Ahiram, Ephraim, The Past and the
Future of Israeli- Palestinian Trade, paper presented at
a conference "Sustaining Middle East Peace through Regional Cooperation",
in Amsterdam, Netherlands, 19 October 1994.
This paper is an attempt to learn future trade between Israel and the OT from the past.
The past trade relations between the two countries has been marked by a one sided custom union,
where Israel had no restriction on exporting goods to the OT, but did impose restrictions on trade
of various industrial and agricultural products from the OT.
Jordan also had a negative impact on the development of the OT export by using the Arab boycott
on Israel. This kind of limitation makes difficult to appreciate the future trade. Moreover, thanks
to a change in political status and the creation of a new kind of trade, OT are expected to
develop much faster. We can also predict that because of political ideological considerations,
trade will not be driven by an economic rational judgment. Non very accurate trade statistics in
the OT also makes previsions difficult.
The author gives us the composition and the amount of the OT external trade till 1986, the last
normal year concerning trade, before the wake of the intifada.
The Paris agreement gives an optimal solution concerning trade for the interim period. A mixture
of a custom union with exceptions for a list of products which will be traded under the rules of a
Contrary to the economic theory, the author advise import substitution for traditional products
and a huge infrastructure development, which within a few years would permit to Palestinian
enterprises to export.
An educational revolution will be necessary to turn to produce technologically advanced products.
Table A. Division of main commodity group of imports from Israel to the West Bank and export from the West Bank to Israel 1986
Table B. Division of main commodity group of imports from Israel to the Gaza Area and export from the Gaza Area to Israel 1986
Table 1. Import, Export Foreign Trade Balance of the West Bank and Gaza 1970-1987
Table 2. West Bank and Gaza imports from Israel as percentage of their total imports (selected years)
Table 3. West Bank and Gaza Exports to Israel, Jordan and Others as percentage of their total exports
Table 4. Exports of the West Bank and Gaza as percentage of imports in trade with Israel and Jordan and the Balance of Trade
Table 5. Composition of the West Bank and Gaza Imports: Agricultural and Industrial Products (percentages)
Table 6. Composition of the West Bank and Gaza Exports: Agricultural and Industrial Products (percentages)
Table 7. Imports through Sea and Airports and by Kind of Imports
Table 9. Distribution of Merchandise Trade
Table 10. Imports to the West Bank from Israel and Exports of the West Bank to Israel. 1986 Major Commodity Groups
Table 11. Imports to Gaza from Israel, and Exports from Gaza to Israel. 1986. Major Commodity
Arnon, A. and Weinblatt, S. (1994) "Trade Potantial Between Israel, the Palestinians, and
Jordan", Discussion Paper 10.94 Bank of Israel, July 1994
Awartani, H. and Kleiman, E. (1995) "Economic Interactions Among the Participants in the
Middle East Process," International Economic Association, 11th World Congress, Tunis 18-22
Back to Back: The Palestinian Trade Realities at Crossing Points, Palestinian National
Authority, Dahiet Al-Barid - January 1997
This document focuses on the Israeli impediments ( such as closures, travel and work permits,
restriction on investors, military orders...) to economic and commercial activity in Palestine which
have caused damages to the Palestinian economy.
This study specifically deals with the issue of border crossing and trade impediments.
It makes some recommendations to improve the situation such as facilitate transportation between
Israel and the OT, opening of the Israeli market and an improvement of the Palestinian
Table 1. List of the total commodities entering to the PA areas through the Rafah passage during May 1995 until November 1995
Table 2. Value table of customs indexes and the total incoming fees collected at the Rafah passage
during the period of May 1995-November 1995
Regional Economic Cooperation via A supportive Business Environment, Prepared and
published within the projects for Israeli-Palestinian-Jordanian Financial and Industrial Cooperation
and sponsored by The Friedrich Naumann Foundation, October 1996.
This project tries to identify the economic and day-to-day issues, which confront small and
medium size business activity in the region, and presents policy guidelines to relevant decision
makers and economic players in the Triad. It focuses on nine topics that are monetary
cooperation, banking cooperation, capital markets, capital risk fund, marketing industrial goods,
technology transfer, insurance, cumulation of origin and impediments.
The project has generated a spectrum of ideas for the enhancement of economic cooperation in
Ben Chaim, M. (1993) Trade Potential Between Israel and the Arab Countries, The Armand
Hammer Fund for Economic Cooperation in the Middle East, Tel Aviv University, Israel
The present study sets out to gauge the Israel-Arab trade potential under the assumption of no
political intervention. The study considers as one unit five Arab countries (Syria, Jordan, Egypt,
Saudi Arabia, and the United Arab Emirates) for which data were available, but disregards the
trade between them. An index for potential trade was constructed which allows the identification
of the specific industries in each country with the highest trade diversion potential with another
country. Industries were classified by sensitivity to cross-border trade before the index was
applied. The conclusions are that the potential export diversion from Israel to the five countries is
estimated at $2.2 billion, or 23% of total exports, while the trade diversion potential from the
Arab countries to Israel, including
Diwan, Ishac, Walton, Michael, The Economy of the West Bank and Gaza: from
Development to Economic Growth. Finance and Development. September 1994.
This article outline the economic issues and choices facing the new Palestinian Authority. As
outside sources of employment (in Israel and the Gulf) are disappearing, they let the Palestinians
in an economically insecure state. Future income growth have to depend on an expansion of
Peace can open opportunities. The PA should maximize trade linkage providing the environment
for private investment. It would be a mistake to disengage from Israel. Building institutions (from
the health ministry to a private banking system) will be necessary to support a reorientation in
favor of greater independence. Providing a safety net, especially via temporary public financed
employment will be necessary. Managing aid such as it will be a complement and not a substitute
for the domestic tax effort.
Some of these policies will require a deeper involvement in negotiations with Israel and Jordan.
Fishelson, Gideon, The Peace Dividend: Regional Trade and Cooperation. Palestine-Israel
Journal, No.1, Winter 94, pp. 89-95.
This article outline the role of the private sector concerning regional cooperation. Trade among
the ME countries should be increased by the introduction of private elements, driven by profit,
and lead to more efficient systems and more regional cooperation. A part of the ME exports to
the industrial countries could be partially substitute by Israeli imports. Joint-venture and tourism
would be an other step to cooperation.
Gains from cooperation are in the ME relevant to the public sector which carry out the tasks that private sector performs elsewhere. One of the role of the public sector in regional cooperation is its participation in regional projects.
Economic cooperation in the ME is expected to strengthen the foundation of peace and help to
attain sustainable economic growth.
Table 1. Imports/ Exports of the West Bank and Gaza (million U.S.$)
Table . Basic Demographic and Economic Data, Middle Eastern Countries
Table 3. Some Economic Indicators that Point Towards Benefits from Cooperation, 1990
GATT Secretariat (1995) "Trade Policy Review Mechanism-Israel," World Trade and
Arbitration Materials, vol. 7. No.1, January
Halbach, A.J., et al (1995) "New Potential for Cooperation and Trade in the Middle East,"
Ifo Research Reports, Department for Development and Transformation Studies No. 85
(Muchen, Weltforumm Verlag).
Halevi, N. "Economic Implications of Peace: The Israeli Perspective," in Fischer, S., Rodrik,
D., and Tuma, E. eds. The Economics of Peace in the Middle East Cambridge, MA.: MIT
Press, 1993, pp.87-116.
Halevi, N. (1994) Trade Relations Between Israel and Jordan: Considerations and Prospects,
The Pinchas Sapir Center for Development and the Armand Hammer Fund for Economic
Cooperation in the Middle East, Tel Aviv University, Israel
Halevi, Nadav, Kleiman, Ephraim, Structure of Trade Relations Between Israel and Jordan:
Alternatives and Recommendations. In Halevi, Nadav Trade Relations Between Israel and
Jordan, Tel Aviv: The Pinchas Sapir Center for Development and the Armand Hammer Fund for
Economic Cooperation in the Middle East, Tel-Aviv University, 1994, pp.1-7.
From the existing trade pattern with other countries, this article analyze the trade potential that
exist between Israel and Jordan. The competition of Israeli products by Jordanian ones because
of geographic proximity should be balanced by the development of a new line of exports suited
for the development needs of the Jordanian industry.
The authors analyze a wide range of possible trade arrangements, from normal trade relation to
custom union or even a common market. They conclude that any trade arrangement will be more
significant for Jordan than for Israel. They recommend for the immediate future a mutual removal
of the restriction on trade mixed with an agreement on granting preferential terms to trade in
certain goods, which would allow their importation at customs rates lower than those on goods
from third party countries.
Preferences to Jordanian exports to the Territories that might 'overflow' in part the Israeli market
should be demanded in return for direct exports of limited quantities of selected Israeli goods to
Jordan, in the spirit of a bi-lateral trade agreement. Finally, the authors suggest to Israel and
Jordan to pass an agreement for Israeli and Jordan products that compete in international markets
(i.e.: Phosphates, potassium and their derivatives, which constitute almost half of the Jordanian
Halevi, Nadav and Kleiman, Ephraim, Regional Versus Non- Regional Integration: The Case
of the Middle East. The Hebrew University of Jerusalem, 1996
This paper deals with the issue to know if with geographic and cultural proximity, the Middle East
constitute a natural economic region.
Concerning Middle East trade patterns, the area has got a low intra-regional trade, even without
the Israeli partner. This outcome may be caused by trade policies, even if it does not constitute a
barrier, since there are others economic reasons which are present to encourage trade.
The ME countries do not constitute a natural trading bloc. A solution would be to include Israel
(which is a complementary economy) in a FTA. This is the most far-reaching preferential
agreement that can be envisaged and it permits to each country to maintain its own external
Table 1. Customs Union Effects
Table 2. Relative Import Intensities, 1994.
Hirsch, S., Ayal, I., Hashai, N., Khesin, R., Arab-Israeli Potential Trade: The Role of Input
Sharing, The Armand Hammer Fund for Economic Cooperation in the Middle East, October
This paper is aimed to develop a methodology for estimating the level and composition of
potential trade, based on input sharing, between Israel and its Arab neighbors. It tries to identify
industries, especially export industries, in Arab countries and in Israel which can base their further
development on inputs imported from each other.
To identify the export potential, the authors calculated the RCA (i.e.: world market share of the
branch, normalized by the county's overall market share) of different economic branches. The
results indicate that there is a basis for this new type of trade , especially between Israel and
Jordan and to a lesser extent between Israel, Egypt and Syria. The branches which can base their
development on such imported inputs are mainly food industries, textiles and clothing,
construction industry, ceramics etc.
Table 1- RCA indices of Economic Branches in Egypt and Israel
Table 2- Imports by Israel of Inputs with High Egyptian RCA Indices
Table 3- Domestic Purchases by Israel of Inputs with High Egyptian RCA Indices
Table 4- Purchases by Israel of Imported and Domestic Inputs with High Egyptian RCA Indices
Table 5- Purchases by Israel of Imported and Domestic Inputs with High Jordanian RCA Indices
Table 6- Purchases by Israel of Imported and Domestic Inputs with High Syrian RCA Indices
Table 7- RCA Indices of Economic Branches in Israel, Jordan, Syria and Egypt
Table 8- Purchases of Domestic Inputs with High Israeli RCA Indices- 1988
Appendix Table 1- RCA Indices of Economic Branches in Jordan and Israel
Appendix Table 2- RCA Indices of Economic Branches in Syria and Israel
Appendix Table 3- Imports by Israel of Inputs with High Jordanian RCA Indices
Appendix Table 4- Imports by Israel of Inputs with High Syrian RCA Indices
Appendix Table 5- Domestic Purchases by Israel of Inputs with High Jordanian RCA Indices
Appendix Table 6- Domestic Purchases by Israel of Inputs with High Syrian RCA Indices
Hirsch, Seev, Ayal, Igal and Fishelson, Gideon, The Arab-Israeli Trade Potential:
Methodological Considerations and Examples. The Israel Institute of Business Research,
working paper no 7/95, March 1995.
This study forecasts trade potential between the Arab countries' and Israel. First of all, we can
expect "Export Creation" by the elimination of discrimination between foreign suppliers on a non-discriminatory basis. Moreover, in a region where there is no trade we can consider 3 categories
of new trade.
Distance sensitive trade assume that proximity may be an important determinant of tradability.
The authors suggest to use a gravity model and do the analogy with Austria's external trade
pattern after the dissolution of COMECON.
Scale Sensitive Trade should be overcome by a big enough Arab-Israeli market determined by the
traditional comparative advantage consideration and no more by the phenomenon of economies of
New Sources of Input may make possible for firms to become internationally competitive. Using
Egyptian indices of revealed comparative advantage and Israel's Input-Output statistics, permits
to outline what the potential sources of Egyptian manufactured inputs that can be used by Israeli
industrial customers are.
However, the realization of such a trade depends on investment which needs a long term
Table 1 Potential "Export Creation" Between Israel and Jordan in thousands of US $
Table 2 Distance Sensitive Trade - Austria's International Trade (1989)
Table 3 Economies if Scale (1992)
Table 4 Locally purchased complementary inputs
Table 5 Imported complementary inputs
Impediments Economic Activity, Prepared and published within the project for on Israeli-Palestinian-Jordanian Financial Cooperation and sponsored by The Friedrich Naumann
Foundation, October 1996.
This paper presents guidelines for a trilateral plan that will foster free flow across regional border.
Its goal is to present to decision-makers an inclusive policy outline which addresses both security
needs and relevant consideration.
Although there is a vision of free flow in the Triad, free movement is severely restricted due to
security concerns and bureaucratic and psychological impediments.
The plan examine the issue of free flow encompassing all existing crossing points in the region and
their practical aspects, all economic needs of the entities, present and foreseen security concerns,
and all other relevaconsiderations.
It is necessary to create a regional economic system that not only addresses security aspects, but
also the psychological and bureaucratic aspects, with a special focus on the Palestinian side.
Jawhary, M., The Palestinian-Israeli Trade Arrangements: Searching for Fair Revenue-Sharing, Jerusalem: Palestinian Economic Policy Research Institute (MAS), December 1995.
This report addresses the issue of Palestinian-Israeli customs union and investigate what is a fair
revenue-sharing formula between the two parties. Effectively, most of Palestinian imports are
purchased indirectly from Israeli traders, and as a consequence, the PA doesn't receive import
taxes. The report estimates that this leakage is likely to exceed the combined aid of the USA and
This leakage is the result of a lack of strict rules of origin, the method of calculation of the
revenue clearance with Israel for imports, and the fact that there is no compensation for the price-raising effect of the Israeli trade regime on Palestinian consumer goods.
The report recommends compensation for the Palestinians by Israel, for the price raising effect,
application of strict rules of origin, negotiation of a revenue-sharing formula based on total import
flows and changes in the unified invoice system about a proper coding of goods flowing between
Israel and the WGB, and redesigning of it in order to provide information on the origin of goods
sold by Israel to the WGB.
Table 1. Estimate of PNA's Foregone Revenue on Palestinian Indirect Imports, 1992 (based in comparison with Israeli private consumption)
Table 2. Estimate of PNA's Foregone Revenue on Palestinian Indirect Imports, 1992 (based in comparison with Israeli exports)
Table 3. Estimate of PNA's Foregone Revenue on Palestinian Indirect Imports, 1992 (based on guess-estimate of Ministry of Planning statisticians)
Table 4. Estimate of Palestinian Indirect Imports from Israel, at Different Assumption of GDP Growth, 1994-96
Table 5. Estimate of Foregone Customs Revenue on Palestinian Indirect Imports, 1993-96
Table 6. Estimate of WBG Revenues, 1993
Table 7. WBG and Jericho Area Estimated Budget, 1994
Table 8. WBG and Jericho Area Estimated Budget, 1993 and 1995
Table 9 WBG Budgetary Revenue, May 1994 to March 1995
Table 10. Revenue Comparisons: WBG, Egypt, Israel, Jordan and Developing Countries
Journal of Palestine Studies, (Documents and Source Material) "Jordanian-Palestine Trade
Agreement, " Spring 1995. "Developing the Palestinian Economy: an Interview with George T.
Abed," Summer 1994.
Kanovsky, E. (1995) "Middle East Economies and Arab-Israeli Peace Agreements," Israel
Affairs, Summer 1995.
Kleiman, E. (1995) "The Economic Provisions of the Agreement Between Israel and the
P.L.O.," The Hebrew University of Jerusalem, Department of Economics, Working Paper, no.
Kleiman, E. Some Basic Problems of the Economic Relationships Between Israel and the
West Bank and Gaza, Working Paper 261. Jerusalem: Department of Economics, Hebrew
University of Jerusalem, 1992. 31 pp.
This paper identifies the mains problems of the economic relationship between WBG and Israel
and outline some possible solutions. Though an Israeli point of view, it focuses on developments
in the territories.
Problems related in this paper are those concerning the flow of goods and factors of production.
Remaining problems are allocation of national property rights, exploitation of potential
externalities in the provision of some services and a lot of technical questions.
The author concludes that small economic units have to pay a high price for a given measure of
autarky. Moreover, closer economic relationship with the outside world entails some abdication
of economic sovereignty.
Table 1. Growth of per capita product, 1969-1986 (percent per annum)
Table 2. Main Economic Flows between the West Bank and Gaza, and Israel, 1986
Table 3. The industry structure of employment in Israel and share in total employment, by industry- Workers from the West Bank and Gaza, 1987 (percent)
Table 4. Distribution of trade in merchandise (percent)
Table 5. Ratio of merchandise trade to income (percent)
Murphy, Emma .C., The Arab-Israeli Peace Process: Responding to the Economics of
Globalization, Critique, Fall 1996.
This article is picturing the risk for the Arab States to tend to take a regional approach and
become part of fragmented and marginalized economic region, while Israel have taken a global
approach and move onto a fast-track of developed nation status.
Relation between Arab States and Israel will depend upon this degree of openness. Partnerships
through intermediary organization like the EU will soften the impact of initial direct relation and
by seeing Israel as a conduit for international capital will make disappear the fears of an Israeli
Most Arab States have already realized that they cannot invest in their own region alone,
however they do need to consolidate their own positions between themselves before opening up
A supportive regional environment, mixed with realistic economic policies, would benefit both
Israeli and Arab economies and permit the Arab world to face the challenge of regional
Table 1. Scientists and technicians per 10 000 workers
Table 2. Civilian R&D expenditure as percent of GDP
Table 3. Principal imports to Israel 1994
Table 4. Per Capita GDP Comparison, 1994
Table 5. Value of manufactured exports, 1993
Lawrence, R. Z. et al., "Towards Free Trade in the Middle East: The Trial and Beyond,"
Institute for Social and Economic Policy in the Middle East, Kennedy School of Government,
Harvard University, Cambridge, MA, 1995.
Murphy, E. C. "Israel and the Palestinians: The Economic Rewards of Peace?" Centre for
Middle Eastern and Islamic Studies, University of Durham, 1995.
Nashashibi, Karim and Kanaan, Oussama, Which Trade Arrangements for the West Bank
and Gaza? Finance & Development, September, 1994, pp.10-13.
WBG are now facing critical strategic choices concerning the nature of economic links to the rest
of the world particularly neighboring countries. The first steps toward Palestinian autonomy is to
diversify trade patterns and relations, reorient the production base and reduce the dependency of
the Palestinian population on employment in Israel. Turning inward would be very costly for a
small economy such as the WBG.
The trade strategy will have to be an outward-oriented, export promotion strategy, and have to
create a trade environment that will stimulate exports and promote efficient import substitution. A
position between retaining a custom union with Israel and establish a FTA has been achieved by
the Protocol on Economic Relation (signed on April 19, 1994 between Israel and WGB) which
took into account Palestinian development. This Protocol should permit to achieve further trade
liberalization and diversification that would help foster greater economic integration if additional
measures (i.e.: removing some non tariff barriers, establishing equitable access to water, and
devising a system for fair property settlements) are taken.
Norton, E. (1996) "The Jordan Imperative," The New Republic, 18 March 1996.
Panagria, Arvind and Diwan, Ishac, Trade Policy Option for the West Bank and Gaza Strip.
Palestine Economic Policy Research Institute (MAS). January 1997.
This article analyze from an economic point of view what are the advantages of a custom union
compared to non-discriminatory tariffs or FTA
The authors base their analysis on custom unions. Free access to a high protected Israeli
agricultural market would be lucrative for WBG as well as for industrial products such as wearing
apparel and footwear. The presence of FTAs with the EU and USA would be benefit for WBG.
WGB could outweigh losses from their trade deficit with Israel by "exporting" labor to Israel.
Due to the strong commitment to trade liberalization, under a custom union the CET will remain
A well-functioning custom union is to the advantage of WBG compared with either a non-discriminatory tariff or FTA. It would give a secure accto the Israeli market and let them explore
their comparative advantages. It would also fallow the trend of the value added Israeli industries
and the two economies would become better integrated into the world economy.
Table 1- Gains from trade under Alternative Trade Regimes
Table 2- Tariff Rates in (ISIC-3 digit), 1993
Table 3- Total imports from and exports to WBG by Israel
Table 4- Indirect Taxes on Domestic Production And Imports in Israel
Peres, S., with Arye Naor The New Middle East New York: Henry Holt and Co., 1993.
Protocol On Economic Relations Between the Government of the State of Israel and The
PLO Representing the Palestinian People. Paris, April 29, 1994.
Sadan, E., "The Best Way for Both Sides," Palestine-Israel Journal, Winter 1994.
This article presents some of the microeconomic aspects of FT. Even if there is one conservative
aspect of the cooperation that is based on cheap Palestinian labor, it exists nowadays a
progressive pattern of cooperation based on technology (i.e.: horticulture). This last cooperation
let opportunity for microeconomic symmetry even though the macroeconomic situation is
asymmetrical. And, in a market economy, microeconomic symmetry can guarantee the Palestinian
terms of trade. Therefore, a FT framework is the condition to Palestinian forecoming
Table 1. Palestinian GNP Components, 1968-1990, US $ per Capita per Year
Table 2. Exports of Goods, $/Capita Palestinian & Mid East, 1986
Table 3. Capital Investment & Number of Employees/ facility, established & new horticulture
enterprises, Gaza Region, 1992
Shaban, R., "Toward a Vision of Palestinian Economic Development," Palestine Economic
Policy Research Institute (MAS), September 1996.
This study focuses on two outlooks, the long term economic performance and the private sector's
role in the development of Palestine. It attempts to identify measures to rise the standard of living
for the Palestinian population. It relates the current economic situation and the role of private
This study looks into the realistic potential for growth with the help of growth scenarios which
show that WBG won't turn immediately into developed country even if a high rate of economic
growth is achieved.
The report makes some recommendation as a development of a clear administration that should
let the private sector to develop by itself and rely on a free market, the creation of an environment
to drawn in private investment and services for export purposes, and finally the construction of a
port in Gaza with dynamic FT zone.
Table 1. Basic Indicators of the Palestinian Economy
Table 2. Alternative scenarios of Palestinian Growth Potential, 1993-2000-2010
Table 3. Required Investment According to Growth Scenarios (As a percent of GNP)
Figure 1. Number of establishments in the WBG by year of registration: 1980-1995
Figure 2. Number of Banks in the WBG
Figure 3. Number of Bank Branches in the WBG
Figure 4. Customer deposits and bank loans in the WBG: December 1994-September 1995
Securing Peace in the Middle-East: Project on Economic Transition. The Institute for Social
and Economic Policy in the Middle East. John F. Kennedy School of Government. Harvard
University. June 1993.
This report deals with two sets of issues: First, future economic relations among Israel, Jordan
and Palestine; And second, the structure of the Palestinian economy.
It makes recommendations on several points such as regional trade in agriculture, industry and
services in order to develop regional projects and set up a new regional bank ( The Middle
Eastern Bank for Cooperation and Development).
Even if the differences between the three economies are striking, the report advises the creation of
a FTA in goods, services, capital and technology.
Concerning labor policy, it recommend to promote job creation and social insurance in the OT.
However, it is against a rapid opening of the Jordanian labor market to the Palestinians which
would decrease wages and increase tension in Jordan.
Interim self governing authority in the OT should lead to effective legislative power regarding
domestic economic matters.
FT involve constraints on tax and tariff policies. As a result, tax coordination and revenue
recovery should be considered in the arrangement and would create a revenue for the Palestinian
The role of foreign aid will be large and diversified, especially during the first years of transition,
where the public sector structure will be created and the private sector revitalized.
Table 1. Selected Economic Characteristics of Israel, Jordan and the West Bank and Gaza.
Tovias, Alfred, Future trade arrangements between Israel and its Arab Neighbors: Available
options. The Armand Hammer Fund for Economic Cooperation in the Middle East. Tel- Aviv
This article is a review of the possible scenarios for economic cooperation in the light of the new
Middle East reality. This is done by studying the economic and political reality in the Middle East
and checking it against theoretical models developed for regional economic arrangements.
Economic cooperation in the Middle East was at the beginning a measure adopted for fostering
peace. Success of the strategy will depend on the ability to convince the key players which are
private and public sector firms, that functional integration is not a zero-sum game (if one side
wins, the other doesn't necessary lose. An other requirement is to ensure that gains from
cooperation would be equally distributed between former enemy countries.
Eight options for regional economic cooperation in the Middle East are described and analyzed in
this article, from maintain normal trade relations among the parties to conclude industrial and
agricultural FTA agreements.
The author regards preferential arrangements for specific sectors as the most viable option at
present. The author explain that industrial and industrial and agricultural FTA agreements are
possible further steps towards cooperation but higher forms of economic integration are not
Finally, the author suggest the use of European economic integration models as a source of inspiration for the Middle East.
Table 1. Basic Economic Indicators in the Region, 1993
Table 2. Principal Preferential Agreements between Regional and Extra Regional Countries in the
Towards Free Trade in the Middle East: The Triad and Beyond
This paper is a proposal to remove all trade barriers between the WBG and Jordan and to Jordanian products entering in Israel over a five year period. By 2010 all barriers to Israeli products to Jordan should be eliminated and Jordan's external tariffs harmonized with those of Israel and the WBG.
Complementary economies and proximity are the factors which lead us to expect prosperity for
trade in the ME.
Other experiences (the European Union, Mercosur, NAFTA.) have taught us that a non-discriminatory FTA seems to be the most desirable agreement, however it must be associated with
political reforms in order that it doesn't lose what has been earned by a lower tariff.
The agreement can start by a FTA but should be extended to services, capital mobility and
possibility for other countries to join.
The FT should not be a problem for WBG which already has been exposed to Israeli competition,
or for Israel where the neighborhood markets are too small to have a considerable impact.
However it will represent a real change for Jordan which will have to change towards a market
The economic framework has already been taking shape through the signing of a list of interim
Vandewalle Dirk, The Middle East Peace Process and Regional Economic Integration,
Survival, Vol. 36, No.4, Winter 1994, pp.21-34.
Although closer integration between the Israeli, Palestinian and Jordanian economies is now all
but inevitable, a number of powerful obstacles make region-wide economic integration unlikely.
Most important among these obstacles are impediments within local Arab economies that make a
transition towards more market-oriented strategies problematic and the fact that economic
development in Arab couhas often been held hostage by local governments to larger and more
immediate political and security concerns. The end of the Cold War is likely to exacerbate
problems of legitimacy for regional regimes. As a result, and despite the alleged resurgence of
civil society within Arab countries, meaningful political change will also be held in abeyance for
some time. Even if a comprehensive peace agreement is concluded, it will not necessarily lead to
regional economic cooperation.
Volcker, Paul, Trade Arrangements in the Middle East & North Africa. Paper presented at a
conference "Report of the Middle East Economic Strategy Group," November 1996.
The aim of this group is to give recommendations with respect to trade arrangements in the ME.
They emphasize the essential role of a more open system and solid foundation of financial stability
to carry the economic development. Even if a FT agreement is not practicable for foreseeable
future, they recognized that they are strong and valid reasons for proceeding with more limited
liberalization among neighboring countries and with the rest of the world. Agreements need
political will and technical assistance to translate these concepts into reality. Trade arrangements
with third countries can fostering trade and development for the region whereas sectoral
agreements is to emphasize the indissoluble links between politics and economics. Trade
agreements should benefit from the example of earlier agreements between strong and weak in
providing asymmetric concessions.
Finally, the group gives some recommendation concerning the Palestinian economy such as to
reduce the dependence on Israel, to facilitate trade relations and movements of people within the
territories, to define a legal framework governing land and develop an international free trade
zone in Gaza.
Wilson, R. "The Palestinian Economy and International Trade," Centre for Middle Eastern
and Islamic Studies, University of Durham, 1994
Kanaan, O. and Nashashibi, K. (1994) "Which Trade Arrangements for the West Bank and
Gaza," Finance & Development September 1994 (Hebrew)
Sadan, E. "Free Trade Between Israel and Palestinian Export Industries" Riv'on Lekalkala,
April 1994. Pp.5-14. (Hebrew)