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U N I T E D N A T I O N S

General Assembly
Distr.
RESTRICTED

A/AC.21/R/11
7 April 1948





UNITED NATIONS PALESTINE COMMISSION

FIRST DRAFT OF SPECIAL REPORT TO THE SECOND
SPECIAL SESSION OF THE GENERAL ASSEMBLY

(Prepared by the Secretariat)


The United Nations Palestine Commission herewith renders to the Second Special Session of the General Assembly a special report on its activities to date in pursuance of the resolution of the General Assembly on the Future Government of Palestine adopted on 29 November 1947 (Document A/516)



I. ORGANISATION AND PROCEDURE OF THE COMMISSION

1. Establishment and Meetings of the Commission

2. Dates Dating Significance for the Commission’s Work

In its preliminary study of the Plan of Partition with Economic Union, the Commission noted the following dates which were directly relevant to its work during the “transitional period” which bad been defined as “the period between the adoption by the General Assembly of its recommendation on the question of Palestine and the establishment of the independence of the Arab and Jewish States” (Part 1, A, 4 of the Plan):

While other time-limit dates were not definitely fixed, various actions were supposed to be taken in a certain order and at a certain time according the provisions of the Plan. Thus, the transfer of Palestine to the Commission is linked in the Plan with the withdrawal of British armed forces. According to Part I, B, 2 “the administration of Palestine shall, as the Mandatory Power withdraws its armed forces, be progressively turned over to the Commission”. It was thus contemplated that the Commission should arrive in Palestine to take over progressively the areas which would be evacuated by British troops.

The Plan also provides that “on its arrival in Palestine the Commission shall proceed to carry out measures for the establishment of the frontiers of the Arab and Jewish States and the City of Jerusalem in accordance with the general lines of the recommendations of the General Assembly on the partition of Palestine” (Part I, B, 3).

The paragraph relating to “measures for the establishment of boundaries” (Part 1, B, 3) is followed by the provision referred to above concerning the setting up in each State of a Provisional Council or Government.

The early functioning of Provisional Councils or Government in the two States is at important part of the Plan. It was clear that the Commission would not be equipped to administer for any length of time the areas of Palestine should be transferred to it, but that it would turn them over to the Provisional Council of Government concerned. The Plan (Part 1, B, 6) stipulates that “the Provisional Councils of Government of each State, acting under the Commission, shall progressively receive from the Commission full responsibility for the administration of that State in the period between the termination of the Mandate and the establishment of the State’s independence”. It is for the Provisional Council of Government of each State, acting under the Commission, to establish within each State administrative organs of government, central and local and “within the shortest time possible, recruit armed militia from the residents of that State, sufficient in number to maintain internal order and to prevent frontier clashes.”

The above political provisions do not cover all the duties which the Commission has to perform during the first months of the transitional period. The General Assembly adopted a “plan of partition with economic union” according to Part I, B, II of the Plan, “the Commission shall appoint a Preparatory Economic Commission of three members to make whatever arrangements are possible to for economic co-operation, with a view to establishing, as soon as possible, the Economic Union and the Joint Economic Board, as provided in Section D below”. As stated above, by 1 April 1948, the Provisional Councils of Government were to enter into the Undertaking with respect to Economic Union and Transit.

With respect to the assets of Palestine, the Plan (Part I, B, 2) provides that “during the period between the appointment of the United Nations Commission and the termination of the Mandate, the Mandatory Power shall, except in respect of ordinary operations consult with the Commission on any measure which it may contemplate involving the liquidation, disposal or encumbering of the assets of the Palestine Government, such as the accumulated treasury surplus, the proceeds of Government bond issues, State lands or any other assets”.

5. Tasks of the Commission

The Commission have concentrated its attention on an these major tasks and the numerous detailed problems relating to them.

Invitation to the Mandatory Power, the Arab Higher Committee and the Jewish Agency for Palestine

At the outset of its work the Commission recognized the importance to the execution of the Plan of some readiness to co-operate, or at least not to obstruct, on the part of the Mandatory Power and the Arab and Jewish communities. The General Assembly had recognized the Arab Higher Committee and the Jewish Agency for Palestine as qualified spokesmen for their respective communities. While bearing in mind that it would need to consult other organizations, particularly with a view to selecting the Provisional Councils of Government, the Commission decided at its first meeting to request the Secretary-General to extend to the Arab Higher Committee and the Jewish Agency, the same invitation which was being extended to the Mandatory Power, “to designate such representatives as it may determine, who shall be available to the Commission for such authoritative information and other assistance as the Commission may require in the discharge of its functions”.

The invitation was accepted by the Mandatory Power, who designated Sir Alexander Cadogan as its representative, and I, the Jewish Agency, who designated Mr. Moshe Shertok. The Arab Higher Committee informed the Secretary General by telegram on 19 January that it was unable to accept the invitation extended to it, and that it was “determined persist in rejection partition and in refusal recognize UNO resolution this respect and anything deriving therefrom”.

The Commission realised the implications of the attitude taken by the Arab Higher Committee. The Plan of the General Assembly, however, had foreseen that it might not be possible to select or if selected, to have functioning, a Provisional Council for one or other of the States by 1 April, and had provided that the matter was to be reported to the Security Council for such action with respect to that State as the Security Council might deem proper. The Commission, despite the refusal of the Arab Higher Committee to consult, accordingly decided to proceed with its work and undertook its consultations with the Mandatory Power and the Jewish Agency.

7. Reports of the Commission to the Security Council

The Plan (Part I, C, 14) provides that “the Commission shall be guided in its activities by the recommendations of the General Assembly and by such instructions as the Security Council may consider necessary to issue… The Commission shall render monthly periodic progress reports, or more frequently if desirable, to the Security Council.”

The Commission has realied to the Security Council two monthly reports (S/663, S/695 dated 29 January and 12 March 1948, respectively). It has also found it necessary to present to the Security Council a special report on the Problem of Security in Palestine (S/676, dated 16 February 1940).

II. MAJOR DIFFICULTIES CONFRONTING THE COMMISSION

1. Position of the Mandatory Power

Although the Plan (Part I, B,2) provided that “the Mandatory Power shall to the fullest possible extent co-ordinate its plans for withdrawal with the plans of the Commission to take over and administer areas which has been evacuated”, the Commission was informed: While the “whole of Palestine would be at the disposal of the Commission”? after 15 May 1948, subject to the reservation move mentioned, it was not the intention of the Mandatory Power to facilitate in any the implementation of the resolution of the General Assembly, other than by furnishing information and advice. Thus the Commission was advised that “His Majesty’s Government would not regard favourably any proposal by the Commission to proceed to Palestine earlier than two weeks before the date of the termination of the Mandate”. 2. Arab Opposition

The Arab Higher Committee, as indicated above has continued to reject the resolution of the Assembly and has refused to co-operate with the Commission.

Moreover, as promised by Arab spokesmen during the last regular session of the Assembly, opposition to the resolution of 29 November 1947 has immediately taken the form of armed resistance. The extensiveness of the frontiers of Palestine with the neighboring Arab States, and the apparent ease with which they may be crossed, even when British troops are still in the country, has facilitated such resistance by providing it with increasing numbers of arms and men. This factor, which was not unforeseen, has greatly increased the difficulty of implementing the resolution of the Assembly. It is not only the Arab State, envisaged in the resolution, which cannot now be constituted according to the Plan, but the projected Jewish State and the international regime for the City of Jerusalem, the setting up of both of which Arab leaders are bent on preventing, are also in great danger.

The Commission has had to report to the Security Council that “powerful Arab interests, both inside and outside Palestine, are defying the resolution of the General Assembly and are engaged in a deliberate effort to alter by force the settlement envisaged therein”. In this connection a communication of 6 February addressed to the Secretary-General by the representative the Arab Higher Committee, set forth the following conclusions of the Arab Higher Committee Delegation:

“The only way to establish partition is first to wipe them out – man, woman, and child,”

Arab opposition to the Plan of the Assembly has taken the form of organized efforts by strong Arab elements both inside and outside of Palestine to prevent its implementation and to thwart its objectives by threats and acts of violence, including armed incursions into Palestinian territory. As a result, the Commission has been unable to take any step forward with regard to the proposed Arab State and has been seriously obstructed in its efforts to implement most the other provisions of the Plan.

3. Strife in Palestine; Deterioration in Administration, Law and Order

As a result of Arab armed opposition to the resolution of the General and counter or preventive measures taken by the organized Jewish community and its extremist elements, Palestine is now a battlefield- Unless a truce is negotiated and observed, the ensuing wake will witness en intensification of the struggle.

Mounting disorder resulting from the internal conflict is accompanied and facilitated by steady deterioration in administration, which is a by-product of the process of civil and military withdrawal being pursued by the Mandatory Power. The Mandatory Power, insisting on undivided control until 15 May, status that “civil administration will be maintained throughout Palestine as far as the security situation permits”. As early as 14 January 1948, Sir Alexander Cadogan, reviewing the situation, stated that since the first week in December 1947 the situation had deteriorated rapidly. Violent conflict between the two communities had been intensified; courts and essential government services had been either unable to operate or were seriously crippled; there was but one month’s supply of certain types of fuel oil in the country; there was general insecurity; communications were obstructed; the collection of public revenue was expected to drop sharply; “generally speaking there has been a severe deterioration in the functions and authority of Civil Government.”

Such was the situation which confronted the Commission at the very beginning of its work, That situation was bound to worsen as the date announced for the termination of the Mandate approached. The Commission has exerted every effort in its consultations with the Mandatory Power and the Jewish Agency and in its reports to the Security Council, to direct attention to the perilous situation in Palestine; to empanels the urgency of the time factor; and to yes warning of the heavy responsibilities which would be incurred if the situation were allowed to deteriorate still further. The Commission has indicated the remedies which were necessary and the preparations which must be made urgently with a view to preventing a complete collapse of law and order on the date of the termination of the Mandate.

III. THE WORK OF THE COMMISSION, CONSULTATIONS ADMINISTRATIVE, AND SECURITY PROBLEMS.

1. Procedure

The Commission, unable to proceed to Palestine before 1 May, for any purpose, obtained from the Mandatory Power as much information as possible a series of questions and answers ant through informal conversations.

The procedure of informal consultations was also followed with the Jewish Agency.

2. Advance Party

In response to a suggestion by the Mandatory Power that although the Commission itself could not come to Palestine at the time, it might wish to send a few members of its staff “for the purpose of finding accommodations and making arrangements for necessary facilities” with the Palestine Government, the Commission, after negotiations on the matter, decided to send an advance party to Palestine composed of six members of the Secretariat for purposes of observation and exploratory discussions. The advance party arrived in Palestine early in March and has since worked in Jerusalem under the protection of the Palestine Government. Their reports have helped the Commission to appreciate the development of the situation in Palestine during the last few weeks. They have also been of great assistance in the negotiations which have been pursued with the Mandatory Power. The reports have stressed that de facto partition has been taking shape day-by-day in Palestine,

[NOTE: section a) Administrative problems, is still in preparation and will be circulated later, for insertion at this point.]

The Commission had to envisage the possibility of a collapse of security and administrative services on the termination of the Mandate unless adequate means were made available to the Commission for the exercise of its authority. It was devoting most serious attention to the various aspects of the security problem, with particular reference to the possible need for international force in the implementation of the recommendations of the General Assembly. The Commission stated that it would summit to; the Security Council a special report on this subject.

The special report (S/676) was presented to the Security Council on 16 February. It is reproduced as Annex I to this Report.

The Commission does not deem it necessary to enlarge on the conclusions of this report. To bring it up to date, it is necessary however to substitute the following list of casualties for that which is reproduced in Part II, paragraph 5, or the Special Report.

For the period from November 1947 to April 1948, the totals in killed and wounded are as follows: [latest available figure as of 27 March]

Nationality
Killed
Wounded
Total
British
117
297
414
Arabs
893
1,943
2,836
Jews
772
1,746
2,518
Others
20
25
45
Total Casualties
1,892
4,011
5,813

On the basis of information received since it drafted its Special Report, the Commission wishes also to lay more stress on the security situation with regard to the City of Jerusalem.

According to official information from the Mandatory Power, security service in the City of Jerusalem is now provided by 900 British and 350 Palestinian police, supported by more than a brigade of British troops. Even with the support of strong military forces, instances of shooting, bombing and indiscriminate killings are daily occurrences in Jerusalem as in other parts of Palestine. According to the estimate of the Mandatory Power, a force of 1,000 non-Jewish, non-Arab personnel of special police in addition to local Arab and Jewish police in considered as a minimum to cope with the preservation of law and order in the area of the City after the termination of the Mandate.

The Commission is of the view that such a force might be sufficient provided that there would be no attempt on either side to seize Jerusalem – a much coveted City - and that there was an agreement to respect the international character of the “City of Jerusalem” and let it live in peace.

In reply to a question put to it on 10 March 1948 by the Permanent Members of the Security Council regarding the minimum conditions which are prerequisite to the administration of the City of Jerusalem by the United Nations, the Commission made the following statement:

Jerusalem, as an enclave in hostile surroundings, would be doomed. It would be utterly inadequate, in order to establish the special international regime provided in the last Part of the Assembly’s Plan, for the Trusteeship Council to appoint a Governor and allow him to recruit outside of Palestine the envisaged special police force “to assist in the maintenance of internal law and order and especially for the protection of the Holy Places”. Such police force would be able to control neither the communications of Jerusalem with the outer world, nor its water and food supply, nor its fuel, power and electricity supply, which are outside the boundaries of the City and may be cut by hostile elements.

IV. THE WORK OF THE COMMISSION: ECONOMIC, FINANCIAL AND FISCAL PROBLEMS

1. Steps Toward the Economic Union

The major economic task of the Commission, as set out in the plan of partition, are the organization and establishment of the Economic Union and the Joint Economic Board. (Part I, D, of the Plan) and the determination of the assets of the Palestine Administration and their distribution between the two States and the City of Smallest (Part I, E, of the Plan). Also, by implication, the Commission has the responsibility for making arrangements to maintain continuity in the essential economic services of Palestine.

The objectives of the Economic Union are:

Part I, D, 1, also provides that the Provisional Corneas of Government of each State should enter into an Undertaking with respect to Economic Union and Transit. This Undertaking is to be drafted by the Commission “utilising to the greatest possible extent the advice and co-operation of representative organizations and bodies from each of the proposed States.” It is further provided that “if by April 1, 1948 the Provisional Councils of Government have not entered into the Undertaking, the Undertaking shall be put into force by the Commission.” Further, in order to establish the Economic Unions Part I, B, 11, of the Plan provides that “The Commission shall appoint a preparatory economic commission of three members to make whatever arrangements are possible for economic co-operation, with a view to establishing, as soon can practicable, the Economic Union and the joint Economic Board, as provided in Section D below.”

It will be clear that the effective establishment of the Economic Union requires a certain minimum of co-operation between the parties to it. That such co-operation has been lacking on the part of the Arabs has already been explained elsewhere in this report. On the other hand, the representatives of the Jewish community have, from the beginning, been ready to co-operate in the establishment of the Economic Union. Since, however, it in the policy of the Mandatory Power to retain undivided authority in Palestine until the termination of the Mandate, there has never been any possibility that the Commission could put into force the undertaking with respect to Economic Union and Transit (Part I, D, 1, of the Plan). There is, therefore, in any case, quite independently of Arab non-co-operation, no possibility of establishing any machinery of the Economic Union before the termination of the Mandate.

The Commission has also been hampered in its preliminary work for the establishment of the Economic Union by the fact that it has not been able, up to the present, to set up the Preparatory Economic Commission provided for in Part I, B, 11, of the Plan. On 19 January 1948, the Commission agreed that the preparatory Economic Commission should consist of two members from States not represented on the Palestine Commission and one number of the Secretariat. Accordingly, Mr. Reedman, senior economic advisor to the Commission, was appointed the Secretariat member. Of the seven suitable candidates so far formally approached by the Commission, none has been able to accept appointment at short notice, owing to previous commitments. The Commission wishes to point out that it only began its work in January 1948 and that time is consumed between the making of can offer and the receipt of a reply. Consequently, the Commission has, up to the present, had to work without the Preparatory Economic Commission. However, though this delay in the establishment of the Preparatory Economic Commission has increased the work of both of the Commission and of the Secretariat, it has not, in itself, been a major influence in retarding the establishment of the Economic Union in relation to the time-table of the resolution, since the realization of this time-table was made impossible by the facts already mentioned.

2. Palestine Government Assets

As regards the assets of the Palestine Administration, again owing to the policy of the Mandatory Power to retain undivided authority until the termination of the Mandate it has not yet been possible to make any distribution of assets between the successor authorities in Palestine. Moreover, before thin can be done an inventory of such assets must be provided by the Mandatory Power, and such an inventory has not yet been presented to the Commission, nor could it be completed before the termination of the Mandate. As regards the provision in Part I, E, 2, of the Plan that the Mandatory Power shall “consult with the Commission on any measure which it may contemplate involving the liquidation, disposal or encumbering of the assets of the Palestine Government, such an the accumulated Treasury surplus, the proceeds of Government bond issues, State lands or any other asset”, the Commission asked the Mandatory Power on 19 January 1948 what proposals they wished to make as to the methods to be followed in such consultations and as to the date of starting them. The Mandatory Power has not as yet made any specific proposals to the Commission for such consultations.

However, is a letter of 21 February 1948 a statement by the United Kingdom Government, recognizing the necessity for such discussions, transmitted to a member of the Commission.

For the rest, the Mandatory Power has informed the Commission that the budget operations of the Palestine Administration up to l5 May will result in a deficit estimated by the Mandatory Power to exceed 7 million pounds, and that thus the Treasury surplus will have been converted into a Treasury deficit. Although the Commission has not been consulted by the Mandatory Power regarding the liabilities which would be charged against Palestine revenues, the Commission is not satisfied that certain extraordinary items - especially the cost of the maintenance of Jewish illegal immigrant camps - should be charged against the revenues of the Palestine Administration. However, as there will be a considerable amount of unpaid obligations on the date of the termination of the Mandate, the ultimate settlement of these liabilities remains to be discussed the Mandatory Power.

The Commission was informed by the Mandatory Power on 20 March 1948 that an unspent balance of over 3 million pounds remaining from three issues of bonds made in Palestine since 1944 was frozen and invested in British Government securities pending a general financial settlement, and that it was decided by the Mandatory Power not to make any further disbursements from this total prior to the termination of the Mandate. Two exceptions to this have been made: a loan of £353,387 has been made to the Tel-Aviv Municipality for the purchase of certain lands, and a loan of £750,000 to the Haifa Municipality to enable it to take over, an area known as the Haifa Harbor Estates, which is Government domain. These transactions were brought to the notice of the Commission only after they had been arranged.

The Commission was interned by the Mandatory Power, in letter dated 22 March, of an amendment to the Iraq Petroleum Company’s pipeline concession which “His Majesty’s Government have authorized the High Commissioner to grant the Company pipeline facilities, as requested (that is, for oil for Transjordan and also from two areas in Iraq not covered by their existing pipeline convention with the Government of Palestine), in return for an annual payment of £45,000.” In this letter the Mandatory Power recognized that this concession, having been granted after the approval of the partition plan by the General Assembly, does not Mae under paragraph 3 (d) of Chapter 3 of the Plan, which safeguards the rights of concessionaires in respect of concessions granted prior to the approval of the Plan by the General Assembly. The Commission had informed the United Kingdom Government that, it notes the according to their communication of 22 March, the sum of £45,000 per annum will represent en immediate addition to the assets of the Government of Palestine. At the same time, the Commission explained that it reserves its position both as regards the failure of the Mandatory Power to discuss the matter with the Commission and. the attitude of the Commission to the concession when it assumes authority in Palestine. Although the United Kingdom Government has authorized the High Commissioner in Palestine to grant the concession the Commission has not been informed whether or not the concession has been granted.

3. General Continuation of Essential Economic Services

One consequence of the policy of the Mandatory Power not to relinquish any authority in Palestine before the date on which it terminates the Mandate is to give greater urgency to the problem of maintaining continuity in the essential economic services. These problems, formidable enough in the most favourable circumstances, are made more difficult by the unwillingness of the Mandatory Power to co-operate actively with the Commission on any matters which it considers as implementing the resolution of the General Assembly. The Commission, however, has attempted and is still attempting to make such arrangements as the circumstances permit to prevent a breakdown of economic life, with consequent hardship and suffering for the people of Palestine.

4. The Food Supply

The most urgent of these problems is the maintenance of an adequate food supply. Palestine normally imports a great part of its essential food, including about half its consumption of cereals, all its sugar, more than half its oils and fats and more than half its meat, all of which are products in short supply. Cereals, oils and fats, fertilizer and certain other products of lesser importance are subject to allocation by the International Emergency Food Council. Allocations for Palestine are at present obtained by the Mandatory Power as part of allocations to the entire British Middle East area. Other products, such as sugar and some dairy produce, have latterly been supplied to Palestine out of British Ministry of Food supplies. Since the only days of the War, many of these products have been purchased in bulk by the Palestine Administration, through a Government Trading Account, and distributed through established traders. Some of these commodities, especially bread cereals, have been sold to consumers at less than cost price, the loss on the Government Trading Account being provided out of the general revenues of the Palestine Administration. Since the decision to terminate the Mandate on 15 May, the Mandatory Power has declared that it will complete its programme of supplies for Palestine up to 15 May but that it will make no purchases of supplies beyond that date. The view of the Commission is that the Mandatory Power should continue normal procurement until 15 May. This would provide for those supplies which, though arriving after 15 May, would normally be shipped before that date. The Mandatory Power has not accepted this view, although its own policy of maintaining undivided authority until 15 May is difficult, if not impossible, for the Commission to make satisfactory arrangements for food supplies to Palestine before its own assumption of authority after the termination of the Mandate. On the suggestion of the Mandatory Power, made in a letter dated 3 February 1948, the Commission sent its Senior Economic Adviser and food expert to London on 14 February to consult with representatives of the British Ministry of Food concerning the food situation in Palestine. The Senior Economic Adviser returned to New York after ten days, leaving the Commission’s food expert in London to continue negotiations with the British Ministry of Food and other interested parties. Subsequently, the Commission proposed to the Mandatory Power, in letters dated 5 and 11 March 1948, that the Mandatory Power purchase immediately, through the Palestine Government Trading Account, sufficient quantity of bread cereals to complete the allocations fixed by the International Emergency Food Council to 30 June, together with 5,000 tons of sugar. In respect of meat and oils and fats, the Commission requested that Mandatory Power to grant import licenses immediately for the purchase of frozen and canned meat to complete up to l October at least the proportionate amount of the 1948 allocations, and 2,500 tons liquid edible oil, 5,000 tons of coconut oil and 5,000 tons of linseed oil.

On 18 March 1948 the Commission received a reply from the Mandatory Power to the effect that it would continue existing procurement of food supplies to meet requirements up to 15 May and that, for the period from 15 May to 30 June, it would be prepared to arrange for the procurement on an agency basis of those supplies which it at present undertakes. However, the Mandatory Power declared that the Government of Palestine was unable to advance money to finance these operations and that its action on an agency basis would be conditional on the Commission assuming the financial obligations. Further, the Mandatory Power stated that “whilst noting the Commission’s objections to private importation as likely to weaken central control of supplies and distribution, His Majesty’s Government have, in the urgent circumstances now existing, authorized the High Commissioner for Palestine to allow private importation at his discretion forthwith.”

On 25 March, the Commission again requested the Mandatory Power to continue procurement until 15 May, on the understanding that the Commission accepted the view that financial obligations existing from food supplies provided for Palestine before the termination of the Mandate, but not arriving in Palestine until after that date, would be the responsibility of the Commission within the scope of the authority entrusted to it by the resolution of the General Assembly. The Commission also proposed to undertake to arrange for the reimbursement of the United Kingdom Government at an early date out of the future revenues of Palestine for expenditure incurred in securing supplies for the period 15 May to 30 June. Alternatively, the Commission proposed to guarantee reimbursement, either from the future net income of the Palestine Currency Board or from the surplus assets of the Currency Board. The Commission pointed out the disadvantages which were entailed in a departure from the present system of bulk purchases, especially since the Treasury Order of 22 February 1948 blocking Palestinian sterling balances has added foreign exchange difficulties to other uncertainties of private procurement.

On 5 April the Mandatory Power replied, restating its former position that it could only undertake procurement on an agency basis “if they are put in funds at the time that payment is required by the suppliers.” It was again stated that the Government of Palestine to already in deficit and that the United Kingdom Government has been obliged to advance a substantial sum to meet outstanding commitments. It is further stated that “His Majesty’s Government cannot feel confidant that the Commission will now be in a position to implement within a reasonable time a guarantee to reimburse His Majesty’s Government out of the future revenues of Palestine.” As regards the proposal of the Commission to guarantee repayment to the United Kingdom Government out of either the revenues or the surplus assets of the Currency Board, the United Kingdom Government states its opinion, which the Commission cannot accept, that there is no successor authority to the Palestine Currency Board until the Joint Currency Board is established. The letter further points out that it is essential that shipping arrangements should be made within the next week or ten days, otherwise on 15 May Palestine’s stock of cereals will not exceed two weeks’ supply, except insofar as the position may be covered by private importers. The letter finally suggests that “the Commission might with to consider approaching the Secretary-General (of the United Nations) with a view to funds being provided for that purpose.”

The Commission, therefore, is faced with the task of making immediate arrangements for supplies of cereals, oils and fats, meat and sugar, if a very serious shortage of these commodities in Palestine is to be prevented from arising shortly after 15 May. The position taken by the Mandatory Power makes the situation doubly difficult, since, on the one hand, it prevents the Commission from assuming any effective authority before the termination of the Mandate and, on the other, it confronts the Commission with a refusal on the part of the Mandatory Power to accept such responsibility itself. The major difficulty is financial, since, given satisfactory financial guarantees, the United. Kingdom Government is prepared to undertake procurement on an agency basis. The Mandatory Power has, however; suggested the alternative of placing responsibility for all aspects of procurement upon private importers by the grant of import licences. While this may result in some supplies being obtained, it has certain disadvantages in the procurement of products allocated by the International Emergency Food Council. Among these disadvantages are the difficulties which private traders will experience in obtaining at short notice supplies of commodities in which they have not been dealing during recent years. A further difficulty is created for private importers by the British Treasury Order of 22 February, blocking Palestinian sterling balances and excluding Palestine from the sterling area.

The Commission has also had discussions with representatives of the Jewish Agency regarding the possibility of financial guarantees being provided by Jewish interests. Some steps are being taken by the Jewish community, independent of the Commission, to make financial provision for certain essential food imports. This, however, would not make provision for the Arab population and, though the larger proportion of imported food is normally consumed by the Jewish population of Palestine, there is nevertheless a considerable section of the Arab population which is partially dependent upon imported supplies. In the view of the Commission, the only satisfactory solution of the problem lies in the maintenance of the present machinery of procurement by bulk Government purchases, and this is only possible if the Commission has the financial means and the co-operation of the Mandatory Power.

A further aspect of the food problem on which immediate action is necessary is the representation of Palestine before the International Emergency Food Council. Until the termination of the Mandate, the Mandatory Power has the responsibility to secure for Palestine allocations from the International Emergency Food Council. Existing allocations for cereals run only until 30 June 1948, and allocations for the third quarter of 1948 will be made within the next two or three weeks. News allocations for fertilizers will also be made in the near future. In most eases, allocations for Palestine have been made by the IEFC as part of the total. allocations for the United Kingdom for British Middle East areas. The presentation of the Palestinian case requires detailed negotiations supported by statistical data. The Commission’s food expert has been studying these problems in consultation with officials of the British Ministry of Food, and the Commission is endeavouring to make an immediate arrangement with the United Kingdom Government for some form of joint presentation of Palestine’s case to the allocation committee of the IEFC.

The food situation in Palestine is highly precarious because of the very low stocks of essential food (not more than fifteen days in respect of bread cereals). There may been no overall shortage as yet, except in the case of meat, by far the larger proportion of which is normally supplied by imports of livestock from Middle East countries. This supply, especially to the Jewish population, has virtually ceased as a result of the Arab boycott, and the import of frozen and canned meat can only partially offset this shortage. It is, however, possible that shortly after 15 May a very serious food shortage will arise owing to an interruption in the flow of imports. In order to maintain even the present low levels of stocks, an eight weeks’ pipeline supply needs to be flowing towards Palestine. The Commission takes a very serious view of the situation and is therefore making every endeavor to overcome the obstacles which it has encountered and to maintain essential food imports into Palestine.

5. Sterling Balances and Foreign Exchange Problems

When the Commission started its work as a result or the Assembly resolution of 29 November, Palestine was a full member of the sterling area. Palestinian sterling balances were freely available for conversion into sterling for use throughout the sterling area, and by special Treasury permit for conversion into dollars and other hard currencies. Since the bulk of Palestine food imports and other imports came from the sterling area, or, as in the case of Canadian wheat, was obtained by the United Kingdom Government through preferential arrangements applying to the sterling area as a whole. Palestine did not then experience any specific foreign exchange difficulties. In fact, Palestine was in a favourable position in that it had considerable dollar accruals from gifts to Jewish funds and institutions. These gift dollars were credited to a separate account and earmarked for the import of capital goods from the United States for the benefit of Jewish economy with the joint approval of the Palestine Administration and the Jewish Agency. Dollar earnings of Palestine through general exports were earmarked for the benefit of the Arab population. All dollars, however earned, passed through the sterling area dollar notes in London.

This foreign exchange context of the Commission’s work was completely changed by the Order made by the British Treasury on 22 February, previously referred to in this Report. This Order excludes Palestine from the sterling area and blocks the accumulated sterling balances, except for £3 million which, together with current sterling accruals, continue to be freely available. Another £4 million was provided as free working balances for Palestinian banks. These releases cover the period 22 February to 15 May .The Commission has been invited to enter into negotiations with the British Treasury regarding further releases to cover the period after 15 May.

This Order was made by the British Treasury without prior consultation with or even prior notification to the Commission, even though the Senior Economic Adviser of the Commission was at that time in London. The unilateral nature of the announcement was pointed out by the Commission in its second monthly report to the Security Council, but the Commission did not feel that any useful purpose would be served by protests or recriminations. The reasons given by the British Treasury were the dangers of foreign exchange leakage and the need to preserve the accumulated balances in the interest of the people of Palestine. The Commission is not convinced that this is an adequate explanation of the reduction in sterling balances or an adequate justification for the step which has been taken.

The Commission considers that an early negotiation of amounts to be released from Palestinian sterling balances is essential. It has received an estimate of the amounts which the Jewish Agency considers should be released for the period 15 May to 1 October, and its own Secretariat has prepared similar estimates. These negotiations cannot await the outcome of the deliberations of the Special General Assembly.

Meanwhile, the Commission is faced with the situation that if the present releases from sterling balances and the future releases to be negotiated should prove inadequate, sterling may become as scarce a currency for Palestine as other hard currencies, and that imports from the sterling area may become difficult to obtain on financial grounds. This fact increases the responsibility of the Commission to see not only that a sufficient amount of sterling is unblocked, but also that the released sterling is used to the best advantage of the Palestinian economy.

The blocking of sterling has also created a state of considerable uncertainty among Palestinian importers as to whether they will be able to utilize import licences granted to them. The Commission has repeatedly pointed out that this uncertainty will have adverse effects on the prospects of the policy suggested by the present Palestine Administration to devolve responsibility for food imports on private traders by the issue of import licences. In the Commission’s view, the blocking of sterling balances increases the responsibility of the present Administration to procure food supplies for the period immediately following 15 May. The Commission has already been informed that traders have found difficulty in obtaining bank finance to utilize their import licences. The existing difficulties may be illustrated by the fact that the normal period between the first submission of an application for an import license and the arrival of the goods in the country is from four to six months, and that at the moment there is complete uncertainty in Palestine on the amount of sterling which will be available in four to six months’ time: In its negotiations with the British Treasury, the Commission hopes to obtain specified sums to be released covering the whole period between 15 May and 1 October, in order to minimize the disruption of trade inherent in the present uncertainties.

5. The Palestine Currency Board

The plan adopted by the General Assembly on 29 November provided that the Economic Union of Palestine should have a common currency with a single rate of foreign exchange. It is a task of the Commission to give effect to this decision. In any event, however, the termination of the Mandate confronts the Commission with the necessity of making a decision regarding the future of the Palestine Currency Board.

At present Palestinian currency is backed by an equivalent amount of British currency. This is held in London by the Palestine Currency Board, which is in control of Palestinian currency. The Currency Board consists entirely of United Kingdom Government representatives appointed by the Secretary of State for the Colonies. Mainly as a result of the heavy expansion of Palestinian note circulation during the war and partly as a result of its policy of building up a considerable surplus over and above the statutory backing of the currency circulation in pounds sterling, the Currency Board’s assets now exceed £50 million and represent over one-half of all Palestinian sterling balances. The existing assets of the Currency Board have been blocked by the British Treasury, but the current net income of the Currency Board (amounting to over £1 million a year) is available as free sterling and is not affected by the blocking order.

The Commission’s major concerns regarding Palestinian currency are:

As regards the first objective, the Mandatory Government, in negotiations with the Commission, has declared itself willing to render all technical assistance necessary in continuing to provide printing facilities and to hold sufficient supplies of currency ready for use as required by the Commission subject to the general regulations of the Currency Board.

The Commission has accepted in principle an invitation by the United Kingdom Government to appoint an observer to attend the meetings of the Currency Board before 15 May, so as to keep itself informed of the current position of the Currency Board and of any major decisions made. At the same time, the Commission has fully reserved its position regarding the Currency Board after 15 May.

As for the second objective, the Commission takes the view that it becomes responsible for the control of Palestinian currency on 15 May and will thus assume control of the current income and assets of the currency Board after that date. This does not exclude arrangements by agreement between the Commission and the United Kingdom Government to continue the Currency Board in its present form as part of a general settlement of the outstanding economic and financial issues. Up to the time of the preparation of this Report there have been no meetings of the Palestine Currency Beard attended by an observer on behalf of the Commission. Nevertheless, the Commission takes the view that the Assembly Resolution of 29 November offers no ground for the contention of the United Kingdom Government, in their communication of 6 April, that “His Majesty’s Government consider that the disposal of Palestine Currency Board funds would be a matter on which the views of the successor currency authority should be obtained. Under the General Assembly’s Partition Plan, this was envisaged to be the Joint Economic Board, and until the future currency authority is set up, the disposal of any such funds must rest in abeyance.” The Commission is of the opinion that as an interim authority it is not called upon to undertake major currency reforms. The Commission, aware that the current net income of the Currency Board would be a very important supplementation of its current income from Palestinian revenue, especially since it is available in free unblocked sterling. As for the fixed assets of the Currency Board, the Commission considers these as an essential part of the national capital of Palestine built up by export surpluses in the past, and it would be one of the duties of the Commission to see that these assets are safeguarded.

The change in the position of Palestine on 15 May also necessitates a determination of the share of Transjordan in the assets of the Currency Board, which is at present common to both countries. This is understood now to be a matter for negotiation between the United Kingdom Government and the Government of Transjordan. The Commission is not aware of the present state of these negotiations and has not asked to take any part in them. If these negotiations are not concluded by 15 May, their completion will become the responsibility of the Commission.

The Commission has drawn the attention of the representative of the Jewish Agency to alleged declarations of major changes in the currency system of a kind incompatible with the resolution of the General Assembly of 29 November and encroaching on the functions of the Commission. It has received assurances that these reports were incorrect, and that no such declarations had been made.

The Commission has also been the basis of working papers prepared by the Secretariat, familiarized itself with the constitution of the Currency Board and has considered the alternative policies open to it in respect of Palestine currency. A representative of the Jewish Agency has also given evidence to the Commission on this matter.

7. Fiscal Problems

The conversion of the Treasury surplus into a considerable deficit has been mentioned previously in this report. The Commission has been kept informed by the United Kingdom Government and by its own advance of the gradual deterioration of the financial position but it has not been consulted on what claims can fairly be taken out of the current review of the country. Thus, ordinary expenditure, as budgeted by the present Palestine Administration, shows an excess of expenditure over revenue of £P2.8 million for the period April 1947 to January 1948 inclusive. Of this excess, almost £P 2 million is due to the maintenance of Jewish illegal immigrants in Cyprus, already charged to the current budget. The Commission has not agreed - nor has been asked to do so - to make these claims a charge on Palestinian revenue. Similarly, considerable extraordinary claims are pending in respect of abolition benefits to civil servants, and in respect to these the Commission equally feels that under the provisions of the plan it should have been consulted and not merely informed. Some of these special claims which may have to be contested by the Commission only become payable after 15 May. At no stage was the Commission in a position to prevent the dissipation of the existing Treasury surplus and the winding up of the Mandatory fiscal administration with a heavy unsettled deficit.

As a result of this conversion of the Treasury surplus into a deficit, the Commission finds itself faced with a position under which

The Commission has repeatedly considered and discussed the budgetary situation. It expressed the opinion that the dissipation of the existing Treasury surplus was contrary to the resolution of the General Assembly of 29 November. The disappearance of the existing Treasury surplus is almost entirely due to special and extraordinary claims which the Commission feels should not take precedence over the securing of essential food supplies and the provision of essential working funds for the Commission on 15 May. The Commission has left the Mandatory Power in no doubt on this point.

The impossibility of adhering to the original plan by the formation of Provisional Councils of Government before 1 April also prevents fiscal decentralization to the extent involved in the Plan of Partition, which would have made it possible for the Commission to divest itself of many of the details official administration. In the circumstances, maintenance of fiscal continuity is one of the concerns of the Commission. In view of these unforeseen difficulties, the Commission has raised no objection to the decision taken by the present Palestine Administration to delegate the Urban Property Tax to the locale authorities. The Commission wishes to stress, however, that this type of fiscal decentralization is quite different from the one visualized in the original plan, and that in any case it will result in only a very minor easing of the burden of fiscal administration for the Commission.

The Advance Party of the Commission has discussed with the responsible officials such technical matters as the safeguarding at books and records required, together with the safe custody of loca1 resources of the Currency Board. The Commission feels that on technical matters there would be no difficulty in making satisfactory arrangements with the Mandatory Power.

The ordinary revenue of Palestine after 15 May will depend in a high degree on customs duties on imports. These imports will mainly come in through the port of Haifa. Hence, the fiscal position of the Commission will depend partly on the manner in which the control of Haifa dock area will be shared with the evacuating British troops between 15 May and 1 August. This is one of the matters which must be settled between the Commission and the Mandatory Power.

The Commission has proceeded on the assumption that it would be neither possible nor advisable for it to introduce major changes in taxation during its interim administration. Hence, it has conceived it as its task to try to secure continuity in the present fiscal administration, and to collect revenue at existing rates. Collection of revenue will also be an essential instrument of counteracting the inflationary tendencies now evident in Palestine.

In view of the fiscal deterioration, the Commission realizes that it may become necessary to exercise internal or external borrowing powers after 15 May. The Commission, however, did not feel that it was opportune to make any decision on the forms and nature of such borrowing, if any, at this early stage.

Military expenditure is not at present charged against the Palestinian budget. The United Kingdom Government has stated that such military expenditure alone is in excess of the total Palestinian budge. It is thus clear that if the Commission should have to find the means for security expenditure over and above the present expenditure for police purposes, present expenditure would be further increased, thus adding to the current deficit.

On 16 March the Commission was informed by the United Kingdom that it had been decided to set up a clearing office of the Government of Palestine in Cyprus, for the purpose of closing and reconciling the final government accounts, computing pensions and gratuities and verifying and certifying any claims for or against the retiring administration. This office will be set up in Cyprus as soon as possible after 15 May and is expected to operate until the end of August. The cost of this office will be a charge on Palestine funds. The Commission took note of these arrangements and did not feel called upon to express an opinion. The United Kingdom Government gave an assurance that any Palestinian staff employed in the Cyprus Clearing Office would be free, upon completion of their work, to accept service under the Commission or its successor authorities.

The Government of Palestine is preparing a special budget nor the months of April and May 1948 and gave an assurance to the Commission on 21 February 1948 that “collection of revenue will, so far as is practicable, be continued by the present government up to the termination of the Mandate”.

8. Transport and Communications

The resolution of the General Assembly provided for the operation in the common interest in a non-discriminatory basis, of railways, inter-state highways, postal, telephone and telegraphic services and ports and airports involved in international trade and commerce. These services are to be administered by the Joint Economic Board as part of the Economic Union. The Commission is therefore faced with the task of making such arrangements as it can to maintain these services on a unified basis.

The task of the Commission in this respect has become extremely difficult as a result of the policy of the Mandatory Power and the present disorders in Palestine. Moreover, the fact that British troops in process of withdrawal will be in occupation or certain areas in Palestine after the termination of the Mandate complicates the situation in regard particularly to the railways, certain roads and the port of Haifa. The maintenance of transport communications on a unified basis for the whole of Palestine is vital for the life of great numbers of the population. Thus, main road communications from the coast to Jerusalem must be kept open to safeguard large sections of the population of Jerusalem from starvation. It is impossible to conceive of the railways operating except on some joint arrangement.

These services, therefore, must either be operated on a unified basis or they will break down entirely; their maintenance depends upon freedom from disturbances.

Nevertheless, the Commission is faced with the necessity of deciding on the steps which it can take to meet the responsibility which it will automatically assume on the termination of the Mandate. The policy of the Mandatory Power in not permitting the Commission to enter Palestine until a fortnight before the end of the Mandate has particularly unfortunate consequences in the field of transport and communications, since quite detailed preparations are necessary well in advance to effect transfer of administration without a breakdown in services: This policy of the Mandatory Power has made it impossible for the Commission to make the preparations which it otherwise would have made to keep these services running.

The Commission has, therefore, necessarily confined itself to a general study of the economic and. administrative problems entailed in the maintenance of these services after the transfer of authority.

V. RESOLUTION ADOPTED BY THE COMMISSION AFTER THE DECISION OF THE SECURITY COUNCIL TO REQUEST A CONVOCATION OF THE GENERAL ASSEMBLY

After the Security Council had decided to request a convocation of the General Assembly in special session, the Commission, as an organ of the General Assembly and lacking any guidance or instructions from the Security Council, has expressed its view on the situation thus created for it in the following .resolution

VI. CONCLUSIONS

1. Review of the facts which have prevented the implementation of the Assembly’s Resolution

2. Review of the problems which require an urgent solution
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