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The Economic Permanent Status Project (EPS) was engineered by the Economic Cooperation Foundation (ECF), on the Israeli side, and Data Studies and Consultation (DATA) and the Higher Commission for Investment and Finance (HCIF), on the Palestinian side. It was conducted under the auspices of the Government of Norway over a period of six months (June-November 1998). The outcome of the project is a blueprint of an understanding on economic permanent status, which presents a model (the EPS Model) for long-term Israeli-Palestinian economic relations.
This model offers a comprehensive and cohesive set of principles and guidelines, which are based on a shared vision of partnership for economic and social growth and prosperity.

The EPS Model for Economic Relations in Permanent Status

The Model rests on the following three-tiered concept: The first tier is the shared vision of political separation and economic cooperation based on partnership for growth and development, especially of the Palestinian economy, which underscored the entire activity.
The second tier is a set of understandings, in the form of principles and guidelines, in all key areas of economic relations: fiscal and trade relations, investment, labor and monetary and currency issues.
In addition, the second tier addresses the guidelines of the relevant institutional support structures, as well as environmental natural resources, and long-term planning considerations. Finally, this tier suggests the guidelines for the development of an Israeli Economic Assistance Program, for a dispute settlement mechanism and for the security policies.
The third tier focuses on the transformation of the prevailing Interim period economic regime, which is governed by the Paris Protocol, into the envisaged EPS-Model Economic Permanent Status.

Principles for Economic Permanent Status

The principles of the EPS Model are as follows:
• An Israeli-Palestinian Protocol of Origin shall be concluded;
• From an economic point of view, free and unimpeded flow of goods, services, capital, and labor with the specific aim of securing respective accessibility of products and labor to each other's markets, as well as to other markets (i.e., no customs and/or indirect taxation of Israeli-Palestinian trade);
• Coordination of indirect taxation (uniform rate of VAT between 12% to 22%), identical rate of purchase tax on 15-20 agreed-upon goods;
• Each side may adopt independent import policies, procedures and market regulations; each side shall have the right to establish and operate (Israeli version: entry stations/Palestinian version: customs stations) within its territory, primarily for the purpose of documentation and data collection:
Agreed stations may serve as customs houses for transit;
Each side may implement its respective fiscal & import policies and market regulations at the stations;
Indirect taxes may be collected at the stations only in agreed-upon cases;
• Revenues from indirect taxation shall be cleared through a government-to-government mechanism;
• The standards on Israeli and Palestinian goods traded between the sides shall be based on the existing arrangements and on the relevant WTO (World Trade Organization) rules;
• Prevention of double taxation, Israeli tax sparing and transfer to Palestine of no less than 75% of income tax collected from Palestinian individuals or permanent establishments in Israel;
• Free movement of labor and preferential treatment by Israel to Palestinian labor;
• A Palestinian currency shall serve as a legal tender, while the U.S. dollar, the new Israeli shekel and the Jordanian dinar shall continue as circulating currencies. The Central Bank of Palestine (CBP) shall guarantee that Palestinian currency will not cause destabilization;
• Reciprocal termination of all economic boycotts and discriminatory trade barriers to normal economic relations and lifting of non-tariff barriers to trade and investment;
• Mutual commitment to implementing WTO rules and regulations in General Agreement on Tariffs and Trade (GATT) and General Agreement on Trade in Services (GATS);
• Consideration in environmental, natural resources, and long-term planning;
• Creation of security support structures and institutional cooperation to facilitate economic activity;
• An intensive Israeli financial and technical assistance program (IEAP) shall be made available to the Palestinian economy (e.g., preferential treatment to Palestinian labor, assistance program, direct assistance to infant industries, etc.);
• Development of mechanisms for the settlement of disputes arising from the application of the EPS Model;
• Consideration of the differences in development between the two economies;
• Reciprocity, equity and fairness;
• Mutual respect of each other's interest for economic growth and prosperity;
• Mutual commitment to regional economic growth and prosperity through cooperation, especially with Jordan and Egypt;
• Promotion of private-sector activity and free competition;
• Reciprocal non-discrimination based on the Most Favored Nation and the National Treatment principles;
• Strengthening of Palestinian economic institutions, capacities and competitive advantages in order to guarantee sustained economic growth and prosperity;
• Development by the parties of a strategy for the transformation of the Interim Period economic arrangements into the suggested Permanent Status EPS Model.

Underlying Understandings

The contents of the document should be evaluated against the following three understandings:
According to the first understanding, an agreement on economic permanent status, when finalized, shall constitute a component of a comprehensive permanent status agreement between the two states. Thus, the document rests on the presupposition that key areas in Israeli-Palestinian relations shall be resolved within that permanent status agreement.
The second understanding refers to the longevity of Israeli-Palestinian dialogue on economic relations in permanent status. This document offers principles and guidelines for the establishment of a workable economic model. Most, if not all, of its elements mandate further elaboration in order to be translated into detailed agreements and protocols.
The areas most in need of such activity are the mechanisms for the implementation of the EPS Model fiscal and trade relations, as well as the issues of the Israeli Economic Assistance Program and investment promotion.
According to the third understanding, this document is an agreed-upon professional economic document. It is not a legal one. Further work will be required to effectuate this document and to transform it into an official legal agreement.

The Significance of the EPS Model

We believe that this Model serves as the benchmark for negotiations on the economic arrangements in permanent status due to the following three factors:
First, the Model rests on a viable and feasible political model-of-reference, which supposes that a comprehensive permanent-status agreement, based on UN resolutions 242 and 338, will be concluded between two independent and sovereign states. Under such an agreement, Jerusalem shall be an open city and the freedom of movement between the two states shall be guaranteed.
Second, the resulting EPS Model suggests a framework that is specifically structured to the Israeli-Palestinian politico-economic reality. It is more cooperative than the FTA (freetrade agreement) Model and less integrative than the customs union model. It stipulates the economic freedom of movement, applies WTO rules in GATT, GATS and Trade-Related Aspects of Intellectual Property Rights (TRIPS), and takes into consideration the gaps in economic development.
Third, the Model addresses all areas that are conducive to the creation of an economic environment, which is supportive to trade and investment. In addition, the Model incorporates specific measures to the enhancement of Palestinian economic growth.
Furthermore, the significance of the Model extends beyond economics to the entire strategy for permanent status:
First, the EPS Model presents a possible set of Israeli-Palestinian economic understandings for the permanent status, with a view to addressing mutual interests.
Second, the EPS Model offers a basis for the enhancement of political, economic, and social stability.
Third, it paves the way for an understanding on Jerusalem in that it supports the openness of the Jerusalem area, while implementing UN resolutions 242 and 338.
Fourth, it is thus far the only model that coherently integrates two fundamental considerations. On the one hand, it calls for the free flow of goods, capital, services and labor; on the other hand, it takes into consideration the wide gaps in development between the two economies. Thereby the EPS Model creates a viable alternative to the models of a complete separation between the two economies, on the one hand, or integration, on the other.
Fifth, the dynamics of the project, which included multifarious bridging formulas between conflicting interests, will aid in preparing and conducting effective permanent-status negotiations.
Finally, the EPS could serve as a basis and a framework for Israeli and Palestinian economic relations with the international community. In that context, an Israeli-Palestinian understanding on economic issues will provide an important impetus to complementary understandings with Jordan and Egypt.

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