Deal of the Century: The economic implications

Deal of the century

"Globes" discusses some of the economic and political implications for Judea and Samaria of the proposed peace agreement.

When can the Deal of the Century be implemented?

The plan is composed of both sections that can be implemented immediately and in the long-term. The Palestinian state, for example, is meant to be created after four years of adjustment and negotiations between the parties. Establishment of a Palestinian state is contingent on the disarming of Hamas and the other terrorist organizations, including their arsenal of missiles and rockets, and that is only a partial list of the requirements.

The economic part of the plan was presented at the conference in Bahrain in June. Even the most optimistic sources believe that it will take years to achieve any progress in it.

The easiest part to implement concerns applying Israeli law to the Jewish communities in Judea and Samaria. As of now, there is a mixture of different legal system in the territories, including Ottoman law, and the sovereign power is the military government, i.e. the commander of the IDF Central Command. Any legislation in Israel requires an order issued by a general before it can be applied on the other side of the Green Line. This affects the daily life of the Jewish residents in the territories, especially construction plans, which require approval from the civil administration.

Application of Israeli law is possible, even with just a government decision, but Likud members are calling for a Knesset decision on the matter, among other things in order to embarrass the Blue and White Party and its MKs holding rightwing views. Perhaps more significantly the Americans have made it clear that they are opposed to a unilateral annexation.

Attorney General Avichai Mandelblit said, "When a transitional government is involved, there is certainly a need to exercise restraint. At the same time, when the government makes a request (no such request has been received yet) and we receive it, we will consider it according to the rules. This is not unprecedented; diplomatic measures were taken by a transitional government. We will consider the urgency now and make decisions on that basis. I do not rule anything out."

Previous governments received permission to go ahead with diplomatic measures before election campaigns. Such a decision is likely to be challenged in a petition to the High Court of Justice. For Prime Minister Benjamin Netanyahu, the measure is especially critical before the elections in order to show that it is not just talk. Netanyahu wants to demonstrate a concrete achievement, perhaps his last in office, but unquestionably his greatest.

The Prime Minister's Office is already preparing cabinet resolutions on applying Israeli law to the Jewish communities in two steps. The first will be the Bikat Hayarden (Jordan Valley) and northern Dead Sea area, and the second will be the Jewish communities in Judea and Samaria. This concerns the territory of the communities themselves, not all of the area designated for annexation. Half a million Israelis in 150 communities are involved.

Netanyahu was determined when he spoke about it when the plan was being presented, and also in his press briefing but backtracked after the Americans made it clear that they oppose immediate annexations. His spokesperson, Jonathan Urich, announced this in on Twitter. A change took place during the night, when Jared Kushner, President Trump's son-in-law and one of the plan's authors, told Christiane Amanpour in a CNN interview that he did not believe that application of sovereignty would take place in the near future.

In his speech, Trump spoke about having an Israel-US committee deal with the matter. It is likely that Netanyahu will also get US support once the matter is brought to a vote. He will have to word the bill for applying sovereignty so that it does not apply to Palestinian communities located within the planned borders for Israeli sovereignty, and applies only to Israeli citizens.

Will the Arabs living in Judea and Samaria be issued blue Israeli ID cards?

Tens of thousands of Palestinians live in the territories to be annexed to Israel under the plan. Some of them - Bedouin and agricultural nomads in Bikat Hayarden - live in temporary communities. Others live in permanent communities nearby the Jewish communities, such as in Gush Etzion and Efrat.

The plan talks about applying sovereignty in several stages. Israel plans to carry out the first stage, which applies only to the Jewish Israelis living in communities in the territories, not to the Palestinians.

How can this be done? First of all, Israeli law will apply only the territories of the Jewish communities themselves, not to anything between them. Secondly, the bill will apply to Israeli citizens, which will eliminate the military government and civilian administration rule over the Jewish residents.

The situation in the Bikat Hayarden and Northern Dead Sea Regional Council is more complicated, because the plan is to apply sovereignty to the entire area, in which thousands of Palestinians live. There are clauses in the plan establishing the status of Palestinians and Israelis remaining under the sovereignty of the other side. The proposal to be presented to the government next week will address the status of the Palestinians in these areas, and will probably remove them from the equation.

Will residents of the annexed territories be entitled to obtain services from the state?

Not at this stage. Israeli law will be applied to Israeli citizens residing in the territories, not to the Palestinians. At a more advanced stage, the plan is to find formulas, such as those applying to residents of East Jerusalem, who are defined as residents and are entitled to social security, medical services, etc., but who vote only for the municipality, and are not entitled to vote for the Knesset.

What will this do to the Israeli and Palestinian economies?

In the long term, investments in the tens of billions of dollars, mainly in infrastructure in the Palestinian Authority, headed by Mahmoud Abbas, are supposed to transform the region into a special economic tiger with huge energy resources, high-quality personnel combined with cheap labor, and a central global location between East and West.

It is easy to be cynical about this, but some of this is likely to materialize, mainly pertaining to a thaw between Israel and the Sunni Arab countries, with an emphasis on the Persian Gulf states. The plan's economic and political logic says that when the Palestinians will realize the enormous potential of becoming an advanced country with a Western way of life, they will join the plan. It is said that logic has yet to reach the Middle East. Expansion of the industrial and commercial zones and other ventures due to the application of sovereignty will create tens of thousands of jobs for Palestinians.

The Palestinian economy is headed for a decade of prosperity

What will happen to enterprises in Judea and Samaria?

The Israeli-owned enterprises in Judea and Samaria already operate according to Israeli law, which has also been applied to the territories via orders issued by a general. Applying sovereignty will transfer the civil administration's authority in matters such as enforcement of labor law, welfare, environmental standards, pollutant emissions, etc. to the relevant Israeli government ministries. The civil administration departments corresponding to the government ministries will probably be down-sized.

The optimists hope that applying sovereignty will increase investments in these enterprises, and perhaps alleviate their negative image in other countries.

These enterprises have an advantage: the ability to recruit Palestinian workers, who are cheaper than workers living within the Green Line. Their disadvantage consists of European legislation restricting the marketing of goods produced in enterprises beyond the Green Line. This will probably not change any time soon.

What about building permits?

Up until now, the Ministry of Defense has been responsible for issuing building permits, and these were given stingily, if at all. Authority will now be transferred to the civilian government ministries, and civilian District Planning and Building Commissions will be formed. These will not be controlled by IDF officers and the civil administration in the territories.

The application of Israeli law is expected to increase the pace of construction within the existing communities in the short term. In Bikat Hayarden and the northern Dead Sea area, where sovereignty will be applied to the entire area of the regional council, real progress is expected, and perhaps also the founding of new communities.

What will happen to taxation?

The taxation method in Israel is personal. All Israeli citizens will be assessed for taxes on all of their income, including income produced overseas. Where the territorial aspect is concerned, foreign residents producing income in Israel are also subject to tax.

Up until now, Judea, Samaria, and the Gaza Strip were not considered part of Israel and its territorial borders. The residents of these regions were ostensibly not regarded as Israeli residents, and were not supposed to have to pay tax. Why ostensibly? Because in practice, the state did not forego tax revenue from Israelis living in these areas or from enterprises there. Definitions were inserted into the Income Tax Ordinance for the purpose of "enmeshing" residents of the region in the Tax Authority's net.

The Income Tax Ordinance contains a definition of these areas, which are called "the region," and states that the income and profits of all of the area's residents are liable for tax according to Israeli law as if they were residents of Israel. It is also stated that the enterprises and companies in Judea and Samaria are subject to the state's tax laws, and are entitled to tax benefits granted to enterprises under the Law for the Encouragement of Capital Investments.

"The region" is defined as "Judea, Samaria, and the Gaza Strip, including the territories within the territorial jurisdiction of the Palestinian Authority under the agreement concerning the Gaza Strip and Jericho area signed in Cairo by Israel and the Palestine Liberation Organization."

This means that annexation of territories in Judea and Samaria will not change the current tax policy. At most, the decision will eliminate the need to define the "region," because the residents of Judea and Samaria will formally become residents of Israel.

Published by Globes, Israel business news - en.globes.co.il - on January 30, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

Deal of the century
Deal of the century
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