Press Release
Department of Public Information · News Coverage Service · New York

21 June 2000



(Received from a UN Information Officer.)

CAIRO, 21 June -- The reality of Israeli-Palestinian trade and labour arrangements and the options for Palestinian economic development were among the issues addressed this morning by expert panellists at the United Nations Seminar on Prospects for Palestinian Economic Development and the Middle East Process.

The two-day Seminar sponsored by the Committee on the Exercise of the Inalienable Rights of the Palestinian People will conclude this afternoon. It heard panel presentations on Israeli-Palestinian economic relations during the interim period; the current state of Israeli-Palestinian negotiations on economic issues; and the future of Israeli-Palestinian economic relations.

Normal trade is an unlikely possibility, according to Nadav Halevi, Professor, Department of Economics, Hebrew University, Jerusalem. He favoured a hybrid between a freed trade area and a customs union with no customs checks. In his opinion, the main problem with the trade relations was a lack of good will.

Gil Feiler, Managing Director, Info-Prod Research, expressed concern about the lack of outside investment in the Palestinian market. Noting the extent of Israeli investment in Jordan, he proposed that Palestinians might consider adopting Jordanian methods to attract investment. He suggested that the high-tech sector might provide fertile ground for Israeli-Palestinian joint ventures.

The Director-General for International Relations, Ministry of Economy and Trade of the Palestinian Authority, Saeb Bamya, called attention to actions taken by Israelis based on their perception of security considerations. Closure caused innumerable problems for the Palestinians. Open regionalism, such as that pursued by the Association of South East Asian Nations (ASEAN) provided an interesting model for Palestinians to consider.

Other speakers on this morning panel were Samir Huleileh, Nassir Investments Company, Limited; Samir Abdullah, head of Paltrade; and Edward Haley, Professor at Claremont McKenna College.


SAMIR HULEILEH, Nassir Investments Company, Limited, Bethlehem: Policies and procedures implemented since 1977 have made it difficult for Palestinians to develop their economy. Migrant workers are the main feature of the Palestinian economy. Israeli impositions of closure cause a collapse in the Palestinian economy. Moreover, the Palestinian economy is vulnerable to political and economic decisions taken in the surrounding countries.

Palestinians were hopeful after the Paris agreements, but the reality was different. The agreement restricts development and, in fact, the separation with Israel is hypothetical. Any separation means separating the West Bank from Jerusalem. In addition, there was the question of how a solid economic entity could be built without the proper infrastructure, without a seaport, airport or land port, all of which were prohibited during the interim period. How much money would be needed to build an infrastructure that would attract foreign investment? Three currencies are used in the territories, and there are 21 banks operating in the West Bank and Gaza. They have relative power compared to their previous status. There is direct relationship with the international community, although most imports had to be dealt with through Israeli customs.

While the Palestinian Authority has made some achievements in the interim period, they have been restricted by the political situation. The economic track always lagged behind the political. The security issue could cause the entire agreement to collapse. A partnership has to be built with Israel, but when the question of security arose, free movement was prohibited. That kind of partnership was intolerable. Israeli economic concerns also effected the development of the Palestinian economy, and in the last six years there have been restrictions imposed by other countries in the region, as well.

NADAV HALEVI, Professor, Department of Economics, Hebrew University, Jerusalem: Previously, there was free movement of Israeli goods. According to the Paris agreements, there was to be a two-way movement with some aspects of a free-trade area. The Palestinians could theoretically have their own trade relations. Expectations were not met with regard to trade development. The market did not open up, and there was not the anticipated increase of exports to Israel. Closures had devastating effects on the Palestinian economy. There was a lot of red tape and bureaucracy on both sides. The Palestinians had no direct outlet.

Some clauses should have been put in the agreements for the settlement of disputes and other items could have been adjusted, but, basically, there could not have been another agreement under the prevailing conditions. Both sides were wary of a situation that would settle borders. The main problem was the underlying political conditions.

Though normal trade is a possibility, it is unlikely. A free-trade area or customs union would be more feasible. In a free-trade area, Palestinians would have complete sovereignty over a trade with other countries. That could not be done in a customs union. A free-trade area needs a border for customs check. Once the borders and checks exist, it opens up avenues for protectionist activities. Jerusalem will not be physically divided, and an open city made a customs border unfeasible.

There could be some kind of hybrid between a customs union and free-trade area with no customs checks. There should be smooth movements of goods and labour. The problem, from the Israeli point of view, was one of security. There must be arrangements to make closures as limited as possible. The Palestinians had to have direct contact with other economies. The main problem was a lack of good will. If there is good will, good things will happen.

SAMIR ABDULLAH, Head, Paltrade: Possible options for Palestinian-Israeli trade include economic separatism, a free-trade system or a customs union. Economic separatism would provide freedom to develop an independent foreign trade policy, and there would be no problems with Israel regarding rules of origin and financial outflow. There was, however, the possibility that Israel might close its market to Palestinian products. Moreover, Palestinian products are not very competitive in the markets of neighbouring Arab countries.

A free-trade system would affect the cessation of the financial outflow of taxes and customs receipts, as the future State of Palestine would levy customs duties and taxes on all imported goods. It would guarantee the continuation of Palestinian exports to Israel and provide an incentive to develop its imports. Improvement in the terms of trade with Israel would force its companies to compete with international companies in the Palestinian market. On the negative side is the high cost of the formulation and control of rules of origin and the cost of ensuring that Palestinian products comply with rules of origins in order to guarantee their entry into Israel.

A customs union would provide the possibility of benefiting from the network of Israeli economic relations with foreign States and avail the Palestinian territory of an ongoing outflow of Palestinian exports to Israel. It would strengthen the negotiating power of the participating countries and facilitate saving the costs of checking and administering rules of origin. A free-trade union would be the logical step to enable the Palestinian Authority to make progress in the development of its future relations with Israel. The Israeli labour market should remain open to Palestinian workers for the next 10 years until Palestine is able to develop programmes to absorb them into the Palestinian market.

GIL FEILER, Managing Director, Info-Prod Research, Ramat-Gan: In the future, Israel will be the most important market for the Palestinian trade. The main problem is investment. Israeli investment in the Palestinian territory is almost nil. Since the signing of the Oslo Accords, there has been less than $20 million of joint venture capital in the Palestinian territory. On the other hand, Jordanians have opened their arms to Israeli investments. There were more than $100 million in joint venture investments in Jordan. It served to signal international investors that Jordan was a feasible place to invest. Moreover, the labour costs in Jordan are lower than that in the Palestinian territory. Further, the infrastructure in Jordan is better than that in the Palestinian territory. Palestinians should consider adopting some of the Jordanian methods.

The high-tech sector and the services around them could be a fertile ground for Palestinian-Israel joint ventures. If the Palestinian Authority cooperated with Israel in that sector, venture capital would be immediately available.

EDWARD HALEY, Professor, International Relations, Claremont McKenna College, California: The expectations gap between both sides require serious attention. This region is one of the least integrated in the world. The level of Arab-Arab trade was very low, and Arab-Israel trade was even lower. The ASEAN provided an interesting model. The ASEAN pursues a kind of open regionalism. There must be regional support for the peace process. In open regionalism, economic trade

barriers were lowered. The economic future of the region had to be considered. The ASEAN was an example of a politically painless method in which one could begin regional cooperation.

Isolation could appear attractive and was the easiest choice for domestic politics. There was, however, less ability to influence other countries ahead of time. The promise of integration held a great deal of advantage over isolation.

SAEB BAMYA, Director-General for International Relations, Ministry of Economy and Trade, Palestinian Authority: The Paris protocol presented something unique. It could not be called a customs union. The two parties are not equal. Israel changed and defined import policies without consultation with their Palestinian counterparts. There was a big gap between the two economies, and there should be an Israeli fund to fill in the gap.

During the interim period, the question of security, as perceived by the Israelis, present major obstacles for the Palestinians. The majority of Israelis feel that security concerns will exist for the next 20 years. Another issue of concern was the need for the diversification of trade. In any future trade arrangements, Palestinians should not be totally dependent on Israeli interests. Palestinians were impeded in establishing trade relations with a third party because of the need to use Israel ports. Israeli policy was that there should be no real Palestinian economic development during the interim period. Until now, Israel does not recognize the Palestinian agreement with the European Union.

Realistically, there should be an agreement between two independent States. There should be territory continuity in the Palestinian State, and there should be no interference in the movement of goods and people between the different parts of the State. Any agreement must be compatible with World Trade Organization rules and regulations. The Palestinians should have full authority under trade regulations and should be able to freely negotiate with any trade partner. Any future economic agreement should be built upon the existing trade relations and volume. There should be unrestricted market access for the export of Palestinian goods and services; full autonomy for trade policies with third parties; and absolute treaty-making powers and provision for efficient systems of revenue collection through the elimination of fiscal leakage and dependence on transfers from Israel. Economic relations with Israel should also allow for the introduction of special preferential treatments, and be consistent with a Palestinian politically sovereign State as a single territorial unit.

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