Select Committee on International Development Second Report

3 The Palestinian Authority

58. The Palestinian Authority is the main political institution in the OPT. As such it is of vital importance to the future viability of a Palestinian state and has been the focus of donor engagement. Donors have sought to support the peace process by building the capacity of the PA to function as a future state. But the PA is itself a strange institution, created through negotiations between Israel and the Palestine Liberation Organisation, as part of interim arrangement until the creation of proper national institutions in a Palestinian state. The PA's creation under the Oslo Accords never envisioned it as a sovereign state, but rather a restricted institution with a very short lifespan. It has always had limited capacity as a service provider and has been plagued by corruption and allegations of corruption, credibility problems, and great difficulties in providing the Palestinian people with sufficient representation. In this chapter we discuss these issues in more detail and look at how the PA has reformed in recent years. Later, in chapter 6, we take a closer look at how donors have supported the PA in line with their objective of helping to prepare for Palestinian statehood.

The structure of the PNA under Oslo

59. In 1993 the Declaration of Principles on Interim Self-Government Arrangements was signed between Israel and the Palestine Liberation Organisation. The Palestinian National Authority was created as part of the implementation of these agreements. But the Palestinian areas were not under total control of the PA. The PA did not have control over its borders, overall security, currency, fiscal or monetary policy, natural resources, or foreign policy. It did not determine citizenship and its trade was either with Israel or passed through its ports.[111] In September 1995 the agreement was set out that Israel was to first withdraw from major Palestinian population centres[112] and that the PA was to maintain control over these areas (See MAP 1).[113] Area A—consists of approximately 17.2% of the Occupied West Bank, divided into 13 separate, non-contiguous areas, in which the vast majority of the Palestinian population live. The PA had responsibility for internal security and wide civil powers. Israeli checkpoints surround each of these areas. Area B is where the remainder of the Palestinian population live, and consists of 23.8% of the West Bank. The PA had civil control over the area, but overall security control rested with Israel. Israeli checkpoints surround each of these areas. Area C is under the total control of Israel, which consists of 59% of the Occupied West Bank, and over which Israel has increased its hold. Israel has full security and civil responsibility over these areas. This is the only contiguous area in the Occupied West Bank. It contains the settlements and surrounds and divides Areas A and B.[114]

Constitutional structure

60. Under the Oslo Accords the PA was given temporary civil responsibilities until final status negotiations, which were to take place three years into the interim arrangements. The Oslo Accords required elections to be held for the creation of a Legislative Council, and President. These elections were delayed by the GOI, and only took place in January 1996. The PA, as a transitional institution, with a restricted mandate, possessed limited powers. Under its constitution, the executive authority must present draft laws to the Council, which then discusses and ratifies them. The same system grants the right for one or more members or one of its committees to submit legislative proposals. The President of the National Authority issues the laws after the Council ratifies them. The President, Yasser Arafat, was democratically elected, and remains a popular leader, but has been widely criticised for corruption and for supporting terrorism.[115] He maintains control of the Palestinian security services, the payment for which takes a significant slice out of the PA's budget.[116]

Economic structure

61. The Paris Protocol formalised the Palestinian-Israeli economic relationship.[117] Israel kept control of the levers of the Palestinian economy: control of borders and ports of entry; power of veto over certain imports; regulation of the movement of labour; and the ability to withhold disbursement of taxes due to the PA. The strength of the Israeli economy led to its total domination in conditions of open market between the two economies. After Oslo and before the renewal of the conflict, the OPT imported from Israel four times as much as it exported to Israel.[118] Israel set restrictions on the type of product that could be imported.[119] The customs union with Israel and the dependency on remittances from Palestinians working in Israel, coupled with the lack of control of the PA's borders and, with it, trade, has made the Palestinian economy vulnerable to Israeli constraints, for example the withholding of tax revenues, collected by Israel on the PA's behalf. In addition, the policy of curfew and closure has made it virtually impossible for Palestinian workers to travel to work in the OPT, let alone in Israel. Written evidence from Dr Mushtaq Khan, of the School of Oriental and African Studies, outlines the situation of economic dependence and its causes:

"Part of this was a natural dependence given the much greater degree of capitalist development in Israel and the availability of labour market opportunities there, but part of it was an engineered dependence, based on artificial controls over trade, investments, fiscal space, and of course, restrictions of movement within the Palestinian territories through settlements and checkpoints. As a result, the Palestinian economy was hugely dependent on the performance of the Israeli economy, and more importantly, it could be made to suffer if Israel took particular actions like limiting the flow of labour to Israel or cutting off parts of the Palestinian territories from each other".[120]

Dependency on Israel

62. Under the 1994 Protocol on Economic Relations, the two sides established a system for transfer of an agreed pool of selected tax revenues from Israel to the PA. These revenues come under Israeli control because of a de facto customs union and unified VAT invoice system. The transfer involves indirect taxes on Israeli-Palestinian transactions and direct taxes (income taxes and health fees paid by Palestinian workers in Israel). At current levels revenues transferred from Israel make up 60%of the PA's recurring budget.[121] In December 2000, notwithstanding its obligation to make the monthly transfers according to the Protocol, the GOI ceased transferring revenues equivalent to almost two-thirds of the PA's total revenue receipts in 1999 and 2000.[122] The GOI justified its actions on the grounds that terrorist activities against Israel may have been supported out of the PA budget. By the end of 2002 a total of about US$500 million in withheld clearance revenues had accumulated.[123] Israel resumed revenue transfers in December 2002 following assurances from the PA to implement a comprehensive internal auditing reform plan for PA expenditures (which has begun), and political pressure from the US. But $130 million of withheld revenues are still held back because of outstanding court action seeking compensation from the PA for losses arising from terrorist activity.[124] Such claims involve private individuals, some of whom are settlers in the OPT, and the Israeli Ministries of Tourism and Transport.[125]

Internal problems: corruption and mismanagement

63. The PA cannot blame all its difficulties on the occupation and policies of the GOI. The PA has created its own problems due to mismanagement, corruption, and human rights abuses. Over the course of the inquiry we received evidence criticising the PA on a number of grounds.[126] The PA is accused of failing to tackle poverty or focus on service delivery. Palestinian budget allocations certainly show a priority given to security concerns over development requirements. In the period 1997 to 2000, allocations for health declined from 14 to 9% of the total budget, with allocations for education falling from 22 to 17% over the same period.[127] This prioritisation has inevitably had an impact on the PA's credibility with Palestinians, as has its problems with corruption. We are aware of the criticisms of the PA. Nevertheless, the PA is the only representative organisation of the Palestinians and, as such, building its capacity and institutions and ensuring the success of its reform programme, in order to make it an effective administration, are the keys to laying the foundations of a future Palestinian state.

The President

64. Criticism of Yasser Arafat, largely from Israel and the US, escalated after his failure to agree to Israeli final settlement demands at Camp David in the autumn 2000. The US and Israeli governments now refuse to deal with him on the grounds that he has been linked to terrorism. There has been significant pressure to draw power away from the President. Pressure was applied by Israel and the US for the creation of the position of Prime Minister and this was realised in 2002. However, the UK Government, the European Union, and the rest of the international community continue to recognise the legitimacy of President Arafat as the democratically-elected leader of the Palestinian people. Yet the international community acknowledges that that there is a need to have a Palestinian leadership that the US and Israeli administration can deal with and as such supported the appointment of a Prime Minister.

65. The GOI and US Administration have sought to have the powers of the security forces removed from the President and put into the hands of Ministers whom they found more suitable to their interests. This is a continuing struggle and remains a stumbling block for the peace process. Palestinians are well aware of their President's shortcomings. But at the same time they have been reluctant to lose a leader who is seen as defending Palestinian interests to the last. Nevertheless, the calls from Palestinian society to make the PA more representative, transparent and accountable to its people have been a strong factor driving reform. But the aims of the Sharon government in Israel, in attempting to sideline and remove Arafat by all means, are substantively different from the Palestinians' concern to strengthen democracy and remove corruption. The allegations against Arafat are serious. But the politics of the situation are such that his removal is unlikely and we suspect not desired by the majority of Palestinians. It is clear that if elections were held today in the OPT he would be re-elected. However, some distinction can be made between the President and the PA. It is the PA the donors are engaged with. This engagement is helping to enhance the accountability of the PA as an institution and push through reforms which will outlive Arafat.

Reform of the Palestinian Authority

66. A combination of external and internal criticism has had some success in prompting reform within the Palestinian Authority. In 2002 the PA's Ministerial Committee announced its 100 days reform plan (See Annex). Considerable progress has been made on the reforms set out in the plan, particularly in the area of financial accountability. The IMF is involved in monitoring reforms and shaping the reform process. It has recently published an in-depth analysis, which highlights areas of strength and weakness, making suggestions to guide further reform.[128] Some of our witnesses have taken this report as a condemnation of the PA's lack of transparency.[129]

67. The IMF representative in Jerusalem considered the reforms undertaken thus far by the Ministry of Finance to be "quite amazing" and described part of his role as helping to continue to improve transparency, detect areas of weakness and create the financial building blocks for a future state.[130] We too were impressed with the PA's new Minister of Finance, Salam Fayyad, whom we met in Ramallah. There seems to be a general consensus (even including the GOI) that Salam Fayyad has radically improved the standards of the PA's financial accountability and its internal auditing.[131] The Minister of Finance has implemented reforms of the PA's financial management systems, including the creation of a single treasury account under Ministry of Finance control and the monthly publication of the budget and budget execution reports. This is unique in the Middle East. Furthermore, all PA commercial assets have been consolidated into the Palestine Investment Fund.[132] There is, according to Hilary Benn MP: "across the donors, including the United States of America …an appreciation of the role that he (Salam Fayyad) has played in trying to get a grip on funds".[133] In other areas reform has not been as strong, notably legal and judicial reform. Although there is scepticism about PA reforms they mark recognition on the part of the PA of its need to put its house in order, largely to restore its credibility amongst its own people.[134]

68. We are impressed with the reforms implemented by the Minister of Finance. But there is still need for further reform in the Palestinian Authority, particularly in relation to the accountability of the presidential accounts and in terms of the legal, executive and judicial reforms outlined in the 100 days reform plan.[135] Continuing to drive through planned reforms is the best way for the PA to deal with its critics. The PA is an institution which is developing into what could be a credible foundation for a Palestinian State. It is in everyone's interest that every penny of international development aid to the PA, whether from DFID or charities, is fully and transparently accounted for. Some of the PA's critics would prefer to see donor funding stopped.[136] But we believe this would do more harm than good. It would push more Palestinians below the poverty line and lead to total collapse of the PA. A collapse which would have a detrimental affect on the peace process. In the absence of the PA, people would be more likely to turn to extreme positions and measures and support terrorism.

The PA's credibility

69. The PA has failed in many respects, partly because of the structural restraints that were a product of its design under the Oslo process, partly because of its own internal failings, and partly because of renewed Israeli occupation. We were concerned that UNRWA's and the NGOs' role in service provision might undermine the legitimacy of the PA in the same way as the UN system arguably has done to the Transitional Authority in Afghanistan. But the credibility problems of the PA run deeper than its inability to deliver services. William Bell of Christian Aid told us:

"The PA has definitely lost some credibility amongst the Palestinian population but I would not put that necessarily down to the fact that they have not been the main service provider, such as for health and education. Where they have lost credibility is because of the situation that the PA has found itself in. The first ten years of the PA's existence under Oslo were not all that the Palestinian population expected them to be. There was a lack of priority of poverty alleviation but most importantly for most Palestinians credibility was taken away when they saw that, to a large extent, the PA was unable to act as an equal negotiating partner with the Israelis in order to improve their lives".[137]

70. Ministers are unable to have a visible public presence at a local level. Ministers, and others working within the PA, are wholly dependent upon the occupying forces for their freedom of movement. The Palestinian Minister of Local Government, who was due to join us on a visit to villages in the West Bank, had his permission to travel within the West Bank unilaterally removed at the last minute, without explanation by the IDF. The last Palestinian elections, for the PA's Legislative Council, were held in 1996. The terms of office expired in May 1999 but existing office holders have remained in post. Calls for new elections have been numerous, most notably from Palestinian civil society.[138] Elections had been planned as part of the reform programme, to take place in January 2003. They were postponed until early 2004 because of the security situation. The required electoral arrangements had not been put in place and continuing closure and curfew would not have allowed any valid elections to take place.[139]

Local government

71. Local Government was one of the areas identified for reform under the PA's 100 days reform plan (See Annex). In 1996 the Palestinian Legislative Council passed a law for the Election of Local Councils. But despite these laws, which were intended as a step towards decentralisation and the creation of a more representative system of local government, local councils still operate under the Ministry of Local Government. The most important responsibilities of local government are the management of electricity and water supply and distribution. Their range of responsibilities also includes: administration of local building permits; regulation of local markets and businesses; and sanitation and refuse collection. They are not, however, responsible for education, health or police; these remain under PA ministerial responsibility.

72. The IMF has attributed the lack of reform in this area to the difficult operating environment:

"Progress towards formulating a reform program has been relatively slow, because local authorities have been hampered by the substantial infrastructure destruction and by the constraints on mobility which prevent reformers from reaching the municipalities and seats of local government. Municipalities have lacked the resources needed to function properly, affecting adversely the delivery of basic services as well as the ability to collect payment" [140]

There may be some reluctance in the higher echelons of the PA to give up central control to local government. Driving forward reform in this area would greatly enhance people's participation in the OPT and would go some way to meet the criticism of centralised control and undemocratic practices.[141] It is vital for the credibility of the PA that it obtains a renewed popular mandate through elections as soon it can, including the election of municipal government structures.

Public relations

73. The PA has failed to prevent Hamas and other Palestinian terrorist groups from continuing to perpetrate terrorist actions against Israelis, and meanwhile has done nothing to protect its own civilian population from the overwhelming military power and policies of the IDF. Although it has spoken out against suicide attacks, its message is not getting across. It condemns terrorism.[142] What is needed is for these denunciations to be widely publicised. We believe that suicide bombing, as well as being morally abhorrent, has been a catastrophic tactic that has done great harm to the Palestinian cause, and that the targeting of innocent civilians is indefensible. The Palestinian Authority, we are told, also takes this view; its condemnation needs to be heard more widely.


74. The PA is unable to offer policing or protection to its civilian population. It faces comprehensive Israeli restrictions on its internal policing activities and also lacks institutional capacity. Except for in Bethlehem and Jericho, there are no uniformed police in the West Bank. There is no police presence on the streets to provide security, civilian or otherwise. The police force has little by way of equipment or even police stations. In Nablus we were informed that the police have one vehicle and a couple of radios. Even if the PA were unequivocally willing and able to identify and arrest members of terrorist groups, as the Israelis demand, it has no means of processing or holding such detainees. The PA's inability to offer protection to its civilian population from the occupying power means that there is a dangerous absence of a protecting power for the civilian population. Under these circumstances, signatories of the Geneva Conventions have an obligation to provide some protection for the civilian population as long as there is a military occupation.[143]

75. The US has been a key actor in security sector reform. It is also an area of increasing DFID involvement.[144] The US has been predominantly interested in reform of the security services rather than the civilian police. In contrast, DFID focuses on the civilian police and has committed upwards of £650,000 and has disbursed half of this allocation.[145] The initial payment was made for vehicles, communications equipment and uniforms; future spending has been planned with a balance of training and equipment provision.[146] With such a small police force, there is little absorptive capacity.[147] We recommend that the donor community targets the Palestinian civilian police for "technical" assistance as part of building state institutions and the rule of law. Pressure should be put on Israel to allow this as part of the building of state institutions. The issue of security services should be dealt with as part of political and security negotiations.

111   Ev 245 Back

112   Ramallah, Nablus, Qalqilya, Tulkarem, etc Back

113   Article X(I) Back

114   Increasing violence in 2000 led to a renewed Israeli military presence, or re-occupation, throughout the OPT. Back

115   Ev 83, Ev 96, Ev 156 Back

116   West Bank and Gaza: Economic Performance and Reform Under Conflict Conditions, International Monetary Fund, September 2003  Back

117   Article X(I) Back

118   This calculation is based on figures from a 1999 UNSCO report cited in, Losing Ground: Israel, poverty and the Palestinians, Christian Aid, January 2003 Back

119   Ev 174 Back

120   Ev 245 Back

121   International Monetary Fund, Op. Cit. September 2003, page 63 Back

122   They included VAT (based on a revenue clearance system) as well as customs and petroleum excises collected at the factory gate or at the time of importation at the Israeli border and health insurance and income tax deducted from the payroll of Palestinian workers in Israel. Ibid. Back

123   Ibid. Page 71 Back

124   Q 55 Back

125   Meeting with the Israeli Ministry of Foreign Affairs, Jerusalem, 23 October 2003 Back

126   Ev 72, Ev 83, Ev 85, Ev 72, Ev 96, Ev 156 Back

127   Christian Aid, Op. Cit. January 2003, pages 49-50 Back

128   International Monetary Fund, Op. Cit. September 2003.  Back

129   Q 120, Ev 85, Ev 149 Back

130   Meeting with IMF representative, Jerusalem, 21 October 2001. Back

131   Meeting with Israeli Ministry of Foreign Affairs, Jerusalem, 23 October 2003 Back

132   Ev 56 Back

133   Q142 Back

134   World Bank, Op. Cit. May 2003, page 42 Back

135   See Annex of this report Back

136   Qq 121-125 Back

137   Q 88 Back

138   Christian Aid, Op. Cit. January 2003, International Monetary Fund, Op. Cit. September 2003  Back

139   International Monetary Fund, Op. Cit. September 2003, page 122 Back

140   International Monetary Fund, Op. Cit. September 2003. page 115 Back

141   Ev 85 Back

142   For example: Statement by Yasser Arafat and the Palestinian Authority Leadership, 13 April 2002 (WAFA news agency). See also; Palestinians condemn Haifa attack, March 5, 2003 ( and and htp:// Back

143   4th Geneva Convention (Article 1) Back

144   Q 41 Back

145   Ibid. Back

146   Q 42 Back

147   Q 41 Back

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