel imports) to achieve the same legitimate business purpose underlying the examined act.
The law imposes heavy monetary sanctions on direct importers who violate its provisions. The law states: “If a person violates any of the provisions under this law as detailed below, the Commissioner may impose a monetary sanction according to the provisions of this chapter, in an amount of up to 1,113,310 NIS; If the violator is a corporation and had, in the year preceding the fiscal year in which the violation occurred, a sales turnover exceeding ten million New Israeli Shekels, the Commissioner may impose a monetary sanction of up to eight percent of said sales turnover, provided that the sanction amount does not exceed 111,331,200 NIS.”
Monetary Sanctions:
- For corporations with annual sales up to 10 million NIS: Maximum fine of 1.1 million NIS;
- For corporations with annual sales exceeding 10 million NIS: Maximum fine of 8% of annual sales turnover, capped at 111.3 million NIS.
In conclusion, the new law takes a strict stance towards direct importers – both by establishing a wide range of cases constituting violations of the law, including harm to competition from parallel imports, and by allowing the imposition of substantial monetary sanctions.
The content is provided for informational purposes only and is not intended to be comprehensive. It does not serve to replace professional legal advice required on a case by case basis.
