So here is the story of the man who had plans on the table already for 4 new buildings to replace World Trade Center...... In this item, the Israeli's did no trust him and he said he was "fed up" with them. Also talk of "laundered money". Nice family matter..... So he had just signed a 99 year lease for the World Trade Center? More on this.... Saba Tuesday, July 4 2000 01:16 1 Tammuz 5760 A tragedy of turf and taxes By Patricia Golan (May 18) - It's hard to think of another commercial project that has generated such heated passions, pro and con. It has been called everything from a "scam" to a "salvation." To some the scheme would bring hope to the neglected Negev region, to others it would simply line the pockets of unscrupulous speculators. It was a project that was conceived as a way of helping Israel economically and ended with some of America's wealthiest Jews throwing up their hands in disgust. No one, it seems, is neutral on the idea which originated in the early 1990s and was supported enthusiastically by the late prime minister Yitzhak Rabin. The scheme involved the setting-up of a Free Processing Zone (FPZ). Its backers say it would have created 20,000 new jobs in the employment-starved Negev and brought in top-notch foreign companies. Eight years and some $10 million later, the US investment consortium which lobbied for the zone, The Israel Export Development Company (IEDC), has withdrawn its support for the project, effectively killing it off. The concept of a tax-free manufacturing zone is modeled on similar zones which have been established in both Third World and developed countries in the Far East. Known elsewhere as Free Export Processing Zones, the word "export" was dropped from the Israeli version because US-Israel trade agreements forbid subsidized exports. Unlike free zones elsewhere which are owned and managed by governments, the Israeli version was envisioned as a private initiative. The zone was to have been set up on a one-million-square-meter piece of land near the Shoket Junction, 8 km northeast of Beersheba. All capital for infrastructure, buildings, etc. would have come from the foreign investors, in exchange for which businesses in the zone would not have had to pay any taxes for 20 years. IEDC WAS founded by a group of leading American Jewish businessmen including Laurence Tisch, Sy Syms, Robert Tishman, and Larry Silverstein, a prominent New York real-estate developer who today is chairman of the consortium. The group's members are not only fabulously successful businessmen, they are among the biggest contributors to Israel-related charities. But until presented with the idea of the FPZ, none of them had considered direct investment in the country; philanthropy was one thing, doing business quite another. But according to David Yerushalmi, former CEO of IEDC and an associate of the conservative think tank The Institute for Advanced Strategic and Political Studies, the "initiative was designed to create a free-market business environment liberated from the infamous Israeli bureaucrats and anchored in law." In other words, the FPZ would have encouraged investment and created jobs, but would have allowed the participating businesses to be free of government intervention. According to the director-general of the government-appointed Free Trade Zones Council, Dafna Barak, the investors were motivated by genuine concerns for Israel's economic welfare. "They saw that Israel is developing and moving toward peace, but on the other hand suffering from very high unemployment, particularly in the south of Israel. They thought this would be a solution: to bring a beautiful project that wouldn't cost the government a penny and would create 20,000 direct jobs and tens of thousands of indirect jobs, such as service workers." Barak explains that the zone plan attracted several industries that previously had no interest in investing in Israel, such as American Express, Kodak, and AIG. "They [IEDC] wanted to bring something new, not to compete with something already in Israel - hi-tech companies, telecommunications, and other advanced industries that would exploit the Jewish brainpower here. Of course, they are also businessmen and they have to make a profit; but if they profit, so does the state." Rabin was enthusiastic about the idea, and in 1994 the Knesset passed the "free zones law" which set out the provisions for the zone. But the tender required by the law was never published. FROM THE beginning there was strong opposition to the project in the Finance Ministry, whose economists feared setting a precedent in giving up tax revenues, and also apparently disliked the idea of preferential treatment for foreign investors. As one Negev businessman puts it: "The big boys in the Treasury were against it because for them it would mess up the whole tax situation in the country. They are actually afraid of creating tax-free zones. They are frightened of a more efficient system." (The Finance Ministry refused all requests from The Jerusalem Post for comment.) But the Treasury was not the only opponent; there were plenty of other doubters, some of them extremely vocal. Vitriolic debates erupted in the South. The residents of Omer, the residential community closest to the proposed site, were against the project. Many voiced serious environmental concerns. Others feared unfair competition, although municipal officials in Beersheba supported the plan. Then there was the question of location; the designated area is far from the development towns it is supposedly meant to help, nor is it near any port. Meir Peled, a senior economist who was asked by the Technion to draw up a business plan for the project when it was first proposed, says that locating it in that part of the Negev is illogical. "A free-trade zone should be in a place where trade is done - and that is a port or an airport. But Shoket Junction is not near anything. Near Ashdod would make sense, or Haifa or Ben-Gurion Airport. But I don't see in the coming 20 years that that area will develop as an area of international trade." OMER spokesman Nissim Nir agrees. "If it's supposed to provide employment for the development towns, why is it being located at the Shoket Junction far away from any town?" "The biggest unemployment problems are in the triangle formed by Yeroham, Dimona, and Arad," he adds. "An international airport is supposed to be built at Nevatim [near Arad] - this would be an ideal location." A report published in 1995 by the Negev Center for Regional Development of Ben-Gurion University expressed doubts that the zone would in fact provide the kind of employment its backers claimed. "It is difficult to see how the project will benefit the region by providing employment on the grandiose scale implied by the proponents... the government has provided no persuasive evidence that the decision is in the best interests of the region's residents." The Manufacturers' Association was also doubtful. Shuki Abromovich, today head of the economic division, says the association members were afraid of the possibility of an unfair advantage regarding local industries, "that activities inside the zone there would take away business from companies already established in Israel, though we were never sure about this." In other free export processing zones, local, relatively unskilled and cheap labor is utilized for labor-intensive manufacturing, usually assembly activities. One prominent American Jewish businessman relates that he was taken aback at the idea that such a zone, with its reputation for exploitation, would be established in Israel. But although the developers initially may have thought that they could pay less than minimum wages, IEDC agreed to abide by all Israeli labor laws. IN ANY case, the Finance Ministry managed to push through changes in the original legislation. One of the changes involved representation on the zone's governing council: Instead of six government representatives and seven representatives of the developers, there was to be no representation for the developers. Free Trade Zones Council head Barak comments that the situation became absurd: "Here is a group that is investing $1.5 billion and they aren't even represented on the governing council." The amended law also disallowed trading companies from operating in the zone and reduced the number of service companies allowed to operate there. As far as the IEDC was concerned, the new legislation, which is still on the books, made the project unfeasible. "They gutted it, they destroyed it, it isn't competitive," protests Yerushalmi. The group marshaled a small army of foreign experts on free trade zones and brought them to Israel to explain how zones work elsewhere, and why the changed legislation was unworkable. And when this proved futile, the American investors threw up their hands, and refused to bid for the tender finally issued in 1996 - as did everyone else. Under the Netanyahu government the FPZ project was revived. Ariel Sharon, then infrastructure minister, was especially keen on the idea. He dispatched representatives to New York to persuade the IEDC to go ahead with the project. "We returned to the American group and asked them if perhaps we could work something out with the existing laws," recalls Barak. "[We thought that] a group of this stature is nothing to sneeze at - these are leading businessmen in the US. They agreed to rethink their commitment to the project." The developers insist that there was an explicit agreement between the IEDC board of directors and the Netanyahu government to restore the original legislation. Whatever the case, the project was lost again in the shuffle in the next change of governments. Ever since, the zone plan has been parked in Prime Minister Ehud Barak's office. MEANWHILE, back in the desert, an energetic lobby of heads of several Negev towns and local councils, including Beersheba Mayor Ya'acov Terner and the Negev Development Authority, began pressing the prime minister to advance the project. Despite some reservations, they still believed it would bring relief to the South's unemployment problem. Following the State Comptroller's Report that showed that the South was continuing to lag economically behind the rest of the country, Terner called an emergency meeting of heads of local councils and towns in the Negev to plan strategies for a joint campaign. The zone was one of the items cited as an example of government neglect. Yitzhak Eshel, a local business consultant who has lobbied for the zone, says that for months Prime Minister Barak refused to even meet with IEDC head Larry Silverstein to discuss the project. "This is not the way to treat people who are trying to invest half a billion dollars in infrastructure and much more in superstructure," Eshel says. "This is virtually the only available program on the shelf [that is] ready to go. This government hasn't produced anything else." Yossi Kucik, director-general of the Prime Minister's Office, has proposed that the concessionaires go ahead with the project under the existing law. But since the government is unwilling to effect the legislative changes IEDC is demanding, Silverstein told the Post that his group was fed up and would withdraw completely. "The project is dead. The law under which the government wants us to continue is unworkable," he declared earlier this month. "We decided to do this not to make money, but to be helpful to Israel at zero cost to the government. The government gave $600m. to Intel to set up in Kiryat Gat and they only created 600 jobs. Under the zone they would give us nothing, and this would create 20,000 jobs." WELL, not exactly zero cost. Economist Jonathan Lipow argues that the FPZ "is exactly the same kind of project as the Intel plant was. There the government spent money and here we're talking about tax breaks. But in reality there is no difference between giving grants and giving tax breaks in terms of what it means for government finances." Yerushalmi, the former CEO of IEDC who was in charge of the international marketing team for the zone, says that the group had signed contracts from several international companies committed to bringing up to 20,000 high-paying hi-tech jobs to the Negev. "We provided these contracts to the government to prove to them that you could make a zone work like this in the Beersheba area without government money." Having lost more than $1m. of his own money on the project, Yerushalmi has since retreated to a yeshiva. A SOURCE in the Prime Minister's Office says that what appears to worry professionals in the government most is the issue of allowing trade companies to function in the zone. "These could be used as tax shelters," he says, "not that that's what the developers are intending, but this could happen and the companies would have legal backing." Silverstein agrees that what seems to have scared local officials is that companies would use the zone to launder money. "What we tried to point out to them is that any company could do that in Israel and be subjected to the laws, because that's illegal in Israel as it is in the US. So if someone wants to come into the zone for money laundering, they'd be subjected to the same legal remedies and controls whether they're in or out of the zone." Dafna Barak is scathing in her criticism of government officials regarding the zone. (love this - think he would cheat??? well they know him better than we do......seems he was having trouble raising money for this WTC lease though - Saba Note) "Their attitude is that these people are going to cheat the country. I ask you, a man like Larry Silverstein, who contributes millions of dollars every year to Israel, is coming to the country to cheat it? This is just stupid." Eli Ronen, deputy director-general for policy and planning at the Infrastructure Ministry, says his ministry is in favor of the zone, but sees no reason to grant the developers' demands for the legislative changes. But he says that in general the idea is "very positive." "Israel should encourage such industries, and there's no reason why the state shouldn't invest in such a venture itself. This idea has come up, though there's been no progress," he says. No one believes the state will take on the project at this point. Silverstein says the US consortium's eight-year ordeal has given Israel a black eye in the American business community. "As a result of this experience we've learned something: Don't try to do business in Israel, certainly don't do business with the government because you'll get killed," cautions Silverstein. "We're finished and disgusted. I'm never going to do this again. 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