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Law for Promotion of Competition and Reduction of Concentration

The Law for Promotion of Competition and Reduction of Concentration was enacted in 2013 with the goal of implementing the recommendations of the Government Committee to Encourage Competitiveness in the Economy. The Committee found that the Israeli economy is characterized by excessive economy-wide concentration, relative to other economies. This is manifested in, among other things, the small number of businessmen who control a significant proportion of the economy’s financial and non-financial assets. The Committee concluded that this control is achieved, in many cases, by means of business groups characterized by a pyramidal structure. Furthermore, the Committee found that this concentrated market structure raises a concern regarding adverse effects on the resilience of the financial system, on the level of competition and also on savers, minority shareholders in publicly traded companies and holders of corporate bonds. The Committee’s recommendations seek to increase competitiveness in the Israeli economy, to ensure a more competitive and efficient market, to protect the public investors and to strengthen the resilience and stability of financial intermediaries (as described in the introduction to the proposed Law).

The Committee’s recommendations, like the structure of the law, relate to three domains: the obligation to take into account levels of economy-wide concentrations and the competition level in specific industries when allocating rights (Chapter II of the Law); limiting the control of pyramidal companies (Chapter III of the Law); and separating between large non-financial corporations and large financial entities (Chapter IV of the Law).

There are a number of regulators responsible for the implementation of the Law: the Ministry of Justice, the Ministry of Finance, the Bank of Israel, the Israel Securities Authority and the Israeli Antitrust Authority. The latter is responsible for the implementation of Chapter II, “Taking into Consideration Economy-Wide Concentration and Competition in Individual Industries in the Allocation of Rights”, which is divided into two sections:

The first deals with the obligation of a government ministry seeking to allocate public assets (licenses, contracts or shares in essential infrastructures and in the privatization of government companies) to "concentrated entities" to take into consideration, in consultation with the Committee to Reduce Concentration, the level of economy-wide concentration. The Director General of the Antitrust Authority serves as the Chairman of the Committee to Reduce Concentration and its members include the Director General of the Ministry of Finance and the Head of the National Economic Council. The opinions of the Committee are published on the Ministry of Finance's website.

In this context, the Committee’s activities include the creation and publication of lists of businesses with a significant level of economic activity (both non-financial corporations and financial entities) and entities that hold the rights to essential infrastructures (referred to together as “concentrated entities”), according to the stipulations of the Law, and revising the list of essential infrastructures that appears in the addition to the Law. These lists are published in the Reshumot (the formal government publication) and on the Ministry of Finance’s website.

The second section deals with the obligation of any government ministry seeking to allocate a right to a private entity to take into consideration the “promotion of industry specific competition”. This obligation applies to rights that involve contracts or significant holdings of essential infrastructures or a license (even if it is not for an essential infrastructure) and on the condition that due to the nature of the right, its economic value or the law that applies to it, the number of operators in the relevant industry is limited.

In addition, with respect to a right that appears in the “List of Rights” published by the Director General of the Antitrust Authority, there is an obligation to consult with the Director General regarding considerations of promoting competition within an industry. The List of Rights is published in the Reshumot and on the website of the Authority and the rulings of the Director General are also published on the website.

The Law for Promotion of Competition and Reduction of Concentration, 5774-2013