Much has been written after the Al Aqsa Palestinian uprising of 2000 about the imminent “collapse” of the Palestinian economy. Not as well known is how structurally hobbled this economy has been from the start and how amazing that it even has a pulse now, that people are able to discuss GDP and trade balances and labor, for all the world as though the Palestinians have a sovereign state and are in control of their borders, of all their remnant “territories” from A - Z, and of their natural resources.

There are two essential rules to follow for anyone attempting in good faith to “normalize” relations with Israel: Avoid ambiguity in any transaction and make sure that working procedures as well as processes of arbitration and enforcement are firmly in place.

In an agreement between two parties where there is an imbalance in power, as with the Israelis and Palestinians, the rights of the weaker party must be protected. The big secret of the Paris Protocol of 1994 on economic relations between the PLO and the Palestinians is that it failed to protect the Palestinians from Israeli predation. Economists have a fancy phrase for what resulted from the Paris agreement. It is called “Asymmetric containment” and refers to the economic constraints placed on the Palestinian Authority from the get go.

Anyone trying to understand or rail against the performance of the Palestinian Authority must link that performance to Israel’s policy of “asymmetric containment”, which means separation and deliberate resistance to integration.

Both the Jews and the Palestinians, wherever they are found, have acquired the reputation of being sharp business people. But in the occupied territories and in their economic dealings with Israel, the Palestinians are so far removed from an even playing field in business and commerce, they must be judged as the superior business people to have just survived.

On a daily basis, Palestinians have had to deal with sharks, with institutionalized Israeli systems whose hallmarks since the establishment of the State of Israel have been segmentation, exclusivism and separation.

Before the Paris Protocol, Israel exploited the occupied Palestinian territories and took in more taxes than it put back in basic services. After the Paris Protocol, Israel’s capital investment in the West Bank is and continues to be in the form of hundreds of Jewish settlements, related infrastructures and industrial zones all along the north-south main Palestinian highway at the expense of Palestinian land and water and operated outside the Palestinian legal economic framework.

After Israel’s flow of capital into the West Bank in the form of Jewish islands high on hilltops overlooking the main Palestinian commerce highway and in spite of repeated but bootless protests from the Palestinians (faintly echoed by the US), Israel, as the world knows, has now moved on to the next logical step - safeguarding its illegal and ugly real-estate and industrial gains and its expropriation of neighboring Palestinian arable land - for security.

The military protection from people Israel was robbing in broad daylight took the form of an extensive network of checkpoints and virtual boundaries designed to control the flow of movement of Palestinian labor into those shining Jewish industrial stations, also known as “Israeli Controlled Areas”. When Palestinian anger erupted, the move from already established virtual boundaries and check points to concrete walls and more check points was but a small one - simply the logical next step in Israeli capital investment in the West Bank.

The Palestinian economy is characterized by “profound structural imbalances and high external dependence.” The oPt is dependent on imports (90 percent of Palestinian imports are from Israel) and its exports (88 percent of which go to Israel) are restricted. Because of restrictions on foreign trade and lack of protection from Israeli imports, the Palestinian economy has a chronic trade deficit.

Since the Israeli occupation, the GDP per head in the oPt has risen in only one year (1994). The GDP per head in 1999 is about one eighth of what it was in 1993, when economic growth was infused by substantial foreign aid meant to lay the foundation for future development.

Israel’s power to switch the internal and external prison gates on and off at will has a simple name among economists - “closures”. The news has seeped out even into the pages of the New York Times that Israel has now effectively divided the WB into three sectors and isolated them form one another, delaying people who are on their way to jobs or schools for hours, rerouting them as well as truck loads of goods to dirt roads and sometimes turning them back altogether - all to safeguard their ill capital gains in the West Bank. The main north-south WB highway suddenly dead ends as it approaches Jerusalem making Bethlehem a lengthy detour for Palestinians on a narrow, winding road through barren hills circling Jerusalem eastward. Bethlehem is divided from Jerusalem by 25-foot concrete walls.

But the groundwork for the deforming structural constraints on the Palestinian economy have been long in place and are a direct result of Israel’s “interpretation” of the Paris Protocol and the lack of working procedures or an arbitration system between the two sides.

Here are some examples of the structural constraints imposed by Israel on the Palestinian economy * In agriculture Palestinian agricultural land is continually shrinking as a result of Israeli land expropriation; access to Israeli markets is unpredictable because of closures; the area of Palestinian land under irrigation is tiny (about a quarter of the total), because water is diverted for use by Jewish settlers and Palestinian water use (including the digging of wells) is restricted.

In industry: Manufacturing contributes only 10 percent to the Palestinian economy because of Israeli-imposed limitations on the legal and regulatory system, e.g., in the process of industrial and commercial licensing, and agricultural production planning

Nearly 90 percent of industrial enterprises in the oPt employ less than five workers each. The share of construction of the GDP exceeds that of manufacturing, but it is dependent on donor assistance.

In the service sector (wholesale retail trade, transport, tourism, etc): This sector is unusually large in an attempt to compensate for the lack of opportunities in production. But growth in this sector has been underpinned by the doubling of employment in the public sector since the establishment of the PA. This growth has been under attack by the international community first as part of the “reform” effort and then as a result of international sanctions that has left employees to languish without salaries for months and still counting.

The service sector has to contend with Israeli prohibitions on the development of financial and credit institutions. Tourism is hostage to the political situation, and manpower/expertise from outside the oPt is restricted, as Israel controls the Palestinian population registry, visas to the oPt and work permits.

Fiscally: Tax revenues provide the oPt with basic public services such as education and health. Capital spending in the oPt is covered by foreign aid. Although the PA has managed to triple its tax base (to 863m or 25percent of GDP in 1998), and even managed to balance the budget in 1998, its revenue clearance system is operated by Israel, which is therefore in control of the PA budget, and can choose to freeze, delay or withhold revenues from the PA for political purposes, as it has done most recently after the January 2006 elections.

Israel has defrauded the Palestinians out of substantial sums in customs by interpreting “imports” into the oPt to mean only those imported directly by Palestinian companies via Israel but not those imports first imported by an Israeli company for onward shipment to the oPt.

The bulk of imports into the oPt come via Israeli companies, because imports by Palestinian companies are subject to “security” delays at Israeli ports. Therefore, all import charges paid on goods that come into the WBG as indirect imports are collected and pocketed by Israel - i.e., they are not refunded to the PA.

The PA is also prevented from taxing a very wide range of economic activity if any part of the activity could be shown to have originated in Israel. For example, because Israeli transportation is more likely to get through check points, almost all transportation between Israel and WBG are carried out by Israelis. This includes tourist agencies and buses operated by Israelis for tourists visiting areas under PA jurisdiction. The PA cannot tax such transportation activity.

In trade: Israel’s imposition of security measures on Palestinian trade constitutes Non Tariff Barriers to Palestinian trade. The export routes running through Israel have been unreliable and costly

Israeli measures include permits, import licenses, security checks and delays, the stipulation of Israeli import agents, clearing/shipping agents and insurance agents. These measures result in high transportation, storage, insurance and clearance costs for Palestinian traders

Direct trading through Jordan and Egypt could decrease the PA’s fatal dependence on the tax revenues that Israel agreed to remit in the Paris Protocol. Attempts have been made in that direction. For example:

The technical Economic Cooperation Accord between The Arab Republic of Egypt and the PLO of January 25, 1994 (ease border restrictions; create free-transit areas; make use of Egyptian ports, airports and land borders).

The Trade Agreement between the Hashemite Kingdom of Jordan and the Palestinian National Authority of Jan 26, 1995 (duty-free import by the other party of 77 products originating in Jordan and 60 products originating in the oPt)

However, at present, imports through Jordan and Egypt do not exceed 2 percent of total imports. Israeli control of oPt borders as well as Jordan’s and Egypt’s readiness to receive such trade are the two major obstacles.

Whereas foreign aid helps Palestinians survive, it has little or no structural impact on the economy. The daunting task of the PA is to dismantle Israel’s policy of asymmetric containment. Anyone out there would like to help take this on?

Rima Merriman is a Palestinian-American living in Ramallah in the occupied West Bank.

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