Following Israel’s military occupation of the West Bank and Gaza Strip in 1967, Israel implemented economic and trade policies designed to maintain our economic and trade dependence on the Israeli economy while curtailing possibilities for independent economic development and growth. Israel sought to integrate our economy into its economy without regard to our needs and concerns. Israel does not treat us as a trading partner, but rather as consumers of Israeli goods and products in addition to a source of cheap labor. Absolute Israeli control over the flow of goods within the Occupied State of Palestine and between us and the outside world (enforced via Israeli import, export and trade policies) has had a devastating impact on our economy.
Israel’s policies towards the Occupied States of Palestine remain the biggest factor hindering the development of the Palestinian economy. From the beginning of the occupation, the Israeli military government promulgated numerous military orders and so-called ‘legal’ stipulations in trade, agriculture, banking, industry, insurance, and tourism with the conscious intention of gearing the Palestinian economy into subservience and dependency rather than competition and development.
Before the Oslo agreement, Israel actively discouraged the rise of a manufacturing sector in tradable goods in occupied Palestine that could potentially compete with its own, while, promoting labor mobility which, in reality dramatically increased Palestinian dependency on labor exports to the Israeli market. After the signing of Oslo, the dependency on labor in the Israeli market was transformed into a dependency on the foreign-funded public administration sector embodied in various Palestinian National Authority (PNA) institutions due to Israel’s one-sided customs union, by which goods travel freely, but labor does not, a formula benefiting the more advanced economy, in this case, Israel. Today, Israel imposes severe movement restrictions on Palestinian persons and commercial goods through a multilayered web of restricted roads and 540 military roadblocks and obstructions. It discourages the development of a manufacturing sector by imposing restrictions on the raw materials and equipment they can import or use. Israel also maintains complete and absolute control over approximately 62% of the occupied West Bank, including East Jerusalem. This area, known as Area ‘C’ in the interim agreements with Israel, is home to our natural resources, including water, minerals, many cultural and historical amenities and other vital resources. Israel's isolation of occupied East Jerusalem alone suffocates an area that accounts for 35% of the Palestinian economy. And while Israel bans Palestinian development, construction, and agriculture in this area, it continues to illegally expand and build over 200 colonies in these areas, dissecting and fragmenting our territory. Israel also continues to illegally exploit Palestinian natural resources there, most importantly water and Dead Sea minerals.
These practices come at a high cost. A recent study that conservatively quantified, for the first time, the economic cost of Israel's occupation and practices produced sobering conclusions. In 2010, Israel's illegal use of Palestinian natural resources cost the Palestinian economy $1.83 billion USD or 22% of our GDP that year. According to a World Bank report, since the signing of the Oslo Accords until 2011, the manufacturing sector alone has dropped from 19% to 10% of in its share of GDP. The same report, which produced very conservative results, estimates that access to Area C in specific sectors, such as Dead Sea minerals, telecommunications, mining, tourism, and construction, could contribute at least 22% to the Palestinian GDP. In fact, that report states: “Israel and Jordan together derive some USD 4.2 billion in annual sales of these products, and account for 6 percent of the world’s supply of potash and fully 73 percent of global bromine output.” Taken as a whole, if Palestine had access to its own land in Area C, the potential economic benefits to the Palestinian economy could increase by 35% of GDP, or at least $3.4 billion USD annually.
Similarly, the cost of water restrictions was 1.903 billion US dollars, or 23.4% of the GDP and Israel's continued siege on the Gaza Strip cost 1.908 billion US dollars or 23.5% of GDP in 2010. This is a burden no economy can withstand. Indeed, it is an artificial cap forced upon our economic potential and right to develop a prosperous society that enjoys a stable economy and sustainable growth.
After decades of occupation, we demand to recover control of our economy and socio-economic development and to formulate and implement our own border, trade and customs policies. We seek a sustainable economy that provides jobs and sustainable growth, attracts both domestic and foreign investment, benefits from our natural resources and ensures the unimpeded flow of internal and external trade, movement and access. In short, we want to fully realize Palestine’s enormous economic potential.
The 1994 Paris Protocol
In April 1994, the PLO and the government of Israel signed the Protocol on Economic Relations (the “Paris Protocol”). The Paris Protocol created a quasi customs union between Israel and occupied Palestine. The common external tariff and other elements of commercial policy were those of Israel, though the PNA was given some autonomy in the setting of policy. The PNA was allowed to set its own tariff and standards for a limited quantity of mostly consumer goods traded primarily with Jordan and Egypt (list A-1) and with other Arab and Islamic countries (list A-2) and also limited imports from other countries. The quantity was set according to our domestic needs to avoid leakage of cheaper goods into Israel. For a second category of goods, consisting mainly of infrastructure, production machinery and unfinished goods (list B), the PNA was allowed to set its own custom duty rates, without quantitative limitations for market use within the Palestinian market, and to avoid leakage into the Israeli market.
Though the Paris Protocol presented the appearance of offering certain advantages to our economy, its implementation and a host of Israeli restrictions – most notably Israel’s closure policy – severely undermined our economic growth. Israeli-imposed closures and impeded access to occupied Palestine continue to present a serious barrier to sustainable economic growth. In November 2005, Israel and the PNA entered into the Agreement on Movement and Access (the AMA), which aimed to address and ameliorate the adverse effects of Israel’s closure policies and movement restrictions. After a very brief period of partial Israeli implementation, Israel disregarded the AMA. Punitive Israeli movement, access and associated serious impediments on imports and exports continue to be the norm, essentially rendering our economy unfeasible except with massive infusions of foreign assistance.
Palestinians accepted the Paris Protocol in exchange for two things:
- Maintaining Access of Palestinian Labor to Israel and
- Maintaining Access of Palestinian Products mainly agricultural products to Israel.
In breach of the Protocol, Israel started implementing major restrictions on both, significantly before the outbreak of the Second Intifada. By Israeli design, the Palestinian economy has remained hostage to politics.
Israel violates most of the clauses of the Paris Protocol including the speedy transfer of taxes and customs among various others. These include the following:
The Palestinian leadership has embarked on a strategic and political program that establishes its credentials not only as a serious partner for peace, but also as an effective provider of public goods. No one can deny the strides the Palestinian Authority has made in cleaning up its once decaying institutions. This does not mean that the crippling Israeli restrictions are not hammering progress, but it does underscore Palestinian ability to effectively deliver, manage and potentially run a full-fledged Palestinian state. The 8 to 10 percent growth rates the Palestinian economy witnessed in past 8 years attest to the innovative potential of Palestinians. Over the past 10 years, a radical transformation was achieved in the West Bank, breaking away from previous culture of mismanagement, where corruption and patronage were the main features of the Palestinian political economy. The Palestinian government implemented vital actions that strengthened the Palestinian National Authority (PNA). The measures included important budgetary reforms, fiscal disciplinary measures, and an active policy of supporting the private sector. It also included larger security, enhanced public services in all areas and unprecedented growth rates. Various United Nations, World Bank, International Monetary Fund reports affirmed the success of these policies and in 2012 those very same institutions declared the Palestinian National Authority ready for statehood, ending any doubts over our ability to maintain an effective, well-managed governance apparatus.
Transfer of PNA Funds
The Paris Protocol established a system of tax and revenue collection whereby Israel collects customs and other taxes on our imports on behalf of the PNA, as well as income taxes, social security and health insurance paid by our workers in Israel, and Value Added Tax (VAT) paid on our transactions in Israel. Under the Paris Protocol, Israel is required to transfer these funds to the PNA on a monthly basis. These funds constitute the bulk of the PNA’s revenues. When Israel fails to transfer these funds – as it has repeatedly done – the PNA faces a severe financial crisis. Given that the public sector employs approximately one-fourth (23.2 percent) of Palestinians, a high proportion of our households depend on PNA salaries for their livelihoods. Thus, Israel’s failure to transfer funds to the PNA as required under the Paris Protocol has a devastating impact on our economy and a large portion of our population, in addition to constituting a fundamental breach of the Interim Agreement and international law.