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Source: United Nations Conference on Trade and Development (UNCTAD)
17 March 2005


UNITED NATIONS CONFERENCE
ON TRADE AND DEVELOPMENT


PROGRAMME OF ASSISTANCE TO THE PALESTINIAN PEOPLE
www.unctad.org/Palestine




Gaza Disengagement Plan:


Implications for the Palestinian Authority in the area of trade facilitation

Submitted to the United Nations Coordination Meeting on Gaza Disengagement Plan


17 March 2005



While Israel's withdrawal from the Gaza Strip is a step towards a settlement for the conflict in the region, it offers conditional opportunities for reversing the Palestinians' continued deteriorating living conditions. The plan as announced preserves Israel’s tight movement restrictions in Gaza, and its immediate benefits are undermined by the occupied Palestinian territory's (oPt) land-locked status, in addition to the absence of adequate trade-related infrastructures. As the World Bank has noted, without a comprehensive treatment of the various aspects affecting trade and labour movement, the Gaza disengagement could fall short of its promises. Nonetheless the UN system should seize any new development that could move the parties towards a just and final settlement.

In contrast to other land-locked states, whereby access to international markets is obstructed by the absence of a seashore, the oPt's land-locked status is dictated by the absence of a national seaport. At the same time, Israel's control of the main borders and transport routes causes Palestinian trade to be totally dependent on political considerations and extremely high transaction cost. Reducing the prohibitive transaction costs facing the Palestinian business community requires first, and above all, removing Israeli movement restrictions and greater Palestinian control over trade transport routes. However, the lack of political stability means that achieving these requisites is likely to be subject to further delays. Hence, the urgent need for complementing the Disengagement Plan with targeted trade facilitation measures. Such measures should address those areas within the Palestinian Authorities' (PA) reach, particularly the binding constraints stemming from competency shortfalls at the institutional level and the lack of adequate physical infrastructures. Moreover, they should be based on a comprehensive approach to trade facilitation, which also addresses the issues of simplifying, harmonizing, standardizing and automating international trade and transport procedures.

As elaborated below, priority areas requiring immediate intervention include:
The importance of addressing these issues is further emphasized by their significant contribution to ongoing reform efforts in preparation for the future State of Palestine, including the "100 Days Plan for Government Action" of 2002, and the "One-Year Reform Action Plan", announced in September 2004.

Customs administration falls under the PA Ministry of Finance, General Directorate of Customs and Excises, which has 24 district and regional offices throughout the West Bank and the Gaza Strip. The Directorate lacks a cohesive management information system, with its electronic data processing system consisting of a multitude of disconnected software applications. As such, the PA is completely reliant on Israel for information on customs reports and statistics. This has been undermining the PA's administrative capacity, rendering it extremely difficult to manage its financial resources or exchange customs data with trade partners. These problems are compounded by the fragmentation of customs and transport procedures among different PA agencies, and Israel’s domination of the clearance process.

The need to reform the PA's customs administration is also dictated by the new challenges created by the continuous developments in information and communication technologies. Customs administrations are facing increased pressures to go beyond the verification of trade documentation and procedural requirements, and assume a leading role in facilitating trade.

The international community is considering the establishment of a Roll-on, Roll-Off (RoRo) facility and a helicopter service in Gaza as interim solutions pending the construction of the Gaza seaport and refurbishment of the airport. Although this might ensure immediate results, such a facility becomes less convincing as an optimal solution from a cost-benefit analysis. A RoRo facility has a limited capacity, requires appropriate investments in lifting and transport equipment and could be too cumbersome to manage. Also, in the absence of a breakwater (estimated at $35 million for the original Gaza seaport) Ro-Ro operations could be difficult to insure during stormy winter months. As such it might be advisable to forge ahead with any Ro-Ro facility in the context of the implementation of the Gaza seaport project that was suspended following the outbreak of the second Intifada. This is especially since the project entails a phased approach, whereby depending on the level of demand, the port’s capacity will be expanded to handle large vessels of up to 50,000 to 70,000 DWT, and linked to the neighbouring ports of Port Said in Egypt, Ashdod, Beirut and Cyprus.

Meanwhile, and until the Gaza Seaport is operational, the PA can consider alternative maritime and overland transport routes for facilitating the flow of Palestinian trade. A recent UNCTAD study indicates that re-routing Palestinian imports and exports, which are currently transiting Israeli ports, via Port Said in Egypt and Aqaba Port in Jordan could involve some additional costs.1 However, almost all of these costs are due to overland transport, with more than 50 per cent resulting from the Israeli closure policy and the movement restrictions. The study also shows that with a 15 per cent reduction in the cost of land transport in Egypt and Jordan, the Palestinian trading community could achieve a savings from re-routing. These savings are feasible and achievable, however they require a framework through which all involved parties coordinate their interventions.

The PA needs to design sectoral policies for creating transport intermediary services. The starting point would be the modification of existing laws to encourage the entry of competent operators into the market, along with national transport policies for guiding the development of the freight and port services, and enhancing the competitiveness of service providers. Such policies should seek to:

The need for coordinating mechanisms capable of bringing together representatives of the private sector and relevant PA institutions cannot be over-emphasized. Palestinians can opt to forming a national committee for trade facilitation, however this runs the risk of creating an additional institution at a time when the PA is trying to consolidate and streamline its institutional framework. A more appropriate alternative may be to aim for a “Forum on trade facilitation”, which brings together all relevant parties in an ad-hoc working group format. The forum could be mandated with the task of modernizing transport and logistics practices, with a view to achieving specific tasks such as:

The Israeli restrictive measures and the imposed land-locked status of the oPt aside, market access conditions facing Palestinian traders are further aggravated by the lack of reliable shipping services. They are usually ill informed about shipping rates, regulations and operating procedures, and do not obtain timely approval of Israeli Standard Institute to release shipments from customs. Moreover, they face high freight rates because Palestinian shippers lack the necessary skills and experience in dealing with international shippers and negotiating freight rates with shipping conferences.

Administrative procedures need to be improved in order to facilitate border crossings with a view to streamlining procedures and simplifying documentation. In addition the following measures need to be considered:

The prohibitive transaction costs facing Palestinian traders are also attributed to the absence of coordinating mechanisms at the regional level. Existing regional committees, such as Regional Economic Development Working Group and the Joint Palestinian-Israeli Economic Committee to name a few, are inactive and none of their substantial recommendations have been implemented. Meanwhile, regional initiatives for facilitating cross-border trade are unlikely to be translated into concrete results in the near future due to major constraints to increased cross-border trade in the region, such as inadequate infrastructures, weak regulatory frameworks, and unsupportive institutional and managerial environment.2 Hence, such problems as the lack of mutual recognition of standards and specifications, with inbound consignments often delayed because Israeli customs do not recognize Egyptian and Jordanian packing methods and standards. Moreover, traders are not well informed as regards the different procedures governing trade activities with or through Egypt and Jordan. This is especially true in view of the unpredictability of the constant changes of these procedures, without mechanisms for disseminating up-to-date information to the business community.

The imperative for establishing regional coordinating mechanisms is further emphasized by the need to ensure the freedom of transit of Palestinian goods through the territory of regional partners, and allowing the emerging Palestinian state to reap benefits from ongoing regional trade facilitation initiatives.

In 2000, the PA embarked on a comprehensive program to modernize and strengthen the institutional capacity of the General Directorate of Customs and Excises. The program involves the development of a Palestinian Customs Law, the establishment of a modern customs administration system and the institutionalization of international best practices in customs management. In this context, the PA adopted UNCTAD Automated System (ASYCUDA++), as the backbone of the envisaged modern customs administration, with the aim of strengthening the Palestinian customs administration's capacity, enabling it to better monitor and regulate international trade, increase customs revenue and speed up the customs clearance process at low cost. The system is a state of the art management information system that handles manifests and customs declarations, accounting procedures, transit and suspense procedures, in addition to generating customs and trade statistics. It incorporates international best practices and standards and allows for further configuration to suit the national characteristics of individual customs regimes. More importantly it is flexible enough to meet the development interests of the emerging state, irrespective of the nature of its trade regime, and to accommodate the PA's regional and global integration efforts, such as the Euro-Mediterranean Partnership and the Greater Arab Free Trade Area.

Progress to date has involved the development of ASYCUDA++ prototype version; concrete proposals for simplifying customs procedures and adapting the regulatory framework to an automated environment; and the establishment of a core team of IT and functional experts. Meanwhile preparations are underway for establishing 2 pilot sites in Jericho and Bethlehem by the end of the April 2005, and full system rollout as of June 2005. The existing system for data entry will be automated, and the ASYCUDA++ prototype will be further developed to capture all the 2004 Israeli Customs Declarations. This will allow the PA to generate accurate reports on revenues collected by the Israeli Customs administration and ensure full and proper payment of revenue due.
With the technical support of UNCTAD, the PA is considering the establishing a Palestinian Shippers' Council (PSC) to spearhead trade facilitation efforts, providing an impetus for better coordination between the main players in the maritime transport sectors, including: traders, service providers and relevant PA institutions. The PSC will also be relied upon to raise the awareness of the Palestinian shipping community on the different trade facilitation projects targeting the shipping sector; ensure proper synergies between these efforts; and support the PA's negotiations on trade and transport arrangements and trade related matters.

In its recent study, UNCTAD emphasized that expanding Palestinian trade requires establishing regional transit transport agreements between the PA and its main trade partners.3 Drawing on relevant international agreements and conventions, the study provides a guiding framework for establishing such agreements, which is supported by an action plan for developing trade-related infrastructures in the oPt. In particular, the framework ensures a comprehensive treatment of trade facilitation, allowing for simultaneous efforts at three levels. At the highest level, neighbouring countries could subscribe to multilateral agreements and international conventions, which guarantee observance of standard procedures for customs clearance and movement of freight consignments across borders. At the middle-level, these procedures could be embodied in bilateral agreements between neighbouring countries. Finally, at the level of individual transport organizations, there could be arrangements between neighbouring organizations for joint operations and associated facilities designed in harmony with global standards and regional specifications.


Notes

1 UNCTAD, "Transit and maritime transport facilitation for the rehabilitation and development of the Palestinian economy", UNCTAD/GDS/APP/2003/1, New York and Geneva, 2004

2 Several integration arrangements have been established, including the Arab Common Market (1964), the Gulf Cooperation Council (1981), the Arab Organization for Economic Cooperation (1985), the Arab Maghreb Union (1989), and most recently the agreement for the establishment of AFTA, which is an attempt to establish an Arab Common Market.

3 UNCTAD, "Transit and maritime ...".

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