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The Implementation of the Palestinian-Israeli Economic Agreements: a Palestinian Perspective
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 agreements.
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 fragile process.
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.

Taxes

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 whole.
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 smoothly.
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.

Trade

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 Egypt.
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 Palestinians:
It would lower the prices of some major commodities, which is of great significance to the Palestinian public in the West Bank and Gaza.
It would reduce dependency on Israel.
It would serve as a badly-needed gesture to our Jordanian brothers and sisters.
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.

Agriculture

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 years:
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 Jordan.
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 standards.

Labor Flow

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 neighbors.
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 achieved.
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 ensuing developments.

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 closure?
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, January, 1995.

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