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The Economic Provisions of the Agreement between Israel and the PLO

Published online by Cambridge University Press:  04 July 2014

Ephraim Kleiman
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Extract

The economic provisions of the agreement between Israel and the PLO are set out in the Protocol on Economic Relations, signed in Paris on April 29th 1994. Concluding nearly six months of negotiations, the Protocol spells out the arrangements regulating economic relations between the Palestinian Authority, established under the Oslo Declaration of Principles (DOP), and Israel. Its eleven articles deal with the foreign trade, monetary and fiscal regimes of the areas under this jurisdiction, and with the movement of labour and goods between them and Israel. The Protocol also treats some more specific matters, such as the licensing of tour operators, access to tourist sites and compulsory motor vehicle insurance.

Type
Articles
Information
Israel Law Review , Volume 28 , Issue 2-3: The Peace Process , Spring–Summer 1994 , pp. 347 - 373
Copyright
Copyright © Cambridge University Press and The Faculty of Law, The Hebrew University of Jerusalem 1994

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References

1 Formally titled Protocol on Economic Relations between Israel and the PLO [as] Representing the Palestinian People, it is incorporated as Annex IV in the Cairo Agreement signed on May 4, 1994.

2 The growth in domestic product, i.e., exclusive of the wages earned in Israel, was somewhat slower. But even so it nearly trebled between 1969 and 1992. For a discussion of the effects of the forced integration with Israel see, e.g., my paper on “Some Basic Problems of the Economic Relationships between Israel and the West Bank and Gaza” in Fischer, S., Rodrik, D. and Tuma, E., The Economy of Middle East Peace (MIT Press, Cambridge, MA, 1993) 305–333Google Scholar.

3 As a custom union is expected to do away with all internal economic borders, it also requires that indirect taxation be unified among the different partners. For the taxonomic differences between tariff community, customs community and customs union, see Meade, J.E., Negotiations for Benelux: An Annotated Chronicle 1943-1956 (Princeton University, Princeton NJ, 1957) 6–7Google Scholar.

4 The outstanding historical example is provided by the Zollverein, which did away with all duties and tolls between the various states and principalities of nineteenth century's Germany.

5 A free trade zone, FTZ (also known as a “free enterprise zone”) is an area within a country (usually close to a harbour), which has been decreed exempt of most or all that country's taxes, foreign exchange controls etc., and often also labour legislation, turning business activities there, in practice, into offshore operations. Not dependent on any international agreements, it is set up unilaterally by the country in question. A further source of confiision between an FTZ and an FTA in Israel is the use of the same Hebrew word for both area and zone.

6 The example actually brought up by the Palestinians was that of inter-state differences in sales tax rates in the U.S. But both this, and the EU case mentioned in the text, refer to relatively small differences in domestic indirect taxes, rather than to the potentially much bigger differences in imposts on imports.

7 The Palestinians certainly balked at the suggestion of a normal trade border for Gaza, where geographic and political considerations made it feasible. Their attitude could be ascribed, in part, to an aversion to seeing Gaza treated differently from the West Bank. But it seems to have been mainly due to the implications of such a border for Gazan exports to Israel.

8 Thereby, probably, doubling the bureaucratic hassle to which these workers are subjected.

9 In addition, deductions for maternity leave, one of the benefits to which Palestinians working in Israel are, in theory, entitled (the others being compensation for employment injuries and employers' bankruptcy), are to be reduced to reflect the limited scope of their eligibility to it under the Israel National Insurance Law (VII.2.b). Israel will also continue to retain the wage deductions for first-aid health services provided at work and, pending the establishment of a Palestinian health insurance scheme, those for the general health insurance of workers employed in Israel.

10 For the slightly bwer VAT rate allowed on imports to the Territories, as on their domestic production, see below in section 6(a).

11 The agreement also allows for the importation of Egyptian gasoline, providing it complies with the same standards as that imported from Jordan. Two further minor exceptions are private chattels of Palestinian returnees (e.g., the PLO policemen) [III.17] and, with some reservations, donations in kind for non-commercial purposes [III. 19]. The former parallels the exemptions granted new immigrants and returning expatriates in Israel.

12 With both sales and inputs taxed at the same rate, they too are then taxed, in effect, at that same rate on the value added by them. Hence VAT's name.

13 Even in the yeara before the Intifada, when personal risk did not deter Israelis from shopping in the Territories, they did not do so on a large enough scale to wipe out the large differentials between prices there and in Israel.

14 Insofar as there is a purchase tax on goods on List B, referred to above, which are also produced in Israel, the combination of the different provisions would leave the decision as to its rate in both economies, in the hands of the Palestinians.

15 Israeli settlements in the West Bank and Gaza are to remain, for all purposes, outside the Palestinian Authority's jurisdiction during the interim period of the agreement.

16 Technically, crediting the Palestinian Authority with the import taxes paid by Palestinians can be easily effected through the existing computerized customs clearance registration system.

17 This in contrast with the practice until now, whereby VAT on Israel's purchases from the West Bank and Gaza accrued to the Civil Administration there, while that on its sales to them accrued to the Israeli tax authorities.

18 The sudden depreciation of the JD in 1988, coming, as it did, close on the Israeli run-away inflation of 1983-1986, seems to have resulted in a widespread transition to such alternative stores of value as the U.S. dollar and gold.

19 Seigniorage is the purchasing power profit accruing to the issuing agency from the issue of currency, as well as from the depreciation of the whole stock of currency in circulation as a result of inflation.

20 This is clearly implied by the reference to the NIS as “one of the circulating currencies” [IV. 10.a, emphasis added]. Although nowhere in the agreement is the NIS referred to as legal tender, it is also to “legally serve as means of payment” [ibid.].

21 Unlike in the case of fiscal revenue clearance, the formula for the conversion of surplus NIS into foreign exchange is based on macro-economic data, first and foremost on trade statistics. Its seeming complexity is due to the need to correct for transactions carried out in currencies other than the NIS, for transfers between the respective tax authorities, and for statistical imputations not representing actual cash flows [IV.16].

22 Basle Concordat on Banking Supervision, Bank for International Settlements, Basel (1983, 1990, 1992).

23 This clearly would be the case if domestic production for local consumption were to develop in the Territories of goods imported to Israel from elsewhere.