Preparing for the China–Israel Free Trade Agreement:
Lessons Learned from Chinese Infrastructure MNCs in Israel†
Table of Contents
- Recent Court Case Sheds Light on Chinese Infrastructure MNCs in Israel
- Legal Principles and Practical Needs
- Building Roads to Prosperity
Estimated Reading Time
- 8.8 min
China and Israel have reportedly accelerated negotiations on their long-anticipated free trade agreement (“FTA”),1 raising hopes that the FTA may come to fruition by the end of 2022 to mark the 30th anniversary of the two countries’ relations.
The prospects for concluding the FTA, however, remain unclear. What is clear is that lessons learned from the ongoing economic relations between China and Israel can help lay a stronger foundation for consolidating the two countries’ collaboration, including the success of the potential FTA. In particular, a reality check on the decade-long activity of Chinese multinational corporations specializing in infrastructure projects (“Chinese infrastructure MNCs”) in the Israeli market can help dispel misunderstanding of not only these projects but also China’s Belt and Road Initiative, under which these projects are developed.2
Recent Court Case Sheds Light on Chinese Infrastructure MNCs in Israel
A study released in July 2022 by the Institute for National Security Studies (“INSS”), an influential Israeli think tank, claims that the heyday of Chinese infrastructure MNCs in the Israeli market is over.3 The study suggests that a decline of infrastructure projects awarded to these MNCs after bidding processes “can be attributed to [the establishment of] the Advisory Board for Evaluating National Security Aspects of Foreign Investments” and that the decline “reflects American influence over decision makers in Israel on national infrastructure initiatives”.4 The claim of the study echoes criticisms voiced by commentators and think tanks that have been skeptical about the future of the Belt and Road Initiative.5
Despite all the criticisms, there is no clear evidence proving the connection between U.S. pressure and the award of bids in the infrastructure sector. In fact, in a case decided in September 2022, the Tel Aviv Administrative Court rejected a claim regarding political influence on the professional decision-making process involved in the infrastructure project at issue.
In this case, NTA Metropolitan Mass Transit System Ltd. (“NTA”), an Israeli governmental company, disqualified proposals submitted by a consortium comprised of Israeli leading companies and a leading Chinese infrastructure MNC. The consortium challenged the disqualification decision, claiming that it was made because of political pressure imposed on NTA. In its defense, NTA stated that the disqualification decision was based on the consortium’s abnormally low-priced proposals.
“This case serves as a good example to illustrate the unbiased approach and absence of political interventions in this type of infrastructure decision-making process.”
The Tel Aviv Administrative Court upheld the decision of NTA, rejecting the political pressure claim. Specifically, the court found that the consortium did pass the first and second bidding stages and only failed at the last stage, when a detailed economic analysis of the proposals revealed the abnormally low price. Moreover, NTA did give the consortium an opportunity to justify the low price; however, the consortium could not present solid justifications addressing the concerns arising from a detailed financial analysis report. This case serves as a good example to illustrate the unbiased approach and absence of political interventions in this type of infrastructure decision-making process.6
In addition, drawing on my experience as a scholar and legal practitioner, I argue that the declining trend identified in the INSS study—specifically, the lower number of projects awarded to Chinese companies in 2020 and 2021, compared with 2019—should be attributed to the global uncertainty following the outbreak of COVID-19 and the rising costs of international transport. These two factors have adversely affected infrastructure projects around the world. This shock did not pass over the Israeli infrastructure market, which is dependent on the global supply chain because of the country’s limited access to material resources.
Legal Principles and Practical Needs
More importantly, the cooperation between China and Israel exemplified in Israeli infrastructure projects is in line with the China–Israel Joint Committee on Innovation Cooperation, an initiative launched in 2014 by the Israeli Ministry of Foreign Affairs to “deepen cooperation between the [two] countries in a wide range of areas, with an emphasis on economic cooperation”.7 The cooperation in infrastructure projects is also based on legal principles and practical needs.
- Legal Principles
Traditionally, the infrastructure market in Israel has been open to foreign infrastructure corporations for reasons rooted in legal principles at both international and national levels.
At the international level, Israel is a party to the Agreement on Government Procurement of the World Trade Organization, which guarantees, inter alia, “non-discrimination for the suppliers of parties to the Agreement with respect to procurement of covered […] construction services as set out in each party’s schedules”.8
At the same time, the Israeli Ministry of Finance adheres to the country’s principle of encouraging international competition with the aim of reducing costs and consumer prices in the development of the infrastructure sector. For example, in 2021, the Israel Builders Association requested that the Director-General of the Israel Competition Authority, which heads the country’s Committee for the Reduction of Concentration, (1) identify Chinese infrastructure companies that are subject to the control of the State-Owned Assets Supervision and Administration Commission (“SASAC”) of China’s State Council as “a concentration” under Israel’s Concentration Law (2013) and (2) restrict these companies’ operations in Israel accordingly. This request was not granted by the Committee for the Reduction of Concentration, whose decision was further upheld by the Supreme Court.9
- Practical Needs
Building advanced infrastructure projects needs skilled construction workers. The Israeli government has the practical need to reduce the costs of these projects and to keep consumer prices attractive when the projects are completed. Recruitment of Chinese construction workers, who can offer significant expertise in return for affordable recruitment packages, provides a solution to address this need.
To ensure that this solution is viable, while at the same time assuaging any concerns about mistreatment of Chinese construction workers, Israel and China signed in 2017 a Bilateral Agreement on the Recruitment of Construction Workers and the Advancement of Labor Rights. This detailed treaty has been found to have a positive impact on Chinese workers in Israel. For example, the agreement led to the streamlining of the recruitment procedures in China. As a result, a Chinese construction worker’s “cost of migration” (i.e., the amount paid by the worker seeking to work in Israel to secure a visa and cover flight and other expenses) has been reduced from more than USD 22,000 before the agreement to approximately USD 1,500 after the agreement.10 In addition, the procedures help the workers become fully aware of their labor rights.
“[…] keeping infrastructure projects open to Chinese companies allows both China and Israel to gain, […].”
Overall, keeping infrastructure projects open to Chinese companies allows both China and Israel to gain, with the latter being in the position to comply with legal principles and address practical needs. The sentiment for such win-win collaboration was also expressed by ZHAN Yongxin during his tenure as China’s Ambassador to Israel:11
Regarding the infrastructure projects, I believe they combine China’s expertise with Israeli demands. As far as I know, Chinese companies are invited to participate in the projects. And their contracts are awarded through the transparent international bidding process. Once all these projects are completed, they will leave Israel with world-class facilities and enable everyone living here to have better lives. I believe this is a very good example of the win-win cooperation that China has been advocating.
Building Roads to Prosperity
A Chinese proverb says, “If you want to get rich, build roads first” (“要想富，先修路”).12 Embracing the spirit of this proverb, Israel has, in compliance with legal principles and in response to practical needs, opened its infrastructure sector to Chinese companies, in the hope of paving a path to more prosperity for its own people.
As of today, despite various challenges, there have been no reported cases of Chinese companies halting execution of their infrastructure projects in Israel or defaulting on their contracts. This has bolstered the prestige of Chinese infrastructure companies. At times of global uncertainty, this reliability is of utmost significance.
An important lesson from the activity of China’s infrastructure companies in the Israeli market is that misunderstandings must be dispelled as soon as possible, or this could weaken China’s trust for Israel and hinder the two countries’ collaboration, including the potential FTA. The FTA, if adopted, could further streamline the economic collaboration between the two countries and help reduce costs amid the global price surge. With the above analysis in mind, both China and Israel should stay optimistic in this important year marking the 30th anniversary of their formal and full bilateral relations.
† The citation of this article is: Dr. Hadas Peled, Preparing for the China–Israel Free Trade Agreement: Lessons Learned from Chinese Infrastructure MNCs in Israel, SINOTALKS.COM, SinoForum&Foresight™, Oct. 12, 2022, https://sinotalks.com/sinoforumforesight/202210-hadas-peled-china-israel-free-trade-agreement-infrastructure.
The original, English version of this article was edited by Nathan Harpainter and Dr. Mei Gechlik. The information and views set out in this article are the responsibility of the author and do not necessarily reflect the work or views of SINOTALKS.COM.
1 Israel-China Free Trade Deal to be Accelerated after Foreign Ministers Call, CGTN, Apr. 7, 2022, https://newseu.cgtn.com/news/2022-04-07/Israel-China-free-trade-deal-to-be-accelerated-after-talks-191mRVwq23K/index.html.
2 The Knesset (Israeli Parliament), Research and Information Center, Report: Strategic and Economic Issues in the Israel–China Trade and Investment Relations, July 21, 2021 (in Hebrew), https://fs.knesset.gov.il/globaldocs/MMM/b6f250b5-7403-e911-80e7-00155d0aeea3/2_b6f250b5-7403-e911-80e7-00155d0aeea3_11_18098.pdf.
3 Galia Lavi, China and National Infrastructure in Israel: Past the Peak, Strategic Assessment, Volume 25, No. 2 (July 2022), https://strategicassessment.inss.org.il/en/articles/china-and-national-infrastructure-in-israel-past-the-peak.
5 See, e.g., Dafna Maor, The Chinese Occupation: The Belt and Road Initiative is Killing the World, The Marker, Oct. 19, 2019 (in Hebrew), https://www.themarker.com/wallstreet/2019-10-19/ty-article/.premium/0000017f-f31c-d487-abff-f3fef5280000; Galia Lavi, Prof. Aron Shai: I was an Enthusiastic Supporter of the Chinese Model. Now I Know Better, INSS Insight, Aug. 29, 2022, https://www.inss.org.il/publication/prof-shai-aron.
6 Urbanix Alerati Ltd. v. NTA Metropolitan Mass Transit System Ltd. et al., AAP (Tel Aviv) 30356-04-22, Sept. 7, 2022, https://www.nevo.co.il/SearchResults.aspx?query=a9f31028-9974-4693-9d68-3757e7e54c58.
7 The China–Israel Joint Committee on Innovation Cooperation Convenes for the Fifth Time, gov.il, Jan. 24, 2022, https://www.gov.il/en/departments/news/china-israel-joint-committee-on-innovation-cooperation-convenes-for-fifth-time-24-jan-2022#.
8 World Trade Organization, Agreement on Government Procurement, https://www.wto.org/english/tratop_e/gproc_e/gpa_1994_e.htm; World Trade Organization, Integrated Government Procurement Market Access Information (e-GPA) Portal, https://e-gpa.wto.org/en/Agreement/Latest.
9 Israel Builders Association v. Competition Authority – Committee for the Reduction of Concentration, HCJ 2859/20, https://supreme.court.gov.il/Pages/SearchJudgments.aspx?&OpenYearDate=2020&CaseNumber=2859.
10 Rebeca Raijman & Nonna Kushnirovich, The Impact of Bilateral Agreements on Labor Migration to Israel: A Comparison Between Migrant Workers Who Arrived Before and After the Implementation of Bilateral Agreements, June 27, 2019, https://www.gov.il/en/departments/publications/reports/efficiency_of_bileteral_agreements.
11 Embassy of the People’s Republic of China in the State of Israel, Ambassador Zhan Yongxin Gives a Live Interview to Ynet, Aug. 22, 2019, http://il.china-embassy.gov.cn/eng/sgxw/201908/t20190822_1873857.htm.
12 See, e.g.,Interview: ‘We say, if you want to get rich, build roads first’, Financial Times, Sept. 25, 2018, https://www.ft.com/content/4ec28916-9c9b-11e8-88de-49c908b1f264.
Consultation, Training, & Speaking Engagements
If you need strategic solutions to problems affecting your business/professional activities in China and/or beyond, contact us at firstname.lastname@example.org. We will be delighted to offer our assistance through consultation, customized training, and/or speaking engagements.