Israel agrees to reopen economic agreements with Palestinians

Mahmoud Abbas (Abu Mazen)  photo: Reuters

Palestinian source: French President Emmanuel Macron will host talks on revising the Paris agreements of 1994 governing economic relations between Israel and the Palestinian Authority.

Palestinian, international, and Israeli sources confirm that Israel has agreed in principle to a request by the Palestinian Authority (PA) to reconsider the Paris economic agreements signed by the PA and Israel in 1994. These agreements, which were an appendix to the Oslo Accords, have governed economic relations between Israel and the PA for the past 25 years.

Last December, Channel 13 News reported that the PA had officially asked Israel to reopen the Paris agreements. The Prime Minister's Office considered the request, and according to several sources approved it in principle. Among other things, it was agreed that to hold talks in a number of professional committees in various areas, apparently including international partners. A Palestinian source told "Globes" that French President Emmanuel Macron agreed to help by hosting these talks, as was the case when the economic discussions were held and the economic agreements signed in 1994. The Palestinian sources said that PA chairperson Mahmoud Abbas was demanding revision, adjustments, and changes in the agreements, claiming that the agreements disadvantaged the Palestinians. Sources inform "Globes" that in a talk with senior Palestinian economists, Abbas revealed that Israel had initially refused to discuss additions to the Paris agreements, but had later announced that it was willing to reconsider the clauses mentioned by the Palestinians.

The Palestinian request for discussion on the matter were communicated in December through IDF Coordinator of Activities in the Territories Major General Kamil Abu-Rukun.

A temporary agreement that became permanent

The Paris agreements signed on April 29, 1994 by Israel and the PLO were included as an appendix to the second Oslo Agreement signed five months earlier. Israel made entry of Palestinian workers into Israel for work purposes contingent on these agreements, which were designed to be temporary, but which have continued to this day. The agreements state that Israel and the PA will operate as a single economic unit, in which Israel controls the collection of taxes, customs duties, imports, and exports. Israel transfers the revenues from these taxes to the PA. The agreements also regulate the work of Palestinian laborers in Israel, and also deal with matters such as agriculture, trade, tourism, and industry.

The agreements also gave the PA authority in a number of aspects of economic policy, such as levying direct and indirect taxes, setting industrial policy, establishing a monetary authority, and employing public sector workers. The protocol also provided for gradual elimination of the restrictions prevailing at the time on exports of agricultural produce from the territories to Israel, which protected Israeli farmers from competition. Not all of these restrictions, however, were canceled. The agreement stated that a joint economic committee would discuss how the agreement would be implemented, and would adapt it to changing conditions in advance of a permanent settlement. The committee convened a few times, most recently in 2009.

In July 2012, then-Minister of Finance Yuval Steinitz signed a revision of the agreement with then-PA Prime Minister Salam Fayyad. This revision was mainly technical, dealing with the transfer of information between Israeli tax and supervisory authorities and the PA in order to prevent tax evasion and illegal circumventions. The PA has since asserted that the agreements, which were designed to be temporary (like the Oslo Accords in general) were to Israel's benefit and perpetuated the PA's economic dependence on Israel.

The decision by US President Donald Trump to move the US embassy to Jerusalem and the US administration's support for Israel resulted in mostly declarative measures by the PA. In February 2018, the Palestinian government established a governmental committee to prepare an operative plan for severing the PA from Israel in all areas, including the economic agreements and the Paris agreements. Among other things, the Palestinian government announced that the possibility of discontinuing the use of the shekel and issuing an independent Palestinian currency, or using another currency, was being considered.

Beyond declarations, the Palestinians were dissatisfied with the practical consequences of the Paris agreements and the need to obtain Israeli approval of any significant economic measure by the PA, which they said was preventing growth in the Palestinian economy. Another declaration in October, this time by the PLO Council, ended any commitment to the agreements signed with Israel and retracted recognition of Israel until it recognizes a Palestinian state. The Council also decided to halt security coordination and economic partnership with Israel, including the Paris agreement. The PLO Council also accepted Abbas's proposal to establish a committee - another committee - to discuss ties with Israel, the US, and Hamas.

NIS 10 billion a year

At this stage, however, only declarations are involved. The practical recommendation implemented was only a list of demands by Palestinian economic personnel for changes in the Paris agreement. Changes demanded by the Palestinians include elimination, or at least reduction, of the commission charged by Israel on collection of taxes and customs duties for the PA, full independence in setting the amount and character of taxes (Israel restricts this in order to prevent competition), removal of barriers and restrictions on the passage of Palestinian goods and agricultural products into Israel, and the removal of all barriers to trade by the PA with other countries, mainly Jordan and the Persian Gulf states.

Mohsen Abu Ramadan, an economic advisor to Abbas, made it clear that the main demand will be an end to the Israeli practice of illegally deducting tens of millions of shekels from Palestinian tax money in violation of the agreements, which it said it used to compensate victims of Israeli terrorism. The background to this demand is the still unimplemented law passed by the Knesset for deducting money paid to terrorists. In the past three years, Israel has transferred NIS 10 billion a year in tax money to the PA, amounting to 60% of the PA's revenue.

The Palestinians will bring these demands to the discussions with the Israel teams when it is agreed to begin the talks. The importance of these talks is not just economic; they signal the renewal of dialogue with the Palestinians beyond routine day-to-day matters. It is therefore likely that there will initially be discussion only by professional staff and officials. Only later, and certainly not before the elections, will talks be held on a higher level.

Continued cooperation

Meanwhile, despite the PA's decision no longer to accept US security aid because of US legislation subjecting the PA to lawsuits related to terrorism if it continues to receive such aid, cooperation between the Palestinian security agencies and the US and Israel continues undisturbed.

Abbas said last week that security contacts and cooperation were continuing despite the discontinuation of aid, and that both sides had an interest in this. Without this contact, everything will collapse, he said. Israeli and Palestinian security sources confirmed that there were no changes in the existing connections between the parties, and that US representatives were also involved, as they had been before. The Palestinians said that the US had promised that a legal way would be found to continue security aid to the Palestinians, if only because a US interest was involved.

"Globes" exclusive: A new arrangement in the Gaza Strip - The UN will manage projects without the money going through Hamas

Talks have been taking place in recent month, through Egyptian mediation and with the help of UN envoy Nickolay Mladenov, for renewing and consolidating what is referred to as the arrangement between Hamas and Israel. Other countries, such as Qatar and European countries in the Ad Hoc Liaison Committee (AHLC) donating to the Palestinians, which was founded after Operation Protective Edge, are also involved.

The security aspects of the arrangement are not finalized, among other things due to Hamas's refusal to accept the Israeli demand for a halt to the demonstrations on the border fence and enforcement of cease-fire on the other organizations in the Gaza Strip.

On the other hand, great progress has been made on the economic side. An informed Israeli source said that one of the largest obstacles, the dispute over management of the economic projects, had apparently been solved.

Israel and the donor countries refused to allow Hamas to manage several of the projects on the agenda, some of them long-term projects, such as a desalination facility, and some designed to solve immediate problems such as another power line from Israel. The PA, which previously managed a few of the projects, was removed from them because of its dispute with Hamas. The solution was provided by Mladenov, who said in recent months that it was necessary to have the UN take a more active role in the area. Among other things, he used the UN project management unit (PMU) in several small pilots. According the proposal on the agenda, this unit will receive Israeli and international approval for running the urgent projects, with the financing from the donor countries not going through Hamas hands in the Gaza Strip at all.

One of the immediate projects is modern pipe infrastructure. Most of the water currently supplied through the existing pipeline is polluted or too salty, and is undrinkable. Drinking water is brought in tankers from wells and rain collection facilities. The new pipeline will solve the pollution problem and part of the salinity problem, and can be connected to the Israeli pipeline. Israel is committed through agreements to supplying a fixed amount of water to the Gaza Strip, but a considerable proportion of this water does not reach its destination because of defective infrastructure.

This matter is also related to the transfer of money from Qatar in suitcases. Qatar undertook to transfer $60 million to Hamas to pay for diesel fuel for the power station there and $150 million more for salaries and needy families. After $30 million had been transferred, Hamas refused to accept the payment last month, due to internal criticism in the organization for agreeing to take the money under an Israeli dictat. After discussions, it was agreed that the part of the money earmarked for needy families would be increased to $10 million, and the remaining $5 million per month would be used to finance infrastructure projects. Some of the money is used for buying generators and fuel for hospitals, and the rest is being saved for larger projects to be managed by Mladenov and his staff.

With all the progress and optimism, however, the elections in Israel are overshadowing and delaying the discussions. Hamas has made clear its unwillingness to negotiate over the money, given the political use made of it by Netanyahu through stopping the funds from Qatar. The UN is nevertheless trying to push the most urgent things forward. One of those involved told "Globes" that with all due respect to the Israeli political process, the situation in the Gaza Strip was extremely serious, and children and sick people could not wait to see how and when Netanyahu forms a coalition with an indictment hanging over his head.

Published by Globes, Israel business news - en.globes.co.il - on February 7, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Mahmoud Abbas (Abu Mazen)  photo: Reuters
Mahmoud Abbas (Abu Mazen) photo: Reuters
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