Israeli trade with the West Bank and Gaza (WBG) represents roughly
8 percent of Israel's total foreign trade. Israeli exports to the
EU are approximately 40 percent, and to the United States they
stand at around 30 percent. Israeli exports to Jordan are
As far as Jordan is concerned, exports to Israel and the WBG are
very small. What is interesting is that, of all the Middle East
countries, Jordan is the one that has most trade in the region,
essentially with the Arab countries. Regional trade is even higher
than that with the EU and the USA.
Recent Palestinian trade figures are difficult to obtain, but the
overall picture is very clear, even on the basis of earlier data:
it is trade with Israel which is dominant.
What we can draw from these statistics is that first, there is very
little trade between the three parties; second, there is a special
situation in the WBG due to the strong reliance on Israel; and
third, one can say that both Israel and Jordan have much more trade
with the EU and the USA than with each other. This is actually a
phenomenon which prevails all over the Middle East.
When the trade agreements, or the patterns of trade agreements that
these three parties have concluded, are compared with the trade
flow, in the case of Israel, it has, to a large degree, liberalized
trade with its two main trading partners - the USA and the EU - as
well as with the Palestinians, but less so with the Jordanians. The
trade relations between Israel and Jordan are beginning to be
liberalized, but we are talking about a very cautious
The case of Jordan is again somewhat different because it has only
recently begun to use trade agreements in a substantial way as part
of its trade policy. The traditional pattern in Jordan has been to
grant access to its market pretty much in a uniform manner to
practically all of its trading partners. It has concluded a few
so-called "protocol agreements," but the products granted
preferential treatment are too few to really make a dent.
Coming back to Israel-Jordan, Israel grants three types of
preferences: 100-percent on some products, 50-percent on another
product list, and 30-percent on yet another list. When one looks at
the other direction of the relationship, Jordan-Israel, one sees
that Jordan itself grants only one type of preference, that is, 10
percent on a number of products. As for the relationship between
Jordan and the Palestinians, both of these parties have created
lists of products for which they have given each other full
liberalization of trade. That means abolition of all of the tariffs
for such products that are listed in these agreements.
When studying the Paris Accords concluded between Israel and the
Palestinian Authority (PA) in April 1994, we notice essentially a
stipulation for free movement of goods, with the exception of six
agricultural products for which there are quotas which are being
phased out. This is what the relationship is like according to the
When we examined all these relationships from the outside, we
noticed a number of peculiarities. The relationship between Israel
and the WBG is a customs union-like arrangement. Peculiarities can
be seen, on the one hand, in the internal relationship because
there are a number of products outside the customs-union
arrangement, which are not liberalized between the two parties.
This is not normally the case in customs-union arrangements in
other parts of the world.
On the other hand, peculiarities are even more pronounced when one
looks at the external relations of the two parties forming the
customs territory. We see that contrary to the idea of a customs
union, there are not unified customs tariffs for all products - a
central element of a customs union. For a number of products, there
are two different customs tariffs and import policies.
A second point is that for products for which only one import
regime exists, it is the customs tariff and import policy of one of
the parties, that is, the Israelis, which is valid for the entire
customs territory. This extends also to trade agreements. So if
Israel negotiates a trade agreement and if it includes products for
which it has the sole right to determine the tariff for the entire
customs territory, then the agreement is valid for the Palestinians
The third point is that, although Israel is, in principle, supposed
to consult with the PA when changing its customs tariffs for the
products which are valid for the entire customs territory, it
appears that this has not always been done. This is not usual. A
common trait that one finds in other parts of the world is that, if
one partner speaks for both, a consultation needs to take place
between the partners of the customs union prior to negotiating and
concluding agreements with third parties.
The last point concerns products where two import regimes exist
which is, as already mentioned, an exception to the customs-union
principle. One of the parties, the Palestinians, can import such
products only in limited quantities while no such restrictions
exist for the Israelis.
Without a Single Tariff
These peculiarities have a definite influence on ties with Jordan.
From a substantive point of view, we have seen that both Israel and
the PA have a bilateral agreement with Jordan. When one looks at
the contents of these agreements, one notices that for some
products there is an overlap of preferences granted under both
agreements. The question is why there are quantitative restrictions
on imports under one agreement if these same products can be
imported into the customs territory in any quantities under the
other? Another 130 products can be imported under preferential
terms and in unlimited quantities under the Israeli-Jordanian
regime, and can thus be resold in the Palestinian territories as
well, although they are not listed in the Jordanian-Palestinian
agreement. Finally, some 43 products can be imported duty-free in
the WBG, but are not given preferential treatment under the
Israeli-Jordanian trade regime. Presumably in order to avoid their
finding their way to the Israeli market, only a limited quantity
can be imported into the WBG under the preferential regime.
This complicated arrangement is the direct result of an open
international market between Israel and the WBG, on the one hand,
and differing import regimes of the two parties sharing the same
customs territory, on the other. In order to avoid these
complications, customs territories normally have only one tariff
towards the outside.
When I look at the trade arrangements between the three parties, I
notice that Israel has, in effect, control of the customs stations
around the entire Israeli-Palestinian customs territory. It has
control over other issues which are also influencing trade, for
instance, transport arrangements. Problems arising in
Jordanian-Palestinian trade are to be raised, normally, in a joint
committee set up under the Palestinian-Jordanian agreement, but, in
fact, control over the issue lies elsewhere, that is, with
Trade with the EU and the USA
Regarding trade relations between the parties in the triad,
Israel-Jordan-WBG, and the EU and the USA, Israel has with the EU
and with the USA free-trade arrangements where tariffs on
industrial goods have been totally eliminated, and on agricultural
goods to some degree.
Jordan has a one-sided preferential arrangement with the EU
receiving free access for industrial goods to the EU market and a
few preferences on agricultural goods. I say it is one-sided
because Jordan granted the EU Most Favored Nation (MFN) treatment.
The new Jordanian-EU Association Agreement has been initialed but
not ratified yet.
The USA has granted Jordan preferences according to the Generalized
System of Preferences (GSP), which allows for duty-free imports for
close to 4,000 tariff lines. Jordan has granted MFN treatment to
The Palestinians concluded an agreement with the EU which came into
force on July 1, . Within its limited competencies according
to the treaties with Israel, the PA has granted the EU duty-free
access for industrial products, and there are some preferences for
agricultural products. Vis-à-vis the United States, there has
been an exchange of letters between the two partners which
essentially provides for duty-free access to each other's market
across the entire product spectrum.
Less Favorable to Jordan
When we compare the market access given by the EU to the three
parties, at the moment when the Jordanian agreement comes into
force, we find that the EU has granted the same conditions to all
the parties. The same cannot be said about the United States, which
has clearly given a more favorable treatment to Israel and the PA
than to Jordan.
Trade liberalization measures should, of course, be a two-way
affair. Indeed, Israel and also the PA have on their side opened up
their markets to the United States products, while Jordan has
granted them "only" MFN treatment. One could expect from a powerful
country with a big internal market and a developed industrial and
agricultural sector that it could afford to be more forthcoming to
a developing country than is the case the other way round.
Finally, there is a difference between the EU and the USA
vis-à-vis these three parties with regard to cumulation. It is
a difficult issue, but essentially the USA treats Israel and the
WBG as one customs territory. On the other hand, the EU deals with
them as two different customs territories.
Cumulation relates to the degree to which products and
manufacturing processes from more than one country can be combined
so that the final product will still receive the preferential
treatment under a trade agreement. This is a complicated subject
which has large ramifications for economic relations between
Israel, Jordan and the Palestinians vis-à-vis the United