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Economics and Development



Recommendation on Steps to be Taken With Regard to Palestinian Economic Development Needs in Relationship to Israeli Security Needs

Gershon Baskin, Ph.D.
November 3, 1996



BASIC UNDERLYING ASSUMPTIONS:


1. The development of the Palestinian economy is a precondition to the advancement of peace and is therefore, desirable from the point of view of Israel's security needs. Conversely, economic stagnation (or worse) poses a potential threat to Israel's security interests, questions the legitimacy and the ability of the PA to rule, and discourages Palestinian public support for the peace process.

2. Palestinian economic development is in Israel's interest not only from the point of view of the peace process but also from the point of view that it is sound economics. A Palestinian economy with more disposable income will purchase more goods from its nearest neighbor - Israel. Just as the United States advocated a policy of strengthening the economy of Mexico, so must Israel be interested in a strong economy next door.

3. A strong Palestinian economy will enhance the image of the regional economy which will encourage more foreign investment in Israel , in the Palestinian Territories themselves and in the other regional neighbors.


STEPS WHICH SHOULD BE TAKEN TO ENCOURAGE ECONOMIC GROWTH IN THE PALESTINIAN TERRITORIES:


An Israeli-Palestinian security subcommittee should be established to address Israeli security needs in the context of Palestinian economic growth. While this subcommittee would have no power of decision making, it would be an important advisory committee to the Israeli authorities. The existence of this subcommittee and its proper functioning could be an important measure in terms of impressing upon the Palestinians the importance and the weight of security issues for Israel and the economic develop needs of the Palestinians for the Israelis. Palestinian cooperation in this process would impact positively upon Palestinian willingness to cooperate with Israel in enhancing the security aspects of labor movement and the transportation of goods. In general, as long as the Palestinian security forces are playing a positive role in real security matters, this role should be enhanced and embellished.

The committee's role could be predefined to be limited in its scope to confront issues such as the movement of goods, labor, etc., rather than extending a broad base mandate which may prove to be counter-productive.

The committee's main task would be address the Palestinian economic and business needs in accordance with Israeli security needs. The committee would be mandated to develop written security protocol with clearly defined procedures and operational formula.

The committee would also serve as an on-going standing body which could answer both specific problems on an ad hoc basis as well as addressing changing conditions or needs.

A direct line of communication should be established between the heads of the committee from both sides in order to solve problems as near to the time when they develop as possible.


CLOSURES


Closures in general create very negative impacts on the Palestinian economy.
Closures prevent the movement of laborers, the movement of goods, imports and exports are damaged, companies cannot meet deadlines of contracts, investments are frozen, and no new investments are seriously considered.
Closures, when determined to be absolutely necessary, should be very limited in scope and in time.
In general, it is recommended that the policy of closure be phased out as soon as possible. This method of guaranteeing Israel's security needs is a detriment to Israel's longer term security needs in that they raise the level of distrust and dissatisfaction with the peace process within the Palestinian territories. Closures are not hermetic and terror organizations can easily penetrate the closure without very much effort.


MOVEMENT OF LABORERS


The record shows that long-time employees Palestinian laborers have not been a security risk to Israel. Employees who are married and have children and who are above a certain age (ca. 28) have almost never proven to be a security risk at all.

Laborers should be granted long term work permits. These permits should be granted in at least two categories:
1. Those workers who have a long time employment record for the same Israeli company certified by the employer. A time frame could be established, eg. three years and more. These stable employees pose a small security risk and should be granted a long term permit enabling them to guarantee their economic future as well as guaranteeing that the employer will not search out non-Palestinian labor sources.

2. Labor provider companies of Palestinian labor should be established by Palestinians. These labor contractors would be certified by an appropriate branch of the Palestinian security, which will develop criteria for laborers in conjunction with the Israeli security. Labor contractors would be directly responsible for receiving the security clearance for all their workers from the Palestinian security, which will screen workers and then recommend to the Israeli security to issue long-term work permits in Israel. Labor contractors and employers will be responsible for providing transportation to and from the Palestinian territories. Labor contractors failing to meet the established demands and criteria will lose their right to be labor contractors.

3. There are legitimate concerns regarding the movement of many Palestinian vehicles inside of Israel as is required for moving large numbers of laborers. There is a fear that the Palestinian vehicles could also be used for transporting non-permitted laborers or even weapons and ammunition. For that reason, for the time being, private vehicles should continue to be very limited. However, it is possible to establish private sector based transport companies which are licensed by the proper security authorities (Israeli and/or Palestinian) for the specific purpose of transporting laborer to and from their jobs in Israel. In such a framework, transportation passes would be issued together with work permits. In order to limit the risks involved (economic and security), transport permits would be issued for a set period of time (one year). The transport companies would not be permitted to transport day laborers or non-organized permitted laborers. Only those laborers working at a regular place of employment should be transported by the transportation companies. Fees for transportation could be shared by the employers and the laborers themselves. At the risk of losing their licenses to transport laborers, it can be assumed that high levels of compliance with the agreed upon rules will be kept.

Work permits for laborers working in Israel should be issued for a period of one-year at a time. This is necessary to create a sense of stability which is a prerequisite for economic development.


ADDITIONAL WORK PERMITS


Israel should encourage and facilitate the development of a healthy and vibrant private sector economy in the Palestinian territories. The free movement of businessmen is therefore required. Palestinian businessmen should be granted permits allowing them to enter into Israel and to travel between the West Bank and Gaza in their own vehicles. These businessmen, who provide the necessary documentation from the Palestinian Ministry of Economy and Trade, the Palestinian Ministry of Industry or the Palestinian Ministry of Planning should be granted permits for their private vehicles as well. The granting of permits could be conducted through a central office or agency of the Palestinian Security. Agreed upon conditions for the permits should be arranged and violations of the permit restrictions would result in the loss of the permit privileges for a period of one year.

The main difference between this recommendation and the present situation is that here these permits would be "closure proof", in other words, even if there is a closure, Palestinian businessmen holding this kind of permit would continue to be able to enter Israel and to travel between the West Bank and Gaza freely. The permits issued would be for the individual only and his vehicle.

The Israeli government should create a policy that treats non-Palestinian laborers brought into Israel as value added imports with their wages subject to VAT. This would create a policy of economic dis-incentives that would discourage employers from hiring foreigners instead of Palestinians.


CROSSING POINTS


The major crossing points (Erez for example) should be turned over to private security companies which are supervised and licensed by the security forces of Israel. Private companies would be more professional than reserve soldiers. The companies have an economic motivation to be thorough and efficient and will have their contract under review annually so that the incentive will be in place to do the best job possible.

The Israeli security authorities should create standard operation procedures for security clearance at crossing points for the Palestinian security. Israel should provide the Palestinians with detailed specs on technology required as well as the kind of procedures and precautions are required to guarantee that once clearance has been given, the vehicle or individual in question is "clean." Israel should help to provide the Palestinian side of the crossing points with the latest technology and procedures even if there is a financial cost to Israel in doing so.

Israel should provide in-service training to "border" security personnel from the Palestinian side to guarantee that procedures are kept at high standards and are at the levels that Israel demands and requires. This kind of "in-service" training will also increase the cooperation between the sides and the sense that both sides are serving the same purpose.

Modern and efficient methods for checking people and vehicles entering and exiting the check points should be established. These methods should include those used at every major airport in the world, eg, metal detectors, x-ray machines for packages and bags, explosive sniffing dogs, chemical detection machinery, etc.

Individuals should be equipped with sophisticated documents, eg. magnetic cards with pictures which cannot be easily counterfeited. Trained personnel at the checkpoint will examine the cards and place them through the automatic card reader. The cards should contain the necessary and relevant security information, e.g., place of employment, hours of employment, age, name , ID -number, validity of the card, amount of time (years, months) at place of employment, family status, etc. The cards could be issued jointly by the Israeli and Palestinian authorities.

The crossing points should enable rapid and efficient crossing. Minimal contact between Israeli personnel and Palestinians who have the right to cross should be the general policy. The main point is to get the workers to their place of work as fast as possible without risking Israel's security.

Vehicles with permits should be checked efficiently, without delay and according to established operating procedures. Check points like at Erez are already equipped to handle the rapid checking of vehicles. Vehicles carrying goods should receive a certificate of clearance from a private Palestinian security company licensed by the Palestinian security forces or directly from a branch of the Palestinian security forces agreed upon with Israel. All vehicles carrying a certificate of security will have been fully checked by the Palestinian security on the Palestinian side of the crossings. This is to ensure that no additional goods or weapons or passengers have been added to the vehicles since the time of is inspection prior to arriving at the crossing point and receiving its certificate of inspection. Therefore, the certificate of inspection should include exact details of contents of the vehicle and its destination. This certificate could be faxed directly to the Israeli crossing point at the time of inspection in order to ensure that no changes to the document will be made. The original document would be presented at the Israeli crossing point in order to compare it with the fax copy sent prior to arrival. Prior Palestinian screening saves time and reduces risks and feelings of antagonism though final and full scrutiny still remains in the hands of Israel.

Sealed containers can be given certificates at the time of loading which will allow for rapid and efficient delivery to the destination in Israel or beyond. Vehicles which carry sealed containers may their contents will be periodically and arbitrarily checked on the Israeli side of the crossings.

In general, the trend for the movement of goods entering Israel should be in the direction of sealed container transports. With the small size of many Palestinian companies this may not be economically practical at this point. Yet there are small containers and there is the possibility of combining packaging of several shipments in one larger container, if arrangements are made for this. A dry dock facility could be established in a sealed security area, much like a bonded warehouse type setting where goods could be loaded into containers for further transport into Israel or through Israel to one of its other ports. This could be done in the private sector and could in fact be a profitable business, not requiring much additional costs for transhipment because of the potential efficiency of the system.

Rail lines must be the longer term solution for transhipment between the two Palestinian territories and from the Palestinian territories to export markets. A high speed rail linking the port of Gaza to the West Bank which would carry passengers, vehicles and containers would eliminate the need for much of the security arrangements above. The rail link could avoid any stops within Israel proper and would not require large amounts of Israeli or Palestinian security personnel. The distances between the two territories is quite small and the infrastructure costs could easily be off-set through Israeli contributions as a result of lessening security costs after the rail has been initiated. Similarly, the proposed rail link between Gaza and the Port of Ashdod must be completed without delay. The rail links would transport goods in sealed containers as specified above.

Foreign investors should be provided with closure-proof guarantees so that their investment intentions can be realized. Without assurances that business can be conducted all the time under all circumstances, it is very unlikely that foreign investors will decide to realize the potential of investing in the Palestinian territories. Foreign investors must be allowed to travel in and out of the Palestinian territories with the greatest efficiency and speed possible. For this they should be provided the appropriate documentation from the Israeli security authorities.

Foreign investors and foreign companies must be guaranteed slim and swift procedures for importing sophisticated and complex supplies in order to construct and run their projects. This must includes items such as: engines, electronics for local power plants, telecommunications gear, heavy construction equipment, etc. This items have been severely limited and their release from customs have been delayed, costly and overly bureaucratic. This clearly does not encourage foreign investment.

Crossing points could be diversified and specialized for certain kinds of movement. There could be crossing points for people without vehicles, others for agricultural goods, another crossing point for industrial goods and trucks, etc. This kind of arrangement would allow for each crossing point to create the optimal infrastructure for a particular purpose.


OTHER ISSUES OF ECONOMIC DEVELOPMENT


All goods imported via Israeli ports should be allowed to move freely and without delay into the Palestinian territories after clearing the ports. There is little justification for preventing these kinds of shipments from entering the Palestinian territories. Certainly once goods have cleared customs and any necessary security checks for explosives or ammunition, there is little reason to prevent their shipments to the Palestinian territories. Israel should be required to guarantee a maximum amount of time required for the release of goods and should be required to pay penalties for goods that are withheld or postponed.

Palestinian clearance customs agents should be licensed by Israel either as independents or in conjunction with existing Israeli customs agents. This arrangement will allow for goods to move in and out of the Israeli ports rapidly. One of the areas where the closure has had serious ramifications has been in the inability of Palestinian importers and exporters to arrive at the port to clear their goods, thus creating delays of several weeks in transhipment as well as in accruing additional costs for port storage. Custom agents should be granted power-of-attorney by the importers and exporters so that a limited number of Palestinians are required to be physically present in the release of goods through the ports.

Import and Export procedures are extraordinarily complex and should be simplified and made more efficient. This should be handled by the Israeli-Palestinian subcommittee on economic and customs matters.

The Israeli-Palestinian legal subcommittee under Oslo should be convened with the aim of encouraging and aiding the Palestinians in drafting new and modern legislation for taxation, banking, and investment. While Israel should not be a partner to Palestinian legislation, Israeli expertise should be offered and provided so that Palestinians can efficiently and rapidly make the legal and structural changes in their economy which will help it to develop.

Israel should encourage joint ventures involving Palestinians, Israelis and foreign investors. This type of tri-lateral arrangement should be encouraged by allowing all to receive the benefits of the Israeli law for the Encouragement of Capital Investment even though the investment will be realized within the Palestinian territories.

The new government must open up Israel's economy to competition from outside of the region, because the economy has been too centrally planned and controlled, and because open markets mean fair and open competition by ending protectionist policies. The Palestinian economy must be allowed to participate in that competition, and Israel must open its markets to Palestinian products and services.

A full cooperation agreement of mutual recognition of standards should be immediately signed between the Israeli Standards Institute and the Palestinian Standards Institute. Once product standards have been agreed upon, the Palestinian Standards Institute should be able to grant standards certificates which will be automatically recognized by the Israeli Standards Institute. The product holding the Palestinian Certificate would automatically receive the Israeli Tav Teken just as Israeli goods with a Tav Taken would automatically receive a Palestinian certificate. This procedure is based, of course, on the mutual recognition of standards on an item-by-item basis.

Israel should encourage and allow Palestinians to market in neighboring states even if this means competing with Israeli goods in those countries. Israel should simplify the procedures for Palestinians exporting to Egypt and Jordan. This must include the implementation of safe passage routes from Gaza to the West Bank. Perhaps one route should be developed and made exclusively available for cargo transport.

The Government of Israel should not allow or facilitate the establishment of monopolistic economic policies involving Israeli companies and supported by the Palestinian Authority. This is detrimental to the Palestinian economy and has created great resentment within Palestinian business circles as well as on the ground in the West Bank and Gaza. This also poses a potential security risk in that it creates high levels of public unease and dissatisfaction.


INDUSTRIAL ZONES


The border industrial zones project should be given the highest priority.

A bilateral agreement between Israel and the PA should be concluded by a set date. Agendas and timetables should be established for the establishment of these zones. Israel should guarantee the rights of Israeli companies to invest in these zones, however, Israel should also be aware of the necessity to encourage Palestinian investment and international investment. Israel should implement a policy of offering special incentives and benefits for Israel companies entering into joint ventures with Palestinians. Israel should immediately engage in corrective legislation to afford Israeli investors the same benefits in the industrial zones which will be offered to all other investors, eg. legislation on non-double taxation with the Palestinians. If this is not achievable then bookkeeping could be done and reviewed by both Palestinian and Israeli authorities or accountants and that collections could be split and shared by both sides. This could be an equal split of 50/50 or some other agreed upon formula.


FURTHER ISSUES FOR ADVANCING THE INDUSTRIAL ZONES


Two subcommittees should be established to deal with off-site infrastructure and for economic and customs issues.

Israel could make a commitment to invest a set amount of money in the off-site infrastructure in order to link the industrial zones with existing Israeli infrastructure, e.g., rail links from industrial zones to Israeli ports, linking to Israel water lines and electric grid, linking zones to Israel's road infrastructure.

Israel and the Palestinians should draw up a full security plan for the zones and request the support of the World Bank and the international donor community to finance the costs of the security infrastructure required.


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