My article titled "The Bes't Way for Both Sides," published in the
first issue of this journal, five years ago, contemplated greater
Palestinian exports to and through Israel, following Oslo and the
successive agreements. The original, and additional articles in
that issue expressed the opinion that a voluntary Customs Union or
an advanced FTA (free trade area) with Israel - allowing for
greater exports - was the best Palestinian hope for economic
growth. Interchange with the Palestinians did not play a major role
in the Israeli economy. However, the articles envisaged the daily
economic interaction involved as one of Israel's best guarantees of
a lasting peace. All in all, a robust trade could indeed be
visualized as the best way for both sides.
This has been, and still is, a most accurate assessment of the
political¬economic options facing the parties. But it has been
and still is an appraisal conditioned by the ability of the parties
to maintain an environment of mutual trust. So far, in the absence
of trust, an expansion of Palestinian exports to and through Israel
did not materialize. On the contrary, exports have declined
considerably from their pre-Oslo level. By 1997, the value of total
Palestinian exports to Israel approximated 60% of their level in
1992, merely 40% of their potential.
Furthermore, administrative developments in the post-Oslo era,
reflecting an implicit spirit of mistrust, are hardly conducive to
future trade. The Karni Checkpoint - an assemblage of concrete and
electronics and officious clerks, the designated gateway for goods
originating in Gaza on their way to Israel - is a plain
manifestation of the prevalent spirit. Every piece of merchandise
will be checked: trust is to play no role in the procedure.
A Detrimental Development in Israel's Labor Market
Imports of lab or services and the presence of non-citizens in
Israel's labor market have been rising ever since the early 1970s.
Figures processed by Israel's Central Bureau of Statistics and
employed by the Bank of Israel seem to indicate that in 1970
non-citizens comprised a mere 2.1 % of Israel's total work force.
But eventually that percentage trebled, reaching a level of 5.6% in
1980 and 6.8% in 1990. In 1997, in spite of a recession, the
percentage of non-citizen employees increased to 7.9%.
It is possible to suggest that during the time-period in question
real income and wages in Israel came close to European levels, and
attribute this influx of non-citizens to factors generating similar
phenomena in Western Europe. It may be suggested that non-citizen
employment in Israel has been induced by the presence of excess
supplies of inexpensive daily-commuting Palestinians. But, in
regard to the Israeli-Palestinian post-Oslo relations, a full
explanation of the pre-Oslo development is unimportant. The fact is
that, after Oslo, Palestinians have been replaced in Israel's labor
market by foreigners originating in the Far East and Eastern
Europe. According to the data presented by the Bank of Israel,
Palestinian employees in Israel approximated 100,000 in 1992.1 In
1997 the number dropped below 50,000. At the same time, total
non-citizen employment rose from 132,000 in 1992 to 176,000 in
1997.
Relative to the data for 1992, the Palestinians lost 50,000 jobs
from 1992 to 1997.
In an environment of trust and in the spirit of the Oslo agreement
and the adjacent Paris (Economic) Protocol, Palestinians could have
retained their 1992 share (87.5% of total non-citizen employment)
and expected 154,000 jobs in 1997. Relative to that potential,
their loss to foreigners approximated 105,000 jobs.
But an environment of trust did not prevail. A terrorist outburst
just prior to Oslo generated a public opinion hostile to the
presence of Palestinians in Israel's labor market. Even though
terrorist activity was unrelated to the presence of registered
Palestinian employees in Israel, the government of Israel succumbed
to public opinion and resorted to closures. However, unlike the
pre-Oslo experience, the post-Oslo policy now allowed for tens of
thousands of work permits to foreign workers. These foreigners
"crowded out" the Palestinians even when closures were relaxed
toward 1997.
Relaxing the closures was not enough because, in the eyes of an
average employer, preference for farmhands from the Far East and
for construction workers from Eastern Europe reflected a real cost
consideration. Even where Palestinian and foreign labor were
competitive in terms of out-of-pocket expense, Palestinian lab or
was, supposedly, less reliable - thus costlier - in real
terms.
1 It has been argued that the data processed by Israel's
Central Bureau of Statistics supposedly overlook unauthorized
foreign and Palestinian labor, and thus fall short of the "real"
figures. However, the focal point of the comparative analysis
presented here is differences between values recorded in 1992 and
1997 and not the recorded (supposedly biased) values
themselves.
Discouraging Developments in Bilateral Trade
In terms of the bilateral balance of trade, the detrimental
development in Israel's labor market implies a decline in
Palestinian exports. According to data published by Israel's
Central Bureau of Statistics and summarized in Table 1, Palestinian
exports of services to Israel dropped from U.5.$ 920 million to
U.5.$ 475 million in 1997.2 In terms of potential, Palestinian
exports of services in 1997, which amounted to 0.5.$ 475 million,
fell short of their potential calculated here as U.5.$ 1,520
million (Table 1, row 11, column (c». Hence, relative to the
potential, the loss in Palestinian export of services to Israel
amounts to U.5.$ 1,045 million.
Palestinian exports of goods to Israel did not compensate for the
negative development in the export of services. Exports of
Palestinian goods were stagnant, U.5.$ 240 million in 1997 compared
with U.5.$ 250 million in 1992. The pre-Intifada level of U.5.$ 305
million - considered here as a proxy of the respective 1997
potential- has been recovered. Relative to that potential, the loss
in Palestinian export of goods amounts to U.5.$ 65 million. Neither
was hope for the development of joint ventures and sourcing
alliances realized.
This failure could be attributed, in part, to an effort by the
authorities to provide for a risk-mitigating environment. The
Palestinians failed to preserve the solidity of an
institutional-legal framework. Israel failed to provide a
compensatory mechanism.
In the face of a decline in the Palestinian exports to Israel, the
exports of goods produced or processed by Israelis and procured by
Palestinians increased from U.5.$ 1,105 million in 1992 to U.5.$
1,570 million in 1997. At the same time Israel's export of services
dropped from U.5.$ 325 million to U.5.$ 170 million. This drop of
U.5.$ 155 million is most likely to represent a transfer of
intermediary commissions realized in the past by Israeli commercial
agents to their Palestinian counterparts.
Altogether, the Israeli economy registered a slight increase in
total exports.
Yet, in relative terms, trade with the Palestinians decreased from
7.5% of Israel's total exports in 1992 to 5.5% in 1997, reinforcing
the trend of marginalizing Israel's economic interaction with her
immediate neighbor.
This trend is contrasted with the situation on the Palestinian
side, where exports to Israel are not a marginal affair. A loss of
0.5.$ 1,045 million in potential exports of labor services and U
.5.$ 65 million in exports of goods imply a loss of more than U.5.$
1 billion in value added. For an economy capable of attaining a
gross national product of U.5.$ 4-5 billion this is an enormous
loss.
The transfer of U.5.$ 155 million of intermediaries' commission
provides a compensation of sorts. However, the compensation is
small and the loss is very large. Moreover, the enormous loss
incurs to the unemployed masses, while the small compensation
accrues to the privileged few.
The Best Way
In spite of the setbacks, it is not utterly impossible to reverse
the tide: allow Palestinian exports of goods a genuinely free
access and favor Palestinian exports of lab or-services, and
encourage viable bilateral trade and the free movement of
Palestinian goods. If this is the case, then Palestinian leaders
should mind the real needs of the people (rather than the desires
of the privileged few) and Israeli officials should pay attention
to the common cause (rather than the particular interests of
farmers and contractors). In the interest of common people and the
cause of peace, the "best way" should be pursued as vigorously as
possible.