The annual Palestinian Gross National Product (GNP) approximated
$2,750 million in the late 1980s. Values added through exports of
goods to Israel and Jordan contributed to the national product the
modest amount of $150 million. The concurrent contribution of
commuter-labor renumeration, that is, the value added by
Palestinian labor services exported to Israel was quite
substantial, reaching a level of $765 million. Altogether, trade in
goods and services accounted for one-third of the Palestinian
Considering the small size of the Palestinian economy, the share of
trade in the national product is not surprising. A similar
phenomenon and magnitude can be detected in the small economy of
Jordan, which realized, in the late 1980s, a national income of
$3,500 million. Exports of goods generated 10% of the Jordanian
GNP. The apparent contribution of exported services
¬incorporating a sizeable repatriation of wages and salaries
earned abroad ¬could be twice as large.
Even Israel, with a GNP 15-20 times larger than the above was in
effect another small economy, deriving no less than one fifth of
its national product from trade. However, in the case of Israel,
goods were more important than exported services and the weight of
labor services thereof was utterly insignificant.
In the political environment of the late 1980s, the Palestinians
were able to benefit from the relatively large and developed labor
market in their vicinity. Taking advantage of this opportunity,
they managed to contain unemployment, preserve their national
product and relieve a current deficit in the balance of trade in
The overwhelming role played by labor services in the Palestinian
balance of trade with Israel was partly due to an accommodative
labor policy, but at the same time it reflected a restrictive
policy with regards to trade-oriented development in the
Trade Policies before 1992
With respect to Israel's policies toward Palestinians, it is
necessary to distinguish between farm and non-farm trade. Israel's
general farm trade policies - internal as well as external - relied
upon non-market arrangements involving production and marketing
quota privileges. These restrictive arrangements, which are
detrimental to the Israeli consumer and undesirable from a
macro-economic point of view, affected Palestinians and prejudiced
Israeli farm producers alike.
A distinctive approach toward the Palestinians, characterized
Israel's policies regarding non-farm trade. Direct trade policies
toward Palestinian manufacturers in existence since 1968, was quite
liberal. Palestinian industrial products and consumer and producer
goods were admitted into the respective Israeli markets free of
fiscal and administrative barriers. From 1968 to 1977 the effect of
this policy upon the volume of exports proved quite positive. The
annual rate of growth of the volume of goods traded with Israel
during that period reached the level of 16%. However, in the next
decade the corresponding rate dropped to zero as the growth process
One of the reasons for leveling off, and eventually for the modest
share of goods in the Palestinian exports, was Israel's policy
toward new trade¬-oriented industry.
Directed at the establishment of new industrial enterprises by
Palestinian entrepreneurs, a licensing policy required that a new
industrial enterprise prove a capacity to sell its products outside
Israel, either in the Territories or abroad, before it received a
license to establish the new plant. This was done with a view of
discouraging Palestinian industrialists from competing in the
domestic Israeli markets.
During the first decade, the established manufacturers were able to
expand their operations and production for export. Further
expansion at a later stage required new products, improved quality
and new plants. At that point, licensing had gone into effect
resulting in an adverse impact on the growth pattern, and in
pressures directed at the military authorities. In the late 1980s
the authorities tended to overlook the licensing conditions.
Indeed, in a number of instances new plants were granted licenses
even though their production was directed at the Israeli market
from the outset. The licensing regulations - a dissonance in
Israel's general trade policy - were eventually discarded by the
end of 1991. Recently, the formal agreement reached in Paris
between Israel and the PLO accorded the Palestinians formal free
access to Israel's markets for manufactured goods.
Free and Effective Access
The formal agreement, if implemented properly, enables Palestinian
entrepreneurs to take full advantage of their geopolitical
proximity to Israel. It also enables them to benefit from their
socio-economic affinity to Israel's versatile consumer markets and
its wide spectrum of producer markets which are, quite often, the
gateways to the respective European and North American markets.
Exploiting the opportunity provided by the Paris Accords, the
Palestinian economy may return to the rates of growth of
exportation of the 1970s. This is a realistic proposition because
of a rare intersection of two systems: a political macro-economic
framework, within which access to the markets is possible, is
matched by a social micro-economic fabric, within which realization
Under these exceptional circumstances, entrepreneurs should be able
to realize the access permitted: that is, be able to negotiate
particular transactions, process, forward, and market particular
pieces of merchandise.
The Routing of Access - a Critical Precondition
Small countries rely on exports for their development. Small
countries, rich in fuel or minerals may develop their exporting
industries through established trading channels. In their case a
capacity to produce is quite often synonymous with an instant
potential to trade with developed and developing countries
Small countries, poor in natural resources must rely on
manufacturing as their only salvation. However, in their case, a
capacity to produce is by no means an indication of a potential to
forward and market the manufactured goods.
The experience of the immediate neighbors of the Palestinian
economy seems to suggest that once a limited opportunity to develop
primary commodity exports is exhausted, the only development outlet
is manufacturing. But manufacturing depends upon a capacity to
penetrate the capricious markets of the industrial West.
Deprived of a generous resource-base and determined to accomplish a
decent standard of living, Palestinians will also depend upon
export¬-oriented manufacturing. Hence, they will depend upon
extensive processing, forwarding and marketing services.
In this context the macro-economic Accords and their micro-level
realization are likely to playa critical role in the future of the
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