EU-Israel Trade in the Automobile Sector: Is Israel's High Taxation of Cars Legal Under the Association Agreement?

Abstract

This paper discusses the legality of Israel's high purchase tax on cars, based on the provisions of the EU-Israel Association Agreement. The analysis is based on the jurisprudence of the European Court of Justice on almost identical provisions of the EC Treaty, and concludes that the tax on automobiles imported from the EU is not compatible with the Agreement. It most likely amounts to a charge of equivalent effect, which is prohibited under Article 8, or alternatively to a measure of equivalent effect, prohibited under Article 16. The paper also identifies several discriminatory aspects in Israel's administration of the purchase tax (both in relation to cars and to other products). The paper argues that these constitute a violation of Article 19 of the Agreement which prohibits internal fiscal measures establishing, whether directly or indirectly, discrimination between the products of one party (the EU) and like products of the other party (Israel). The paper also considers some of the economic, social and environmental implications of the high purchase tax on imported cars, and concludes that abolition or reduction of this tax (possibly coupled with an increase in the tax on fuel), would have a positive effect on road safety and on the environment. It would also have a positive effect in terms of distributive justice.