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 negligible.
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 beginning.
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 legal framework.


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 as well.
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 Israel.

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 USA.
The Palestinians concluded an agreement with the EU which came into force on July 1, [1997]. 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 States.