Arieh Amon: We have to put into perspective the structural
changes which have occurred in the links between the Israeli and
Palestinian economies. It was Israel that decided, soon after the
1967 war, to open the links between the two economies, to let
Palestinian workers seek work in the Israeli economy and, with some
restrictions, to let each side sell products in the markets of the
other. After some years, the figures stabilized, with some 30
percent of the West Bank and 32 percent of the Gaza Strip work
force working in Israel.
Since 1972, and even before, one finds a large deficit in the trade
between the West Bank and Gaza and the rest of the world. This was
paid for by work in the Israeli economy, by other capital inflows
and by some unilateral funds transferred to the Palestinian
economy.
Without going into detail about the public sector, which was
controlled by the Israeli authorities and was inadequately
developed, up to 1992-1993 the worst deficiency in the Palestinian
economy was in productive capacity. Capital per person remained at
a low level. While savings rates in the West Bank and Gaza were
impressive, they were mainly channeled into residential rather than
productive investments.
This was the background to the Paris Protocol of April 1994. In the
1970s and, to a lesser extent in the 1980s, rising living standards
were pushed forward by wages from the work of Palestinians in
Israel. The negotiators of the Paris agreement assumed that the
existing relationship between the Israeli and Palestinian economies
could be maintained, even though, in 1993, it was already known
that closures were being imposed.
During the 1993-1997 period, the standard of living in the West
Bank and Gaza decreased by about one-third. Because of its
dependence on work in Israel, as this work declined, the
Palestinian economy underwent a radical structural transformation.
From 27 percent of the work force working in Israel in 1993, the
number dropped to 7 percent in 1996. Income from abroad, mainly
workers' wages, also declined. Unemployment went up from 18 percent
to 34 percent.
The first and primary reason for this was, of course, the closure
policy. Since 1994, however, one must add to this the phenomenon of
foreign laborers in Israel, non-Israelis and non-Palestinians whose
numbers grew from 10,000 to some 200,000 today (plus or minus
30,000-40,000, since there are no exact figures). These have
replaced Palestinians who were unable to come to work on a regular
basis due to the closures. So, even if the closures were somehow to
be lifted, who can tell whether the Palestinians would regain their
past level of employment in the Israeli economy?
Closures have other far-reaching implications. In their wake, the
macroeconomic environment became highly unpredictable and, with
such a level of uncertainty, potential entrepreneurs and the
private sector are unable to lead the development process as
expected in the Paris Protocol. This had assumed free trade between
economies, the same customs for exports and imports, the absence of
economic borders. Though the term customs union doesn't appear,
this was the concept.
The other important concept was the normal movement of laborers, on
the assumption that closures would be only for short periods of
time and that some 100,000 laborers would continue to work in
Israel. This did not take place and now it will be almost
impossible to return to such levels of employment, with all the
implications for the Palestinian economy.
International aid was not part of the Paris agreement, but it
materialized in an impressive manner. Over the last three years,
the Palestinian economy enjoyed a stream of about half a billion
dollars annually in international aid. Rather than being channeled
into productive channels, some went into emergency aid for solving
urgent problems created by the structural change. This is not the
most efficient use of international aid.
When it became clear that the Paris Protocol was not being
implemented by either the Israeli or the Palestinian side, the
agreement should have been renegotiated. For example, the
Palestinian economy should be allowed more access to regional and
international markets in exports and imports, and not through the
Israeli economy. If fewer than 100,000 workers will be employed in
Israel in the next few years, creating employment within the
Palestinian economy is a more urgent task than was assumed in the
Paris Protocol.
Adnan Samara: Our basic problem is that, until now, we do
not know the plan of the Israeli government for the Palestinian
economy. We have been negotiating with them for a long time, but
after solutions are found and implementation begins, everything
stops. The reason may be a military attack or difficulties in
political negotiations, but the result is that we have to start
again from the beginning, regardless of whatever may have been
achieved.
The Paris Protocol contributed nothing to the independence of the
economy of Palestine. Since the difficulty of separating the
economies was agreed upon, the agreement was based on the fact that
we are one economy. If this means anything, it means free movement
of goods and people. At the outset, things did not go badly, but
then came the military attacks and the imposition of the closures,
especially on Gaza.
Citing security reasons, the Israelis then demanded that
merchandise from Gaza be unloaded from Palestinian onto Israeli
trucks. Using trucks from Gaza costs a third or a quarter of the
cost of Israeli ones. Thus transportation costs go up, and when
goods are transferred, there is the risk of their being damaged or
broken. Then we were informed that, for security reasons, the
trucks must not approach each other. Later it was claimed that
inspection must be carried out by machines. At the Karni Checkpoint
one can see the results. This is how the Paris Protocol is working
out today.
According to the Paris agreement, everything is to be exported and
imported through Israel's borders, harbors, airports or crossing
points. But one cannot move from Gaza without a permit. Sometimes
1,000 permits are granted, sometimes 100. Permits granted can be
frozen or cancelled if anything happens. In effect, while we are
meant to have freedom of goods and movement, we cannot send goods
freely because every step needs a permit. Permits are valid until
seven or ten o'clock at night, which means that someone from Gaza
with business in the West Bank must go and come back on the same
day since he cannot sleep over.
Then one needs a certificate from the Standards Institute of
Israel, but since, often, a Palestinian cannot enter Israel, he
cannot obtain the certificate. We have created a Standards
Institute and we proposed to Israel to recognize it after checking
out our regulations, our machines and our laboratories. It was not
approved. The same applies to certificates from the Israeli Health
Ministry concerning medicine or to documents from the ministries of
Agriculture and Transport for food processing. We have proposed
that recognition be given to the Palestinian ministries, according
to the same regulations customary in Israel.
When a Palestinian wants to invest, according to the Paris
Protocol, the same procedure is required as in the past. The
investor submits an application to the Israeli authorities and,
eventually, he receives a confirmation certificate. Only about a
hundred of these have so far been received. Because this is meant
to be one economy, most of the currency is in Israeli shekels, but
the rate changes without any coordination with us and even without
our being informed of the change. Such instability worsens our
situation. The World Bank wants to give a loan for industry in
Gaza, but only on condition that there be free movement of people
and goods with Israel.
We have an agreement with Jordan, but one cannot compare the
Palestinian-Jordanian and the Israeli-Jordanian agreement. From
Amman goods can be sent anywhere in Israel, door to door so to
speak. To reach West Bank markets, Jordanians must go via the
Allenby Bridge and through the loading and unloading procedure
mentioned above. All goods coming into the territories undergo
security checks, sometimes involving opening every packet in a
consignment.
We have created industrial zones step by step with the Israeli
authorities and we have conducted protracted negotiations on the
movement of people and goods into the zones and on subjects like
electricity, water and the environment. We have agreed to give
Israel the right to check everything coming in, but, after two
years, we still have no security agreement. Sometimes one crosses
the Erez Checkpoint quickly, on another occasion the same procedure
takes an hour. Everything is attributed to security. Security
freezes all agreements.
Though the general situation is a little (but not much) better in
the West Bank than in Gaza, under these conditions I do not believe
we can build an economy. At the last meeting of the joint economic
committee, I told the Israelis they might as well reoccupy the
territories because, as things stand, there will be no progress for
the Palestinian economy.
Gideon Eshet: At the beginning of the 1990s, before the
economic agreements were signed, some Israelis involved in
discussions on future economic relations between Palestine and
Israel favored a free-trade agreement, and some stressed the
importance of borders. However, from an economic point of view, the
nature of the Palestinian-Israeli relationship was not very
significant due to the different size of the economies and the
different standards of living.
In any case, when it came to Paris and to the negotiations, it
turned out that, regardless of what economists see as good or bad,
the main factor behind the agreement was political. In terms of
politics, any agreement other than a customs union would have the
political consequence of determining a border line between Israel
and Palestine. The overwhelming factor in the Paris agreement was
political and not economic, regardless of Israeli economists who
say that the customs union is good and the Palestinians are doing
well because we Israelis are collecting taxes for them and saving
them all the costs involved, etc. The overwhelming consideration
was and remains political.
Take currency as an example: From the Israeli economic point of
view, what difference does it make if the Palestinians have or do
not have a currency? It does not make much difference. The only
reason for Israel objecting to a Palestinian currency was because
of the political symbolism involved.
Politics is the main and, I think, the only factor determining what
Israel can do to enhance economic development within
Palestine.
The idea was to set up a customs union with completely free trade
in goods and labor. It is quite obvious today that there is no free
movement of labor or, no less importantly, of goods, or, for the
most part, in services. In essence, the whole agreement is falling
apart because of political factors.
A week ago the Israeli Internal Revenue Service, an institution of
the Ministry of Finance which handles taxation policy, after the
usual criticism of the Palestinian Authority wrote that, while the
Palestinians are violating the Paris agreement, the Israelis are
doing so on a larger scale, given the disparity in the economic
power of both sides. The government official who wrote the report
comes to the conclusion that there is a basis for renegotiating the
agreement.
One comes back to the concept that, from the Israeli point of view,
the formalities of the relationship are hardly important. There
should be wide cooperation on standards, on ecological issues and
on water for, basically, we are drinking water from the same
reservoir. But beyond these, there are good grounds for discussing
the idea that, whatever the Palestinians decide is good for them,
is basically alright for Israel.
It is goodwill that is presently lacking in the political process.
The previous Israeli government had some goodwill, but the present
one has none, in the sense that, what Netanyahu and his government
have in mind is to bargain with the Palestinians so as to get
better conditions for a possible agreement. This is a kind of
bargaining that goes on in the market and, as long as this attitude
prevails - and I do not see this changing in the near future - the
possibility of changing the situation of the Palestinians is very
poor. The economic future is totally dependent upon political
decisions.
This material is published with the kind permission of
IPCRI.
The roundtable discussion took place before the economic measures
imposed by Israel on the West Bank and the Gaza Strip after the
attack in Jerusalem's Mahane Yehudah market on July 30, 1997. These
measures paralyzed all economic activity in the territories. In
addition to the general and internal closures, the new steps
included the unprecedented measure of freezing money owed by Israel
to the Palestinian Authority.