Recent protests of the increasing cost of living in the West Bank have highlighted demands to abolish the 1994 Paris Protocol, together with calls for the resignation of Palestinian Prime Minister Salam Fayyad and, to a lesser extent, the resignation of Palestinian President Mahmoud Abbas.
Protest in the West Bank city of Bethlehem on 10 September (Photo: Maria Sevillano, AIC)
Palestinians have targeted the Paris Protocol because of its institutional subordination of the Occupied Palestinian Territory’s economy to Israel.
Israel’s Deputy Foreign Minister rejected President Abbas’ request last week to review terms of the Paris protocol.
How has the West Bank economy fared under the Palestinian Authority leadership?
Economic conditions of the Palestinian Authority in the West Bank have steadily deteriorated. External debt and budget deficit are both around US $1 billion, nearly a fifth of gross domestic product. Foreign aid to the PA is at a shortfall of $250 million, mostly due to over-expected contributions from Gulf States. Aid dependency is painfully obvious, as the PA has delayed several salary payments to 153,000 civil servants this year. Furthermore, a fifth of the working-age population in the West Bank is unemployed.
The youth movement, Palestinian Youth for Dignity, said that, “the primary responsibility [for the financial crisis] falls on those in the Palestine Liberation Organization that signed the Oslo Accords and the Paris Protocol… Second, the Palestinian National Authority, a product of the Oslo Agreement, continued with its reliance on foreign aid and failed to create national industries or support the agricultural sector. Third, some believe that the current government is the cause of the crisis. While it is true that this government contributed to deepening the crisis, the problem at its crux is that the agreement prevents any attempt to establish an independent national economy.”
What is the Paris Protocol?
The Palestine Liberation Organization and Israel signed the Protocol on Economic Relations as the economic appendix to the Oslo Accords in Paris, 1994.The Paris Protocol is a customs union regulating economic relations in four sectors: labor, trade relations, fiscal issues and monetary arrangements. The Protocol mandates Israeli control over Palestine’s external trade and collection of customs duties.
Reuters reported that U.N. agencies and Palestinian economists claim the economic relationship between Israel and the Palestinian Authority, as mandated in the Paris Protocol, has been dominated by Israel and is mostly to its own benefit.
How does the Paris Protocol affect the Palestinian economy?
The Paris Protocol granted Israel’s Civil Administration the right to collect taxes from Palestinians in the West Bank on behalf of the PA. Withholding of these funds has been a common practice by Israel for putting political pressure on the PA and Palestinians.
Since the 2006 victory of Hamas in democratic national elections, Israel has regularly withheld tax funds that it collects on behalf of the PA from goods imported into the OPT, an act that violates the Paris Protocol and limits the funds available to the PA.
Israel maintains control over utilities (such as water, electricity and phone services) in the OPT and in 2004 alone, confiscated US $15.8 million from aid sent to the OPT for utility bills owed by Palestinian municipalities. Israel charges exorbitant prices for these utilities; despite lower wages and purchasing power, Palestinians pay more for electricity than Israelis.
The Paris Protocol also pegs Value Added Tax (VAT) to Israeli tax rates, currently at 17 percent, despite the huge disparity in average Palestinian and Israeli incomes.
Palestinian Youth for Dignity, said that “the Paris Protocol stipulates that our VAT is only allowed to be less than Israel’s by 2%, and the difference in the final price of gasoline to the consumers in the occupied Palestinian territories cannot be more than 15% of the price to the consumer in Israel, even though the average income in Israel is three times higher than our average income, and the per capita GDP in Israeli is almost 30 times higher than in Palestine!”
Palestinian Youth for Dignity argue that price control is used to maintain similar prices in the OPT in order to reduce competition with the Israeli market, despite a drastic difference in living standards between Israel and the OPT.
How does Gaza’s economy differ?
The Gaza Strip has been under Israeli-imposed economic sanctions since the aforementioned 2006 elections and under an Israeli blockade following Hamas’ taking of power in the Gaza Strip in mid-2007. Directly or indirectly, Israel controls all imports and exports into Gaza with the exception of good brought through tunnels on the Egyptian border, which serve as a lifeline for the effectively captive Gazan population. The Egyptian government, however, began closing these tunnels in August 2012 following the 5 August 2012 attack of an Egyptian military base in the Sinai Peninsula, resulting in the deaths of 16 Egyptian soldiers.
If Israel were to lift the blockade on Gaza, the economy would be limited by Israel under the Paris Protocol, as is that of the West Bank.
A recent report by the U.N. said that Gaza would be unlivable by 2020 unless urgent measures are taken to improve the area’s water supply, power, health and schooling.
Why is Prime Minister Salam Fayyad a target of protests?
Palestinians protestors have targeted Fayyad as the one responsible for the PA’s neo-liberal policies, namely privatization and marginalization of the public sector.
In 2007 the Fayyad government was installed in the West Bank, leading to a change in the way international funds were funneled into the West Bank economy. The new mechanism, which replaced the temporary one established following election of Hamas to government, began in 2008. Fayyad designed a program to attract foreign investors to the West Bank via the Palestinian Reform and Development Plan (PRDP).
Fayyad is a former World Bank economist, and most of his economic plans are in line with World Bank policies. In December 2007 donors pledgedUS $7.7 billion, $2.1 billion more than Fayyad had asked for.The fact that a non-Hamas government was installed in the West Bank and that its prime minister was a former World Bank and IMF economist with a neoliberal agenda led to an increase in international trust in the West Bank economy, or at least in its government. Overseas development aid to the West Bank increased by almost 80% between 2006 and 2008 to more than 2.5 billion dollars, while Gross National Income and GNI per capita increased only by 11% and 5% respectively. In the same period, the trade deficit with Israel increased by almost 40%, while dependency on the Israeli economy increased by 23% to 44% of GNI in 2008.
Last week, Prime Minister Salam Fayyad held a press conference in Ramallah in which he announced a 15% cut to Value Added Taxes, the immediate payment to civil servants half their August salaries, and a lowering of diesel and petrol prices to August price levels by Wednesday 12 September 2012. In order to finance these economic measures, Israel returned $66 million of Palestinian taxes to the PA. Ma’an News Agency reported that Israel withheld $9 million from this payment.
Is there a solution?
Palestinian Youth for Dignity offer five positions that would lead to improved economic and political conditions:“First: to start a comprehensive boycott of all Israeli products; Second: to refuse to adhere to the Paris Protocol and to call on the Palestinian Authority to announce this explicitly; Third: to impose high taxes on imported products in order to protect our national products and agriculture; Fourth: to take to the Palestinian lands dubbed “Areas C” that comprise 60% of the West Bank, to unite these areas with the rest of the West Bank, and work together to plant these lands; Fifth: to establish agricultural cooperatives to fulfill local needs. Furthermore, there are many other ideas that Palestinian economists can put forth if there is only the political will to implement suggestions and rid ourselves of economic dependency.”