The Economic Permanent Status Project (EPS) was engineered by the
Economic Cooperation Foundation (ECF), on the Israeli side, and
Data Studies and Consultation (DATA) and the Higher Commission for
Investment and Finance (HCIF), on the Palestinian side. It was
conducted under the auspices of the Government of Norway over a
period of six months (June-November 1998). The outcome of the
project is a blueprint of an understanding on economic permanent
status, which presents a model (the EPS Model) for long-term
Israeli-Palestinian economic relations.
This model offers a comprehensive and cohesive set of principles
and guidelines, which are based on a shared vision of partnership
for economic and social growth and prosperity.
The EPS Model for Economic Relations in Permanent
Status
The Model rests on the following three-tiered concept: The first
tier is the shared vision of political separation and economic
cooperation based on partnership for growth and development,
especially of the Palestinian economy, which underscored the entire
activity.
The second tier is a set of understandings, in the form of
principles and guidelines, in all key areas of economic relations:
fiscal and trade relations, investment, labor and monetary and
currency issues.
In addition, the second tier addresses the guidelines of the
relevant institutional support structures, as well as environmental
natural resources, and long-term planning considerations. Finally,
this tier suggests the guidelines for the development of an Israeli
Economic Assistance Program, for a dispute settlement mechanism and
for the security policies.
The third tier focuses on the transformation of the prevailing
Interim period economic regime, which is governed by the Paris
Protocol, into the envisaged EPS-Model Economic Permanent
Status.
Principles for Economic Permanent Status
The principles of the EPS Model are as follows:
• An Israeli-Palestinian Protocol of Origin shall be
concluded;
• From an economic point of view, free and unimpeded flow of
goods, services, capital, and labor with the specific aim of
securing respective accessibility of products and labor to each
other's markets, as well as to other markets (i.e., no customs
and/or indirect taxation of Israeli-Palestinian trade);
• Coordination of indirect taxation (uniform rate of VAT
between 12% to 22%), identical rate of purchase tax on 15-20
agreed-upon goods;
• Each side may adopt independent import policies, procedures
and market regulations; each side shall have the right to establish
and operate (Israeli version: entry stations/Palestinian version:
customs stations) within its territory, primarily for the purpose
of documentation and data collection:
Agreed stations may serve as customs houses for transit;
Each side may implement its respective fiscal & import policies
and market regulations at the stations;
Indirect taxes may be collected at the stations only in agreed-upon
cases;
• Revenues from indirect taxation shall be cleared through a
government-to-government mechanism;
• The standards on Israeli and Palestinian goods traded
between the sides shall be based on the existing arrangements and
on the relevant WTO (World Trade Organization) rules;
• Prevention of double taxation, Israeli tax sparing and
transfer to Palestine of no less than 75% of income tax collected
from Palestinian individuals or permanent establishments in
Israel;
• Free movement of labor and preferential treatment by Israel
to Palestinian labor;
• A Palestinian currency shall serve as a legal tender, while
the U.S. dollar, the new Israeli shekel and the Jordanian dinar
shall continue as circulating currencies. The Central Bank of
Palestine (CBP) shall guarantee that Palestinian currency will not
cause destabilization;
• Reciprocal termination of all economic boycotts and
discriminatory trade barriers to normal economic relations and
lifting of non-tariff barriers to trade and investment;
• Mutual commitment to implementing WTO rules and regulations
in General Agreement on Tariffs and Trade (GATT) and General
Agreement on Trade in Services (GATS);
• Consideration in environmental, natural resources, and
long-term planning;
• Creation of security support structures and institutional
cooperation to facilitate economic activity;
• An intensive Israeli financial and technical assistance
program (IEAP) shall be made available to the Palestinian economy
(e.g., preferential treatment to Palestinian labor, assistance
program, direct assistance to infant industries, etc.);
• Development of mechanisms for the settlement of disputes
arising from the application of the EPS Model;
• Consideration of the differences in development between the
two economies;
• Reciprocity, equity and fairness;
• Mutual respect of each other's interest for economic growth
and prosperity;
• Mutual commitment to regional economic growth and
prosperity through cooperation, especially with Jordan and
Egypt;
• Promotion of private-sector activity and free
competition;
• Reciprocal non-discrimination based on the Most Favored
Nation and the National Treatment principles;
• Strengthening of Palestinian economic institutions,
capacities and competitive advantages in order to guarantee
sustained economic growth and prosperity;
• Development by the parties of a strategy for the
transformation of the Interim Period economic arrangements into the
suggested Permanent Status EPS Model.
Underlying Understandings
The contents of the document should be evaluated against the
following three understandings:
According to the first understanding, an agreement on economic
permanent status, when finalized, shall constitute a component of a
comprehensive permanent status agreement between the two states.
Thus, the document rests on the presupposition that key areas in
Israeli-Palestinian relations shall be resolved within that
permanent status agreement.
The second understanding refers to the longevity of
Israeli-Palestinian dialogue on economic relations in permanent
status. This document offers principles and guidelines for the
establishment of a workable economic model. Most, if not all, of
its elements mandate further elaboration in order to be translated
into detailed agreements and protocols.
The areas most in need of such activity are the mechanisms for the
implementation of the EPS Model fiscal and trade relations, as well
as the issues of the Israeli Economic Assistance Program and
investment promotion.
According to the third understanding, this document is an
agreed-upon professional economic document. It is not a legal one.
Further work will be required to effectuate this document and to
transform it into an official legal agreement.
The Significance of the EPS Model
We believe that this Model serves as the benchmark for negotiations
on the economic arrangements in permanent status due to the
following three factors:
First, the Model rests on a viable and feasible political
model-of-reference, which supposes that a comprehensive
permanent-status agreement, based on UN resolutions 242 and 338,
will be concluded between two independent and sovereign states.
Under such an agreement, Jerusalem shall be an open city and the
freedom of movement between the two states shall be
guaranteed.
Second, the resulting EPS Model suggests a framework that is
specifically structured to the Israeli-Palestinian
politico-economic reality. It is more cooperative than the FTA
(freetrade agreement) Model and less integrative than the customs
union model. It stipulates the economic freedom of movement,
applies WTO rules in GATT, GATS and Trade-Related Aspects of
Intellectual Property Rights (TRIPS), and takes into consideration
the gaps in economic development.
Third, the Model addresses all areas that are conducive to the
creation of an economic environment, which is supportive to trade
and investment. In addition, the Model incorporates specific
measures to the enhancement of Palestinian economic growth.
Furthermore, the significance of the Model extends beyond economics
to the entire strategy for permanent status:
First, the EPS Model presents a possible set of Israeli-Palestinian
economic understandings for the permanent status, with a view to
addressing mutual interests.
Second, the EPS Model offers a basis for the enhancement of
political, economic, and social stability.
Third, it paves the way for an understanding on Jerusalem in that
it supports the openness of the Jerusalem area, while implementing
UN resolutions 242 and 338.
Fourth, it is thus far the only model that coherently integrates
two fundamental considerations. On the one hand, it calls for the
free flow of goods, capital, services and labor; on the other hand,
it takes into consideration the wide gaps in development between
the two economies. Thereby the EPS Model creates a viable
alternative to the models of a complete separation between the two
economies, on the one hand, or integration, on the other.
Fifth, the dynamics of the project, which included multifarious
bridging formulas between conflicting interests, will aid in
preparing and conducting effective permanent-status
negotiations.
Finally, the EPS could serve as a basis and a framework for Israeli
and Palestinian economic relations with the international
community. In that context, an Israeli-Palestinian understanding on
economic issues will provide an important impetus to complementary
understandings with Jordan and Egypt.