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מרכז ישראל/פלסטין למחקר ולמידע

مركز اسرائيل فلسطين للأبحاث و المعلومات
Israel/Palestine Center for Research and Information

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Economic Relations and Economic Development in the Performance Based Road Map to a Permanent Two State Solution to the Israeli-Palestinian Conflict

 

Monday, July 21, 2003

IPCRI’s and KAS’s Economic Working group composed of Israelis and Palestinians from the business and academic communities and officials acting in their personal capacities, has prepared an Economic Road Map.  This document seeks to enhance the Road Map Process by integrating within it economic measures that will improve the lives of citizens and help to get the Palestinian economy moving once again.  We believe that if the steps detailed below are implemented the Road Map process will receive wider public support and the road towards stabilization will be found. This document reflects the views of Israelis and Palestinians who have been deeply and intimately involved in the economic agreements and relations between the two parties. The document reflects years of common experiences and attempts to learn from the past and to look boldly into the future.

 

Economic Relations and Economic Development in the Performance Based Road Map to a Permanent Two State Solution to the Israeli-Palestinian Conflict

 

The development of economic relations between Israel and the Palestinians must be an integral part of the Road Map presented by the Quartet to the Government of Israel and the Palestinian Authority. Developing positive economic steps alongside of the Road Map is critical to the success of the entire process.

The main principles embodied within the Road Map must all apply to the issue of economic relations as well, mainly that this  is a performance based process with clearly determined benchmarks for implementation; that there will be international monitoring, verification, dispute resolution, and involvement in all phases of the process; and that the economic plans lead towards the permanent status agreement based on the two-State solution with well defined economic systems positively interacting with signed and ratified economic agreements.

It is our firm belief that it is essential that the Israeli and Palestinian leaders, and the leaders of Quartet to ensure that local private and public sector economic interests find their expression within the Road Map. We believe that the Economic Road Map must run parallel to the political and security Road Map and must be implemented alongside of the successful implementation of the political and security elements.

MAIN POINTS OF THE ECONOMIC ROAD MAP 

Assumptions:

-          All security related issues have been agreed upon and are being implemented.

-          The economic road map will be implemented parallel to the political security road map.

-          Economic and Institutional Reforms are progressing in the Palestinian Authority in accordance with the Road Map.

-          Regardless of the permanent economic agreements that might be reached between the States of Israel and the future State of Palestine, economic cooperation and coordination should remain as a central element of the relations between the two States

PHASE I: RETURN TO CONDITIONS PRIOR TO 28/9/00:

During Phase I the Paris Protocol and its institutions will be revived and will be fully implemented with several agreed modifications.

1. Movement of goods and people will return to the status of prior to Sept. 28, 2000 within all of the following categories:       

·        Within West Bank and Gaza

·        Between West Bank and Gaza

·        Between West Bank, Gaza and Israel

·        Between West Bank, Gaza and the rest of the world

2. Labor – increase the numbers of work permits for Palestinian Laborers in Israel

3. Revenue clearance – resume according to the Paris Protocol with agreed modifications

4. Revive the joint bodies for cooperation / coordination

5. 3rd party role: Monitoring, Verification, compliance and dispute management and resolution

6. Palestinian Private sector development

PHASE II: Transition – Modified Paris Protocol

-          Increasing labor in Israel

-          Economic Rehabilitation and infrastructure development in the West Bank and Gaza

-          Renegotiation of cooperation terms under the Paris Agreement

-          Addressing Revenue Leakages and VAT issues

PHASE III:

-          Determining final status economic relations

-          Determining the depth and nature of economic cooperation

The following is a set of guidelines for the Economic Road Map delineated by the three phases of the Political and Security Road Map:

 

PHASE I:

ENDING TERROR AND VIOLENCE; NORMALIZING PALESTINIAN LIFE, AND BUILDING PALESTINIAN INSTITUTIONS

 The aim of this phase is to stabilize the economic reality on the ground; to return the situation to the status quo ante of September 28, 2000; to rebuild economic cooperation between the two sides; to re-encourage normal trade relations between the sides; to revive the Paris Protocol as an interim agreement through the end of Phase II of the Road Map guiding the “rules of the game”; and to “kick-start” the Palestinian economy and create employment opportunities for Palestinians.

The unilateral construction of the Israeli security fence in the West Bank will have far reaching economic and political impacts within the Palestinian territories.  The present construction creates a number of very significant difficulties where people are separated from their lands, communities are enclaved by walls and fences, wells are cordoned off from their owners, etc.  The physical barriers also create additional costs for trade and commerce. Considering the economic and social consequences of the present construction of the fence, the well-being of all those impacted negatively by the construction of the fence must be re-instated.

With the satisfactory implementation of the security and political elements of Phase I, in this Phase the following economic steps will take place:

Institutional Issues:

  • The Joint Economic Committee (JEC) will be reconvened at Ministerial level at the earliest possible date. The United States will assist in the convening of the JEC. A senior envoy from the United States will convene the meetings of the JEC, will coordinate the agenda of the meetings, will keep a record of the meetings that will be co-signed by the parties and will assist in dispute resolution between the parties when necessary. The JEC will decide which of the relevant Economic sub-committees will be reconvened – these include the Civil Affairs Committee, the Steering committee for the industrial parks, the Trade and Borders Sub-Committee, the Transportation Sub-Committee, the Health Sub-Committee and the Agriculture Sub-Committee.  The work of all of the committees will be conducted in a business-like fashion with all of the participants expressing their mutual desire to re-build trust and confidence and to work together for the mutual benefit of both peoples.

 

  • The Palestinian Authority will resume the building of a strong and effective Standards Institute in the Palestine. It is recommended that the Palestinian Standards Institute seek to link itself directly with a major Standards Institute in Europe with the aim of achieving mutual recognition of Standards Certificates with the Institute.

Private Sector Concerns (Return to Working Procedures Prior to September 28, 2000) – The following steps will be implemented immediately:

  • The Palestinian Businessman’s Card (BMC) with all of its privileges will be reinstated.
  • Regular, extended Permits for Businessmen will be issued, with the aim of reaching an increase in the number of Businessmen who received these permits prior to September 28, 2000.
  • Palestinian Businessmen will be allowed to travel freely via Ben Gurion airport.
  • The use of “sterile” vehicles for Palestinian use in Israel will be reinstated.
  • Regular and organized trucking arrangements – the sides will positively examine the possibility of reviving the use of escorted convoys for transporting goods and raw materials in Israel.
  • Overnight permits inside of Israel will be authorized laborers requiring them.
  • International crossings to Egypt and Jordan will be open and working according to agreed demands and needs.
  • Free movement of capital for investment and capital between banks will be allowed and if necessary transactions of defined larger sums will be monitored by the Monitors of the Palestinian Ministry of Finance.
  • The program for the encouragement of investment in Palestine including the granting of permits for foreign investors in the Palestinian territories will be reinstated.
  • The Karni industrial zone will be re-opened for all people.
  • The two sides will call on the International Donor Community to create a long-term long fund or to provide loan guarantees for SME’s in Palestine.

Issues Concerning Revenues

  • The return of customs and VAT revenues will be reinstituted according to the frequency according to previous agreements.
  • The fees sharing arrangements at the Karni transportation zone will be reinstated so that the Palestinian side will receive their share of fees including all of the back held monies. The Palestinian State will develop a plan for security related and other infrastructure investment at Karni transportation zone. The two sides will cooperate on the implementation of the infrastructure development on both sides of the Transportation zone.

Issues Concerning Labor

·        The two sides will implement a policy concerning labor whereby permits for Palestinian laborers will be issued in quantities large enough to meet the demands of the Israeli labor market. The GOI will aim to lower the number of non-Palestinian foreign laborers by a reduction in the number of permits issued to construction and farm organizations and, if necessary, by differential fiscal policy.

  • The two sides with the help of the US Monitors will provide for strict but smooth commuting arrangements. Israel with the assistance of the donor community will invest in, improve and secure the underlying identification, documentation, checkpoint, and transportation facilities, so as to allow for a decent passage for the Palestinian workers and build confidence and attract potential Israeli employers. It is suggested that the authorities take advantage of the new geo-security arrangements to devise computerized (possibly cybernetic bio-metrical) entry and exit controls to expedite the movement of Palestinians legally employed by Israeli enterprises.

  • In order to increase the efficiency and reliability of Palestinian employment in Israel, a system of organized transportation by the employers could be established.

  • It is suggested to devise a program for subsidizing by the GOI the costs for the hiring of appropriate security services by Israeli businesses that employ large number of Palestinian employees.

  • It is suggested to identify clusters of Palestinians living in the vicinity of, and employed within Israel’s “seam-line” localities that might be detached from these localities under the new geo-security arrangements and to devise procedures that will mitigate the effect of the new arrangements on the Palestinian employees in question.

Issues Concerning Reconstruction and Development – The Israeli and Palestinian Governments will coordinate the immediate launching of several large scale development and reconstruction projects that are in the pipeline.  These projects will be brought to the Joint Economic Committee (JEC) for coordination, and if necessary, approval.  Israel will support the Palestinian Authority requests to specific donors for the funding of these projects.  Israel will assist with the logistics involved and will, if requested, also provide technical and other assistance towards the rapid and efficient implementation of these projects.  The following is a list of the field of such recommended projects:

  • Infrastructure – schools, roads and water infrastructure projects – suggested to advance those projects that were already underway prior to September 28, 2000 and those projects aimed at repairing the damage if these infrastructures during the past 32 months.
  • Railroads – with donor assistance and cooperation from Israel, work will commence on the Gaza – Ashkelon – Ashdod Railroad project with links from the Israeli Rail system being built from Kfar Saba to Tulkarem.
  • Housing - immediate work on new housing projects should be undertaken based on a list of potential projects to be presented by the Palestinian Authority.
  • EUREP-Gap – an immediate program for the development of accreditation and meeting the new standards of the EU that will apply to vegetables exported to the EU beginning January 1, 2004.
  • International Economic Support Programs – we recommend that an international program supporting the reconstruction of a war torn economy.
  • SME'S   - The sides together with the donors will develop an immediate program of assistance, loans and grants to support the development of SME’s in the West Bank and Gaza.

 

 

PHASE II:

TRANSITION

During Phase II, the future State of Palestine and the State of Israel will conduct their economic relations on the basis of the Paris Economic Protocol that will be modified in the following ways:

1. Revenue Leakages – a joint Israeli-Palestinian commission assisted by the United States Treasury Department will arrive at an agreed formula accounting for the leakages of revenues not regulated in the Paris Protocol specifically regarding purchase taxes and indirect imports. Shortly after the beginning of Phase II, the commission will determine an agreed estimated amount of revenue leakages covering a six month period. Israel will agree to transfer the agreed upon amount the Palestinian treasury in two equal payments.

2. Consultations on issues of mutual economic concerns – the parties will agree that the JEC will serve as a forum for consultations between the sides on issues concerning unilateral economic steps or bilateral agreements with other states or international bodies that might have a direct impact on the economies of either party.  Israel will agree to refrain from entering into new FTA agreements with other countries during the interim period, except for those countries where negotiations are already in advanced stages.

3. Institutional development

  • With the assistance of the international community The State of Palestine will accelerate the development of the Palestinian Standards Institute. The Palestinian Standards Institute and the Israeli Standards Institute will cooperate in an effort at arriving at mutual recognition of standards certificates on a case-by-case basis.
  • The possibility for the Palestinian Customs department to coordinate with the Israeli customs in order to open customs stations alongside of the Israeli customs stations.  
  • Preparations will be made to provide for the option of creating a separate and independent Palestinian customs apparatus in Phase III.

4. Issues Concerning Reconstruction and Development – The Israeli and Palestinian Governments will continue to coordinate on development and reconstruction projects that involve cross-boundary issues. Such projects will be brought to the JEC for approval.  Israel will support the requests of the Government of Palestine (GoP) to specific donors for the funding of these projects.  Israel will assist with the logistics involved and will, if requested also provide technical and other assistance towards the rapid and efficient implementation of these projects.  The following is a list of the field of such recommended projects:

·        The completion of infrastructure work on the Jenin Industrial Estate.

·        The Gaza Sea Port (to be approved and opened only in agreement with Israel and according to agreed upon security protocols between the sides together with the Security Oversight Committee headed by the United States)

·        The Gaza International Airport (to be approved and opened only in agreement with Israel and according to agreed upon security protocols between the sides together with the Security Oversight Committee headed by the United States)

·        Joint sewage treatment and transportation projects such as Qalqilya, Nablus, Jerusalem etc.

 

 

PHASE III:

PERMANENT STATUS AGREEMENT AND END OF THE ISRAELI-PALESTINIAN CONFLICT

 

The aim of this stage is to design and implement an economic cooperation system between the State of Palestine and the State of Israel. That system will address the needs of the Palestinian State for economic attributes of statehood, strong links to the Arab World and the need for close cooperation with Israel for accelerated growth and economic development. 

 

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