External trade
84. External trade used to provide a substantial
contribution to the Palestinian economy.[170]
Much of this trade took place with Israel. In 1998 for example,
total Palestinian imports from Israel were valued at US$2,374
million while exports to Israel were valued at US$673 million
in the same year.[171]
Between September 2000 and December 2002, Palestinian exports
declined by 29% and imports contracted by 36%.[172]
The PA's Negotiation Affairs Department has stressed that these
declines are directly related to closure:
"Since September 2000, Palestinian commercial
operators have not been able to import input material and export
products in a normal feasible fashion. The working hours, procedures,
security checks have been interrupted and changed regularly in
a way that disturbs the free flow of goods. An average of 25 lorries
of imports used to be cleared daily before the Intifada
now an average of 7 trucks is processed daily although there are
other trucks waiting".[173]
The practicalities of export mean that moving goods
out of the OPT is extremely difficult. Export of perishable goods
has been worse hit because it spoils while held up at checkpoints.
85. The structure of the Palestinian economy has
been shaped by the Oslo process and the dependence on Israel that
it helped entrench.[174]
In the current situation of closure and re-occupation, trade is
difficult and sometimes impossible. Israel and the PA have trade
agreements with the European Union under the Euro-Mediterranean
Partnership, whose principal financial instrument is the MEDA
programme. At the heart of the Euro-Mediterranean Partnership
is the plan to create a free trade area between the EU and its
Mediterranean partners.[175]
The MEDA programme is mainly made up of grants, but also includes
the financial capital and interest subsidies related to loans
provided by the European Investment Bank. Under the MEDA programme,
West Bank and Gaza have been granted a total of 307.7 million:
111 million under MEDA 1 (1995-1999) and 196.7 million
under MEDA 2 (2000-2002).[176]
86. Since 1975 Israel has enjoyed preferential trade
terms with Europe under various EC-Israel Trade Agreements. Provisions
of a 1986 Council Regulation also enable Palestinian enterprises
in the West Bank, East Jerusalem and the Gaza Strip to participate
in preferential trade with the Community as does the EC-PLO Interim
Association Agreement of 1997.[177]
The PA has undertaken to conclude trade agreements with Jordan,
Egypt, and other Arab and non-Arab states.[178]
But the PA's lack of control over its borders makes it vulnerable
to Israeli closures and unable to offer certainty to its commercial
trading partners. The PA argues that Israeli administrative, logistical
and security measures have acted as an impediment, preventing
the Palestinian private sector from benefiting from the Interim
Association Agreement.[179]
The European Commission described the Interim Trade Association
Agreement as "dormant" but noted that attempts were
being made to revive it.[180]
87. Movement restrictions are a serious obstacle
to trade. They impede and delay the transport of Palestinian goods
from the point of production to the 1967 border with Israel, and
at the 1967 border, and the movement restrictions damage perishable
goods and make their export to Israel very difficult. The IMF
told us that they believed the EU should put pressure on Israel
to enable and facilitate the Palestinian export of perishable
products such as cut flowers and strawberries to Europe. In addition,
Palestinian imports from and exports to places outside Israel
have to pass through Israel to Israeli ports and airports where
they are subjected to further bureaucracy, examination and delay.
The Palestinian economy is therefore, quite literally, a siege
economy capable of being held to ransom by Israel. The EU sought
to overcome this problem by building a seaport and airport in
Gaza but both were destroyed by the Israeli Defence Force. Movement
restrictions have caused an unacceptable situation whereby an
EU trade agreement is obstructed by a party (Israel) which itself
benefits from preferential EU trade terms. We asked Hilary
Benn MP whether there was scope within the context of the EU trade
agreement with Israel, to try to ensure better access for Palestinian
products in the European market. He replied:
"People have certainly looked at the EU Association
Agreement on the question of leverage and some have argued that
this should be used in order to try and add political pressure
to the process. There is not a consensus of view across the EU
as far as that is concerned because I think people have formed
the view that the other forms of political dialogue and discussion
are the ones that we should pursue in order to try and build confidence
and encourage those both in Israel and on the Palestinian side,
in order to make greater progress towards a political solution
.
whether there is potential within the agreement to provide greater
access for Palestinian goods I do not know".[181]
88. Trade agreements are usually based on the
principle of reciprocity: that market access, freedom of movement,
and tariff and duty regimes applied by one state or authority
normally has to be applied even-handedly and in the same way by
all participants in a regional trade agreement. Unfortunately,
Israel's restrictions on the movement of Palestinian goods, its
destruction of Palestinian infrastructure and its total control
of the OPTs' borders are denying Palestinian exporters access
to EU markets. We therefore urge the UK Government to propose
to the EU Council of Trade Ministers that Israel's preferential
terms of trade with the EU be suspended until it lifts the movement
restrictions which it has placed on Palestinian trade. We recognise
that EU exports to Israel, which are greater in value than EU
imports from Israel, might suffer retaliatory action, but we do
not believe that the EU's short-term economic self-interest with
one trading partner should take precedence over a direct challenge
to its trade policy in the region and its trade obligations to
the Palestinian Authority.
Private sector development
89. The Palestinian private sector has absorbed most
of the shock to the economy. Half of private sector workforce
has been laid off and private agricultural and commercial assets
have suffered over half of all physical damage.[182]
Industrial projects to the value of $450 million which were due
to start in 2001 have been frozen. The foreign investment share
was $49.5 million, though investors such as Japanese tobacco and
Nestlé have since withdrawn.[183]
Christian Aid has pointed to the PA's partial responsibility for
economic decline: "The lack of a transparent regulatory system,
including commercial law, has reduced the willingness of private
sector entrepreneurs to invest in the OPT".[184]
Incentive for private investment is low because of perceived risks,
which include damage caused by the conflict, inability to meet
export orders on time due to closure, erratic availability of
imports, inability of the PA to enforce property rights, and low
returns on capital because of depressed domestic demand.
90. We visited an UNRWA microfinance project in Nablus
which provided loans to small businesses. The value of these loans
had dropped to a low of under $1 million during the intifada
and re-occupation, rising to $2.5million at the height of the
Roadmap process in the second quarter of 2003. These figures provided
a clear illustration of how quickly the economy responds to political
developments and gives some idea of the size of potential for
a "peace dividend". As traditional modes of subsistence
such as agriculture become less viable, more Palestinians are
turning to small private enterprise. But with rising poverty there
is now a situation where there is a supply surplus and a demand
shortage.
91. The imbalance in supply and demand in the Palestinian
local market led us to question whether donors could increase
demand by greater local sourcing of humanitarian goods. Oil, for
example, is one of the foods provided by UNRWA and WFP. We were
told by Dr Nabil al Jarara of Hebron University, Save the Children
and others, that most of the oil distributed is purchased outside
the Occupied Palestinian Territories because it is cheaper there
- 5 to 6 NIS per litre compared with 11 NIS per litre within the
OPTs. The WFP said 2002 was a good year for Palestinian olive
oil, producing 35,000 metric tonnes, but two-thirds of the production
remained unsold. We do not understand why the laws of supply and
demand do not appear to work, although we were told that Palestinian
labour costs are high. However, purchasing all the locally produced
oil, before importing it, would boost the Palestinian economy
and reduce, to an extent, the need for food aid. While we welcome
and support UNRWA's microfinance project it seems perverse for
the agency to be investing donors' money in boosting some small
Palestinian businesses through microfinance while its food purchasing
arm is at the same time undermining the viability of small Palestinian
farmers and food processors by its purchasing decisions.
92. We were pleased to learn
that at the end of 2002 WFP initiated, with the financial support
of the EC and in close co-ordination with the Ministry of Agriculture,
a programme of purchase of 272 metric tonnes of olive oil produced
in the northern part of the West Bank. For the first time it has
been successful in transporting and distributing part of this
consignment to beneficiaries in the Gaza Strip and has plans for
a new phase of the project involving the purchase of 450 metric
tonnes, although we note that this increase in local purchasing
will absorb only 2% of last year's unsold production. Far more
could and should be done by donors to use their enormous purchasing
power which, currently accounts for a significant percentage of
Palestinian GNI, to stimulate the Palestinian economy instead
of being used to pay the price of not creating opportunities for
Palestinian entrepreneurs to sell their produce. We believe that
a more viable Palestinian private sector would do something to
alleviate hardship and would tend to help, rather than hinder
the peace process. UNRWA locally sources a limited amount of the
olive oil that it provides in food aid.[185]
We discussed this issue with UNRWA who highlighted the dilemma
that aid agencies face given their responsibilities to source
products at the competitive rates to maximise the number of people
to whom they can provide assistance.[186]
148 Meeting with Israeli Ministry of Foreign Affairs,
Jerusalem, 23 October 2003, Meeting with World Bank representative,
Jerusalem 21 October 2003. See also Christian Aid, Op. Cit.
January 2003 Back
149
World Bank, Op. Cit. May 2003, page xi Back
150
The Economy of Occupied Palestinian Territory, Palestinian
National Authority, Ministry of Economy and Trade, October
2003, page 3 (copy placed in library) Back
151
World Bank, Op. Cit. May 2003, Op. Cit. page xv Back
152
World Bank, Op. Cit. May 2003 page xv Back
153
Ibid. page 3 Back
154
Ev 216 Back
155
World Bank, Op. Cit. May 2003, page 3 Back
156
Q 79 Back
157
Q 19 and World Bank, Op. Cit. May 2003, page 3 Back
158
Ev 211. See also Ev 238 and Ev 258 Back
159
World Bank, Op. Cit. May 2003, page 13 Back
160
World Bank, Op. Cit. May 2003 Back
161
Meeting with UNRWA Micro-Finance project, Nablus, 22 October 2003 Back
162
Q 79 Back
163
Ev 207 Back
164
There is no fixed or consistent policy regarding the classification
of goods as humanitarian or otherwise. 'Humanitarian' goods are
most likely to be those transported by 'humanitarian' agencies,
but food and medicine can be considered to be 'humanitarian'.
However, both food and medicine are regularly subject to searches.
Policy is largely dependent on the soldiers doing the searching. Back
165
Palestinian National Authority, Ministry of Economy and Trade,
Op. Cit. October 2003, page 12 Back
166
World Bank, Op. Cit. May 2003, page 1 Back
167
Ev 211 Back
168
Palestinian National Authority, Ministry of Economy and Trade,
Op. Cit. October 2003, page 12 Back
169
22 October 2003 Back
170
See Ev 211 Back
171
Christian Aid. Op. Cit. January 2003 Back
172
World Bank, Op. Cit. May 2003, page 16 Back
173
The need for economic facilitation by Israel, PLO Negotiation
Affairs Dept, Sept 2002 (copy placed in library) Back
174
Ev 244-5 Back
175
Q 75 Back
176
Europa, Europe, Aid, The Mediterranean and the Middle East: http://europa.eu.int/comm/europeaid/projects/med/bilateral/w_b_gaza_en.htm Back
177
Which include Egypt, Jordan, Lebanon, Morocco, Syria, Tunisia,
Turkey and the Palestinian Authority. See: http://europa.eu.int/comm/external_relations/gaza/intro/ Back
178
Palestinian National Authority, Ministry of Economy and Trade,
Op. Cit. October 2003, page 12 Back
179
Ibid. Back
180
Q 75 Back
181
Q 146 Back
182
World Bank, Op Cit. May 2003, page xii Back
183
Ev 220-1 Back
184
Christian Aid, Op Cit. January 2003 Back
185
Meeting with UNRWA Micro-Finance project, Nablus, 22 October 2003 Back
186
Meeting with UNRWA Micro-Finance project, Nablus, 22 October 2003 Back