Under American pressure, Israel to tighten oversight of foreign investment

Under heavy American pressure, the diplomatic-security cabinet will meet Thursday to approve a new mechanism for scrutinizing foreign investment in Israel.

The goal of revising the existing mechanism is to create tighter oversight of foreign investment in sensitive strategic assets. The change is a response to American efforts to curb Chinese and Russian business activity in its allies.

American pressure has already led to Chinese firms being excluding from the bidding to privatize Israel Electric Corporation power plants and to operate planned new lines of the light rail system in metropolitan Tel Aviv. The Americans had been upset over a previous decision to let the Chinese company SIPG operate a new port in Haifa Bay.

The list of fields in which cabinet approval of foreign investment will be required hasn’t yet been finalized. But it is expected to include investments in energy, water, transportation and communication, as well as banks and other financial institutions.

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For now, cabinet approval won’t be required for high-tech investments. But that issue is still being discussed between Jerusalem and Washington.

One version of the proposal that has been discussed in recent days would give regulators 120 days to ask the government for permission to deny a license on the grounds of national security.

The government will also seek to amend the law to allow the government’s tenders committee to disqualify bids on national security grounds or demand that they be amended to meet the committee’s concerns.

The biggest change is that until now, government approval of foreign investments was required only if the foreign purchaser would control at least 50 percent of a company’s shares. Now, any holding of 5 percent or more will trigger government involvement.

The existing oversight mechanism, which has been in operation for only two years, requires major foreign investments to be approved by a three-member panel consisting of the Finance Ministry’s chief economist, a National Security Council representative and a Defense Ministry official.

One proposal for the new mechanism was to add members to this panel in a bid to moderate the current dominance of diplomatic and defense considerations, given that such investments are important in promoting competition. Exactly who would be added hadn’t been decided, but possibilities included representatives from the Israel Competition Authority and the Economy Ministry.

In the end, however, the panel’s new member will be from the Foreign Ministry, despite fears that this could open the door to foreign influence over the panel’s decisions and is likely to give diplomatic considerations even more weight.

Another proposal that has apparently been dropped was aimed at increasing the panel’s transparency by requiring it to make various types of information public, including which investments it was asked to review, its criteria for reviewing them and its reasons for disqualifying a bid.