While the main focus of this discussion is the economic agreements,
it is important to note that economic transformations which have
evolved dur¬ing the last nine months have often been
precipitated by factors not related to the agreements themselves,
though they are indeed related in one way or another to the peace
process. Such factors include the delivery record of donors, the
performance of the Palestinian National Authority (PNA), and the
changing mood in Amman. These factors have a strong bearing on the
overall status of the implementation of the economic
As a point of reference, it should be noted that economic issues
were viewed by all sides in the peace process as one rare area
where mutual interests converge. Not surprisingly, therefore, the
Declaration of Principles (DOP) seemed to talk more about economics
than politics. Each party, of course, had its own economic
expectations, but all seemed to agree that achieving tangible
dividends for ordinary people in the West Bank and the Gaza Strip
was top priority. This was not prompted only by a humanitarian
concern for the appalling living conditions prevailing there, but
was also deemed imperative in order to solicit public support for a
In the long run there are certainly more ambitious economic
objectives, especially for the Israelis. They look forward, for
instance, to joint ventures in industry and tourism as well as
infrastructural projects. Israel also aspires to free trade in the
region. In addition to the direct economic impact of these
developments, they will help to stabilize the peace process by
rais¬ing the cost of disassociation for all involved.
In spite of mutual interest and ample goodwill, it must be
remembered that the economic agreements were negotiated between
unequal sides, eco¬nomically as well as politically.
Unavoidably, this has been heavily reflect¬ed in the
agreements. They are full of loopholes and ambiguities, all of
which aim to provide Israel with leeway for alternative
interpretations, should that be felt necessary.
The economic agreements touch upon a wide variety of sectors and of
issues. As is to be expected, the implementation record varies to a
degree from one area to another. This necessitates a sectoral
review of the record.
This has been an area in which cooperation in implementation was at
its best. It is quite clear that both sides have an equal interest
in the success of the Palestinian tax authorities. This interest is
also shared by the World Bank, the IMF and the donor community as a
Cooperation in taxes covers a wide range of areas:
The training of Palestinian staff: several immensely helpful
courses have been organized.
The transfer of files and software is proceeding more or less
The use of what is called the unified invoice is expected to raise
VAT proceeds to unprecedented levels.
The subject of taxes is therefore a success story, demonstrating
how much can be achieved if Palestinians and Israelis succeed in
overcoming their inhibitions to cooperation.
Here the monitoring and evaluation of the implementation record is
much more complex. In trade affairs there are at least four areas
of interaction, each with its own complications. The Paris accords
worked out a modified from of Customs Union which supposedly offers
Palestinians a limited margin of independence in structuring their
trade relations with other Arab countries, especially Jordan and
Most important from a Palestinian perspective, the PNA is able to
import directly a specified list of consumer and capital goods from
Jordan and Egypt, and at tariff rates set independently from
Israel. Imports will be lim¬ited to local market needs. The
list of goods includes some basic consumer goods such as rice,
sugar, flour, fuel, cement and construction materials. Importing
from Jordan was hoped to achieve vital objectives for the
It would lower the prices of some major commodities, which is of
great significance to the Palestinian public in the West Bank and
It would reduce dependency on Israel.
It would serve as a badly-needed gesture to our Jordanian brothers
The new trade regime was also expected to permit and facilitate
direct imports from other countries, including franchise
arrangements covering the Autonomy areas:
This would create essential employment opportunities. It would
bring lower prices to consumers.
It would generate PNA income through larger customs proceeds.
A third fundamental aspect of trade is that of agricultural
products. The agreement has provided for a gradual phasing out of
restrictions on the flow of Palestinian products into Israeli
markets. It has allowed for an effi¬cient flow of farm
products between the West Bank and the Gaza Strip.
The above are identified as the main objectives in relation to
trade. What, then, are the actual changes on the ground? Here, I
restrict myself to some major areas of anticipated change:
There is no systematic importing from Jordan, nor from Egypt,
particularly of strategic goods (petroleum, cement, fertilizers).
On the other hand, many Jordanian and Egyptian products are
flooding local markets (biscuits, chocolates, textiles.) Why? For
logistic and also PNA-related reasons.
Israel is negotiating free trade arrangements with Egypt and
Jordan, with no coordination with the PNA. It is clear where the
imported products will end up.
Israel is obstructing the flow of imported products from Gaza to
the West Bank and Jericho. The intention is clear, though not
expressly stated: pre¬serving these markets for Israeli
suppliers and preserving the entry of imported goods to Israel by
the back door.
Agricultural trade is still basically conducted as it was for many
Entry of Israeli products to OPT markets is still totally free;
Palestinian products, even from Gaza, however, are permitted entry
into Israel on a selective basis.
Even the flow of produce between the West Bank and the Gaza Strip
and between the northern and southern parts of the West Bank has
become extremely problematic.
The fact that the West Bank is not part of the Autonomy precludes
the flow of its goods to Israel.
Unfortunately, the problems confronted by Palestinian farmers are
fur¬ther aggravated by the recent escalation in the
restrictions on the entry of Palestinian products into
Israeli authorities resort to a variety of means in imposing their
own per¬ceptions of trade with the Palestinians.
It provides the Israelis with much leeway to have their way.
In particular, it is already obvious that quality-related issues
are being exploited as non-tariff trade barriers.
The task of the Israelis is made easier by the non-authentic record
of Palestinian producers and manufacturers on quality control and
This area is not left to the last because it is less important than
others. On the contrary, it is by far the most important aspect of
economic relations between Israel and its Palestinian
The Israeli labor market, as we know, used to absorb more than
120,000 workers, which amounted to 35-40 percent of the Palestinian
labor force, and contributed approximately 30 percent of the GNP.
The agreement calls for "normal" flow of labor between Israel and
its Palestinian neighbors, and even if this was not exactly what
the Palestinians looked forward to, this is what could be
As for its translation on the ground, for most of the past two
years the number of workers in Israel remained below 40,000, Le.,
less than one-third of its normal size.
The foregoing survey has evaluated, in broad terms, the
implementation status in the three major areas of taxes, trade and
labor flow. Other areas of common interest like tourism, water
resources and infrastructure are also important, but I have no time
to dwell on them. I would like now to reflect on the dynamics of
What Went Wrong?
It is already evident that the implementation of the economic
agreements has been very disappointing. As against the initial
expectations of the Palestinians, the agreement has been, in
reality, only a marginal gain.
The main question is why? What went wrong? The present economic
dis¬aster cannot be attributed to anyone factor. The mistakes
were made in all directions, some relating to the PNA, some to the
Israeli authorities, some to the donors. However, I would like to
focus on those factors related to Israel, as viewed from a
Palestinian perspective, and on Israel's uncooper¬ative stand
on economic relations with the Palestinians.
On the Israeli side, a much-publicized factor is security. This is
presum¬ably the main motive for the closure and the tough
restrictions on the num¬ber of Palestinian workers. However,
the majority of Israelis in the gov¬ernment and in the army
know that this is not true. On the contrary, many of them are well
aware that the appalling consequences of the closure
con¬stitute a major hazard to Israeli security.
What then, if not security, are the real motives for the
Unfortunately, the closure has become a popular retaliatory measure
which is impulsively demanded following every major security
incident. In other words, the Israeli Government is simply bending
under public pressure, and not to real security calculations. This
is indeed a significant deterioration in the relations between
Israelis and Palestinians.
Preserving Israeli Economic Interests
The Israeli stand has other important aspects: Israeli authorities
are eager to circumvent all Palestinian efforts which have a
sovereignty connotation. Israeli authorities are obsessed with
obtaining as much authority as possi¬ble in Palestinian
affairs. The agreement has made this easy to achieve because there
is not one authority that has been given back to the Palestinians
without an opening being left for Israeli intervention.
Another reason for the uncooperative Israeli stand has been the
preser¬vation of the economic interests of Israeli firms. It
has indeed been comic to see how far the Israelis have gone in
order to safeguard what they per¬ceive as vested economic
interests. Yet they are always keen on emphasiz¬ing that the
Palestinian economy is so small that it hardly leaves any real
impact on the strong Israeli economy.
Finally, irrespective of underlying causes, the net impact of
economic changes during the last nine months is not encouraging, at
least as far as the Palestinians are concerned. This should be a
cause of concern to all of us - Palestinians, Israelis and the
international community. We all have a profound vested interest in
averting the consequences of the rapidly dete¬riorating
conditions in the OPT.
This may not be the most positive way to conclude such a
presentation but I feel that if we are indeed determined to build a
prosperous Middle East, then we should take some real and fast
action to end the mounting suffering in the OPT. We all have
important homework to do if we are to achieve this objective.
This paper was first presented at IPCRI's Israeli-Palestinian
Roundtable Forum of Economists and Industrialists, Jerusalem,