Israel Sets Conditions for Incorporating Foreign Regulations

With the pace of modern global markets, non-English speaking economies must find efficient ways to align domestic regulations with rapidly evolving standards and regulations. According to guidance published by the Israeli Ministry of Justice, a key tool that agencies use is incorporation by reference.

Incorporation by reference is a regulatory process where an administrative agency drafts a rule that adopts the contents of materials already published elsewhere, such as standards that a private entity developed.

Israel often uses incorporation by reference to avoid creating unique regulations in fields where professional and widely accepted international standards, language, and practices exist, as well as in settings where speed and uniformity of the regulatory environment matter more than having a unique domestic regulation. Israel not only uses incorporation by reference for standards that private entities have created, but also for standards created by multinational organizations such as the European Union, or by foreign nations such as the United States or England.

For Israel, incorporation by reference is especially useful when Israel must align its law with foreign or international rules that are frequently updated or highly detailed. For example, Israel’s regulation of payment services, which sets the rules for operating a digital wallet in Israel, illustrates that logic. To encourage international payment service providers to enter the Israeli market, the legislature designed the law to resemble the European Union’s equivalent regulation. Once the agency issues the rule, the private standard becomes a publicly binding rule.

Opinions on the benefits and drawbacks of incorporation by reference in the United States vary. According to the Administrative Conference of the United States, a federal advisory agency that studies rulemaking, drawing on the expertise and resources of private sector standard developers assists agencies in maintaining a relevant and up-to-date regulations and serves the public interest, as it is helping progress federal policy, private innovation, and standard development.

But as the Administrative Conference of the United States explains, incorporation by reference raises problems, such as that privately developed standards are sometimes copyrighted, which could hinder public access to them.

The primary concern of Israel’s Ministry of Justice with incorporation by reference involves a lack of elected officials’ input, as democratically elected representatives have a small role in the adoption of binding legal norms that foreign nations and nongovernmental organizations developed.

To answer this concern, the Ministry of Justice requires that any incorporated foreign regulation not infringe on fundamental rights or freedoms. For example, incorporated regulations should not affect the freedom of occupation or property rights by displacing domestic judgment on questions that affect fundamental freedoms, such as the need for professional licensures, which infringes on a person’s fundamental freedom of occupation.

Israel’s guidelines also address the concern about updating incorporated regulations by making “active incorporation” the default rule, in a similar way to agency update of regulations in the United States to incorporate changes to adopted private-entity regulations. But, changes to incorporated regulations do not automatically become binding. The regulator must take an affirmative step to adopt the update and inform the public of it. This rule reflects a deliberate choice to preserve ongoing Israeli supervision over “imported norms” rather than allowing foreign changes to flow automatically into domestic law.

In narrow circumstances, the guidelines also allow “dynamic incorporation,” which means automatically adopting future changes to incorporated standards.

For instance, if professionals in the affected field must remain up to date on the regulations, as is the case with the psychiatric DSM guidelines, a professional diagnostic manual for mental disorders, published by the American Psychiatric Association and used by clinicians and researchers.

Israel’s Ministry of Justice treats public access to private standards as a legal condition of incorporation. If an incorporated regulation applies to the public, the regulator must provide a reliable Hebrew translation. Regulators must also publish the foreign document and its updates. When the standard is protected by copyright, such as standards created by the International Organization for Standardization, regulators should consider the cost of providing access and public availability by the Israeli agency responsible for the regulation.

Israel’s guidelines reflect an understanding that incorporation of regulations written in foreign languages creates a unique enforcement challenge. The guidance provides that regulators should criminalize violations of incorporated requirements only in narrow exceptions. The guidance allows monetary sanctions for violating incorporated provisions only when the regulator meets public-accessibility requirements and describes the prohibited conduct clearly.