Israel to Streamline High-Tech Export Process : Trade: New legislation will create enterprise zones to free investors from crippling bureaucratic regulation and high taxes.

After a yearlong debate, the Israeli government approved controversial legislation on Sunday to establish export processing zones where investors will be freed from the country’s crippling bureaucratic regulation and pay minimal taxes in return for creating jobs in high-tech industries.

The Cabinet accepted a proposal by Finance Minister Avraham Shohat to establish the first zone on the promise by its American promoters that it would attract about $700 million in foreign investments and create as many as 20,000 new jobs.

Companies working in the zone will pay a flat 15% tax only on the profit they repatriate, will be able to avoid the almost compulsory unionization of their employees that remains the rule here and, in a streamlining of Israeli bureaucracy, will deal with a single government office for all licenses.

The break with Israel’s current economic practices will be so dramatic that Robert J. Loewenberg, president of the Institute for Advanced Strategic and Political Studies, a pro-market think tank in Jerusalem, hailed the move as marking “the end of socialism” and the country’s dependence on foreign aid.

“For those who can see it, this is a watershed in Israel’s history,” said Loewenberg, who campaigned for the zones. “This is the beginning of the end of Israeli socialism and a symbol of Israel’s preparedness for an economic takeoff.

“While everyone is watching and worrying about the territorial issue (in the negotiations with its Arab neighbors), Israel will be achieving its economic independence, which is crucial for its survival and prosperity.”

David Yerushalmi, president of the Israel Export Corp., which promoted the processing zone concept and hopes to win the contract for the establishment of the first 500-acre zone, said the legislation, as approved Sunday, would draw most of the 50 firms that had indicated their desire to locate here.

The expected success of the first zone, which will be built during the next year either near Beersheba in the Negev Desert or in the Galilee region, will likely lead to a second zone a year later, Yerushalmi said. Altogether, about 300 firms have expressed interest.

“This law is not perfect for businessmen, but it is very good,” Yerushalmi said. “The important elements--a realistic flat tax, a major reduction in bureaucracy and limited labor legislation--are still there despite all the opposition. The concessions will eliminate some industries, such as textiles, which will now probably go to Mexico, but we have what we need.”

Yerushalmi, a former Los Angeles trial lawyer and real estate investor, said he expected the Israeli parliament to enact the new legislation by the end of the summer. If his firm wins the contract to build and manage the zone, construction will begin by the end of the year, with the factories in operation by late 1994, he said.

The zone’s investors are expected to come from a wide range of export-oriented manufacturing, marketing, service and research activities with a strong emphasis on advanced technology.

With unemployment running about 12% and immigration from the former Soviet Union slowing because of the lack of jobs, the government has been under heavy pressure to approve the measure, at least on an experimental basis, because of the jobs it would create.

Israel’s new export processing zones, similar to enterprise zones in the United States and export zones in more than 60 other countries, have been strongly backed by prominent Jewish business people and investors from the United States.

But it was fought by critics who charged that the zone’s laissez-faire, entrepreneurial philosophy represented a major retreat from Israel’s long-held social welfare policies.