Throughout the past decades of military occupation, the freedom of
the Palestinian business community to invest, to mobilize foreign
investment and to trade were severely hampered by restrictions
imposed by Israel on the business activity of the West Bank and the
Gaza Strip (WBG). With the signing of the interim peace agreements,
and specifically the Paris Accords of 1994, hope grew that the
process of peace would simultaneously encourage an economic growth
commensurate with the opportunities available in the WBG and would
end the crippling Israeli restrictions.
Three years after the signing of the Declaration of Principles
(DOP) and, despite the potential existence of conducive business
opportunities, a profitable business environment remains elusive.
Efforts by the business community to explore and plan new
productive ventures and to engage prospective partners and
investors continue to be hindered by the Israelis. The intervention
of the Israeli government in matters vital to the management of
business enterprises creates obstacles, some of which are a
carry-over from the Israeli military occupation practices in the
WBG. Many of them, however, were actually imposed after the signing
of the peace accords. A case in point is the obstruction by Israel
of the essential and basic movement of goods and people between the
Palestinian territories, Israel and Jordan. Indeed, market access
to Jordan and neighboring Arab markets remains limited and
uncertain. The prospects of trade development in regional markets
are further weakened as the competitiveness of prospective
Palestinian exporters is undermined by high transaction costs, and
by the extreme inefficiency and unreliability of the Jordan River
Economic conditions are exacerbated by the administrative,
logistical, and de facto non-tariff barriers which deny Palestinian
businesses free access to Israel's markets, as was promised in the
1994 Paris Economic Protocol. Meanwhile, Israeli products continue
to enjoy unimpeded and, in certain cases, facilitated access to
Palestinian markets. Such a situation aggravates the already skewed
balance of trade through the dependence on one major trading
partner - Israel. Seventy percent of total imports to the West Bank
and Gaza come from Israel, while only 30 percent of the West Bank's
and Gaza's output are exported to Israel.
Indeed, Palestinian businessmen are questioning the viability of
exercises aimed at fostering regional cooperation, as well as the
benefit of the free-trade agreement with the US as they cannot,
realistically, see the possibility of free trade flow between the
West Bank, Gaza and the US, when it is inexistent between the
Palestinian territories and Israel.
The closure Israel has imposed on the WBG since March 1993 is the
single most damaging measure which blocks the whole of the
Palestinian business community from reaching its potential.
This closure cuts off Arab East Jerusalem from the WBG, denying the
city its labor pool and much of its ability to market its goods. It
also segments the West Bank into northern and southern sections.
These two parts can only be linked either through a road that the
US Consulate has identified as inadvisable for travel, or by
passing through Jerusalem, provided the WBG residents hold valid
entry permits to the city. As a result, companies have been
compelled either to have two headquarters - one in the north and
one in the south, with a distance of only about 17 miles between
them ¬or risk having their operations diminished due to their
inability to access either of the sections of the West Bank. In the
case of Gaza, the absence of a safe passage for individuals and
goods between the Palestine National Authority (PNA) areas leaves
Israel as the only possible route of access to the West Bank.
Again, entry permits are mandatory, but are often impossible to
Frequent and prolonged border closures thus fragment the
Palestinian market into smaller markets, further discouraging
investors from what is already perceived to be a small Palestinian
market. Additionally, closures prevent planning and adhering to
production and delivery schedules, causing heavy losses and
hampering exports and imports. The numerous interruptions in the
delivery of goods since the Oslo agreement has forced the closure
of 350 textile shops in Gaza - fully one-third of the textile
companies there. One West Bank trading company almost closed down
because 70 percent of its trade was dependent on Jerusalem. Another
Jerusalem corporation reported a 50-percent loss in profits.
Estimates for the impact of the closure on lost revenues show a
decline in profits ranging from 20-50 percent, while they cost the
territories a daily loss of approximately $ 5-7 million in trade as
well as in labor wages. Twenty-four percent of the labor sector are
dependent on employment in Israel and lose their source of
livelihood during total and internal closures. In effect, the $100
million in annual US assistance compensates the Palestinians for
only 17 days of closure.
Most companies cite their inability to obtain travel permits for
their employees as a major constraint on their work. As mentioned
above, permits are required for travel between Gaza and the West
Bank on the one hand, and Jerusalem and Israel on the other, even
when total closures are not in force. Under the catch-all issue of
security, Israel uses arbitrary criteria for the granting of entry
permits to West Bank and Gaza residents. Consequently, the movement
of merchandise between Gaza and the West Bank remains subject to
serious and costly bureaucratic and logistical impediments. The
mobility of businessmen and their staff is highly restricted and
uncertain. The mere subjection of the business community to these
restrictions is anathema to the spirit of a free market.
Work permits are mandatory for all West Bank and Gaza laborers to
allow them to work in Jerusalem or Israel. Even Palestinian
Jerusalemite workers, living in certain parts of the city which
were reclassified by Israel as lying outside the Jerusalem
municipal boundaries, have been denied the right to work in
Jerusalem without a permit. Most permits, when issued, expire at 7
p.m., placing the tourism sector, such as hotels, restaurants and
tourist agencies, outside the reach of these workers. Permits for
Gazans are even more restrictive: if they are not back at the
Israeli Erez Checkpoint by 5 p.m., their permits are confiscated.
Furthermore, all permits are revoked during a total and internal
closure which may last anywhere from a few days to a month,
creating a labor crisis, especially on the Jerusalem employment
scene. Once a closure is eased, permit-holders have to reapply for
Permits for Transport Vehicles
Permits are required for vehicles and trucks that transport goods
between the West Bank, Jerusalem, Israel and Gaza. Transportation
costs have increased dramatically and this is one of the most
frequent complaints of the business community. There are currently
3,200 trucks in Gaza, but due to the closure, Israeli trucks with
yellow license plates have to be rented by West Bank traders for
$300 to deliver goods just to the Gaza Erez Checkpoint. From there,
traders have to rent a truck with a Gaza license plate at the
additional cost of $250 per delivery. One Jerusalem corporation has
reported that a truck-load delivery to Tel Aviv, which used to take
one hour or less, can now take up to a week. Another West Bank
corporation declared an erosion of 20-25 percent in profits as a
result of increased transportation costs.
Restrictions on Investors
Border crossing points continue to be controlled by the Israeli
authorities, including the issuance of visas and residence permits.
These permits are very difficult to obtain and are given for only
short periods of time (three months maximum), and renewed for short
periods as well. Business visas for Arab investors are valid for
one week only, and only one Palestinian investor from the diaspora
is ever given a visitor's permit at a time, irrespective of the
total number of investors in anyone project.
Prospective investors are also required to submit to the Israeli
authorities an application form filled out in both Arabic and
Hebrew, as well as a description of their business project. These
are considered for approval by the Israeli Civil Administration and
must comply with Israeli requirements.
Time-Consuming Security Checks
Lengthy security procedures and checks are imposed on all goods
imported into the Palestinian territories, causing additional
import-added costs for storage. These checks often result in the
destruction of goods. A truck-load of tomatoes, for instance, may
linger in the sun for three days, causing the tomatoes to rot and
making them unfit for storage and sale.
Back-ups at the bridges and at the Erez Checkpoints are also
compounded by fees for the use of Israeli forklifts, as unloading
can only be done by Israeli work crews.
Prevalence of Military Laws
Scores of military orders and regulations are still in effect in
the territories, and will remain so, until they are expressly
repealed by both sides. These laws and regulations are rarely
announced in advance and individuals are informed of violations
only after the deed has been committed. Under the circumstances,
prospective investors hesitate to risk their capital when they are
unsure of the manner in which Israeli laws and regulations may, at
a later date, affect their investments.
The competitiveness of Palestinian producers is compromised by the
very structure of the arrangements agreed to in the 1995
Israeli-Palestinian interim agreement. Purchase taxation, included
in the cost of Palestinian imports procured through Israel, is not
refundable to Palestinian exporters, nor does it accrue to the
Palestinian treasury. As a result, it must be built into the export
costs and prices, while Israeli exporters are entitled to claim
purchase tax refunds. These refunds represent just one example of
structurally established disadvantages.
Biased Import and Export Procedures
The procedures listed below clearly favor Israeli importers:
a. There are no Palestinian entry and exit points for the movement
of people and goods.
b. Palestinian trucks to Jordan are stripped down, leaving them
without such equipment as refrigeration which is necessary for safe
and hygienic transportation.
c. Trucks making deliveries to Jordan must cross the border and
return on the same day and must unload/reload at the border for
d. Upon return from Jordan, trucks are often subjected to three-day
inspections, and mechanics are brought on site to dismantle and
reassemble the trucks.
e. Israeli trucks must be used for transport to and from Israeli
airports and ports.
f. Complex paper work is involved in the trade between the West
Bank and Jordan.
g. Seasonal and time restrictions are placed on exports, often
prohibiting agricultural goods from being exported in season.
h. Late shipping documents cause merchandise delays at the ports,
adversely affecting sales and marketing and distorting supply and
Clearance and Handling
No Palestinian clearance or handling agents are licensed to work at
Israeli ports; Palestinians have to use Israeli agents. All direct
import agency positions are still being offered only to Israeli
agents and Palestinians are hired only as sub-agents.
Palestinians are also denied permission to have bonded warehouses
close to their markets and customer bases; warehouses must lie
within a six-mile radius from the point of entry. In addition,
export-processing zones do not exist in the WBG.
Lack of Proper Industrial Zones
The Israelis have refused to comply with the following measures
necessary to set up successful industrial estates, such as
delegating powers to the PNA for zoning, licensing and taxation;
improving procedures for the free movement of goods and continuing
shipment, in spite of closures; guaranteeing passes for people
engaged in business, including during closures; cooperating on
duty/VAT exemption, site selection, needs of the infrastructure and
Restrictions on Land Registration
The Israeli authorities maintain stringent bureaucratic control on
land use, making it almost impossible to obtain building permits
and land authorizations. Land has become very expensive, due to
Israeli regulations and refusal to expand the boundaries of cities
and local industrial estates.
Restrictions on the Tourism Sector
A host of Israeli regulations pertaining to the tourism sector are
particularly burdensome to Palestinian investors. Certification of
tour guides, for example, calls for competency tests in Hebrew,
thereby imposing a natural barrier to non-Israeli entrants.
Moreover, Israel consistently denies permits for either hotel
construction or expansion, especially in East Jerusalem.
Prepared by the Economic Office at Orient House, Jerusalem.