Restructuring Palestinian-Israeli Economic Relations - An interview
Palestine-Israel Journal: Let us start by discussing the aim behind the Paris Protocol. When the Palestinians negotiated and signed the agreement, what did they expect to achieve from such an agreement?
Samir Huleileh: Our understanding at the beginning of negotiations at the end of 1993, in preparation for the economic talks, was that we were basically signing an interim agreement for five years and that final-status negotiations would be a different matter with different political and economic parameters. Unlike the interim agreement that was based on the Oslo Accords and the aftermath agreements (Gaza-Jericho First, the Cairo agreement, etc.), the economic agreement is not a phased one, i.e., it was signed for the whole five-year Interim period.
Our goal was clear from the beginning: to use the interim agreement as it vehicle or a means to restructure our economic relations with Israel, to separate as much as was possible in an interim period, and to link our economy, as much as we could, to that of the international community and to the Arab world. We later realized that was an impossible task, especially in light of all the political and security constraints by the Israeli government. We knew it was also extremely difficult to restructure a long-standing relationship with Israel where we had 120,000-130,000 Palestinian laborers working in Israel, and where we were exporting primarily to Israel and very little to the rest of the world, and importing mainly from Israel or through Israel and not from other parts of the world.
Of course, during the negotiations we had to consider other factors in our arrangement with Israel. We could not, for example, consider comEle~e separation, even as a task for the Interim period, as Arab East Jerusalem remains a controversial issue and is still annexed to Israel, meaning that we could not prejudice the final status of Jerusalem by separating it from the West Bank. So we had to make a lot of compromises in that respect. The same was true of Gaza. Israel proposed that we could have any economic system we'd like in Gaza, but then it would have to be different from that in the West Bank; we could not do that for obvious political reasons. Also, we have to remember that, in the absence of political and geographical borders between the West Bank, Gaza, and Israel, it is virtually impossible for the Palestinians to have a completely independent or a separate economic system from Israel.

In light of these goals, then, how would you evaluate the agreement? What sort of relationship with Israel does it offer the Palestinians?
The Paris Protocol, signed on April 29, 1994, stipulates a quasi-customs union arrangement with Israel. Prior to the Oslo agreement, we were fully integrated into the Israeli market. The new system and the new arrangement guaranteed that, although we were keeping a lot of our products within a customs union with Israel, we still had the freedom to import tens and maybe hundreds of items, such as foodstuff, electrical appliances and construction material, from other countries - mostly from Arab countries, in particular Jordan and Egypt - free of any Israeli restrictions, especially customs, standards and import policies. Naturally, this was an improvement. We also achieved a certain freedom in other fields, particularly in agriculture. We now have the right to export our agricultural produce to Israel, albeit with certain quotas that were meant to decrease gradually, leading to unrestricted export at the end of the five years of the Interim period. We have also acquired much independence in the banking sector, where we can monitor and manage our own banks, including the licensing and supervision of banks in accordance with our own, independent banking system. We did not manage to have a Palestinian currency, since this would have meant preempting final-status issues.

Why, then, has the Protocol been considered a disaster from a Palestinian perspective and even a retreat from the situation that existed prior to the signing of the peace agreement?
The implementation of this agreement was complicated by a new factor that entered the scene after the Protocol was signed. In the first year or two, Hamas and other fundamentalist groups carried out suicide attacks against Israeli civilian and military targets, dealing the peace process a severe blow. Israel reacted by adopting a preventive policy and sealed off the West Bank and the Gaza Strip (WBGS) from Israel and East Jerusalem. I would say that these political and security arrangements that were imposed at the initial stage of implementation - from March 1995 and on - were a total departure from what we had agreed upon in the Protocol. I remember that in the first year, the economic committee that was discussing the implementation of the economic agreement raised the issue of closure very vehemently and, at that time, even the Israelis realized that what they were doing was jeopardizing the agreement and that a solution ought to be found. What prevented any amendment or changes in the agreement was a political decision by Yitzhak Rabin not to restructure, not to renegotiate, not to open any agreement that was signed in Oslo or after, meaning that any revision in this agreement would have to be done at the technical, low-profile level and would not touch its basic concepts.
We realized in the first two years of the Interim period that this new Israeli policy pertaining to the WBGS threatened two fundamental principles of the economic agreement, namely, the free movement of workers and of goods. What was taking place on the ground was not only prejudicial to the spirit and letter of the agreement, but was damaging the Palestinian economy as well. We had a situation where an economic arrangement was superseded by political and security considerations, and this meant that the Paris Protocol, at least from this standpoint, could no longer be implemented properly. The problem was exacerbated when Binyamin Netanyahu came to power in 1996. We had then to contend with a new government that did not believe in the peace agreement in the first place, a government that misused it and tried to use terrorism as a pretext to seal off the WBGS, preventing Palestinian workers and products from entering into Israel. To my mind, that is the worst possible scenario, and the worst possible form of implementation of an agreement concluded during the last few years.

How do you assess, in concrete terms, the impact this non-implementation had on the Palestinian economy?
I would say that, despite the problems and difficulties we faced in the implementation, we have achieved certain results that should be mentioned. The first is that a banking system was built, monitored and supervised by the Palestinian side and a Monetary Authority was established. This is an important achievement. Second, as a result of the agreement, import and export activities were established between the Palestinians and the international community, particularly with Jordan and Egypt, leading to the rise of a new class of traders. Close to 1,600 new merchants have started importing and exporting from and to the region and the international community during the last three to four years; this was the first chance the Palestinians had of connecting directly with the world. We have started to have agents, direct representatives which provide better services to the consumer and cheaper prices in most cases. Also regarding agricultural exports to Israel, we now have, at least from the legal point of view, the right to export all our produce to Israel, although we still have problems with the Israeli Ministry of Agriculture and some lobbies here and there, but we have made great strides in that area.
On the negative side, however, I have to admit that the basic source of revenue to the Palestinian economy, the work force, suffered heavily during the process. The average number of workers in Israel decreased from 120,000-130,000 to a maximum of 35,000-40,000; this was a significant decrease. Also, exports to Israel or through Israel have dropped during the process as a result of the Israeli siege on the territories. Furthermore, although investment opportunities in the Palestinian areas were initially considered highly favorable due to improvements on the political scene, the situation deteriorated dramatically, particularly during the Netanyahu government. So, an increasing number of companies that had registered in the WBGS folded and went home, and the results that could have been achieved from the peace process did not materialize.
The conclusion of the three. to four years of the implementation of the Protocol were marked by a reduction in the Palestinian GDP per capita and, of course, by a higher unemployment rate. This said, at the end of the fifth year, we see greater stability in the availability of a job market for the Palestinian work force in Israel and, consequently, an increased revenue reaching the Palestinian areas through its labor force. In 1999, and after five years of the agreement, the average rate of unemployment in Palestine has dropped to around 13-14%, whereas it started with 30-35% in 1993-1994. Here, I must mention that the establishment of a Palestinian public sector, but also the private sector, have been instrumental in this improvement on the employment scene. At any rate, from this point of view there has been some progress, but it is a progress that depends solely on Israel's willingness to open its borders to Palestinian workers, to issue more permits not only to workers, but also to traders, industrialists, businesspeople and so on.

Are there any lessons to be learned here in preparation for final-status negotiations or for an eventual replacement of the agreement signed in Paris?
I think the first lesson is that, in this part of the world, economics, politics and security are completely integrated. Therefore, we cannot sign an economic agreement that will be more or less independent of the other agreements. In the Paris Protocol, we signed, I think, a fairly good agreement, but it was completely undermined by security and political considerations. This could happen again. We cannot accept a situation where we will have to depend on Israel or on an Israeli decision to close borders, cutting us off from the external world. We must ensure our capacity to relate to the international community, to the region, or to each other - Le., the West Bank and Gaza ¬without necessarily having to obtain Israeli approval or to abide by Israeli rules, tariffs, import policy, standards, etc. Israel has its own security concerns; we understand that these must be solved, but not at the expense of the Palestinian economy. In that sense we have to be independent of the Israeli system.
Second, we have to try hard to guarantee that a certain number of workers will keep on working in Israel, irrespective of developments on other fronts. Some form of economic relationship between us and Israel has to be maintained for some time, at least until we are able to build relations with the rest of the world. We have certain nep.ds; we have certain exports and imports and we have a labor force. Who is there to replace Israel as a market for our lab or force or for our products, or to replace Israel as our exporter? Unless we can find alternative outlets with the Arab countries and the international community, we cannot go on negotiating confidently with Israel about these issues. We are realistic, but what we are saying is that we have to restructure our relationship with Israel in such a way as to be able to decide freely on a lot of issues. We can be independent politically, but economically we will always be partially dependent on other countries, as is the case with even very well¬established states. We have to build a system where we can have a relationship with Israel that is based on parity, fairness and an equitable treatment of revenues within both economies.