Israeli Border Closing Means Jobless Palestinians, Paralyzed Economy

By Colin MacKinnon

The latest border closing between Israel and the Palestinian territories, which Israel imposed on Jan. 22 after a suicide bombing by militant Islamists, has lasted longer than any other and is beginning to look very permanent. Israeli Prime Minister Yitzhak Rabin has said the new strictures are part of a strategic decision to separate Israel forever from the Palestinian territories.

If Rabin means business and the closure really does become permanent, what will that mean for the Palestinian territories? And what will it mean for the complex of economic agreements that have yet to be thrashed out between Palestinians and Israelis? Everybody had been assuming a measure of peaceful integration and cooperation. If that isn't to be, what is in store?

What Does It Mean for the Territories?

First, the immediate effects on the territories. The worst, obviously, is that large numbers of Palestinian laborers who have become dependent on the Israeli economy for their livelihoods have lost their jobs in Israel.

Not only that. Israel has taken steps to replace those workers permanently. The Rabin government has brought in some 60,000 foreign workers from Romania, Thailand and elsewhere and plans to bring in 10,000 more—a net loss to the Palestinians of 70,000 jobs. Rabin has boasted that Israel simply doesn't need Palestinian labor anymore and he might be right.

True, as of late February, the Israelis have started allowing some Palestinian workers back into Israel, but the planned numbers are small—no more than 20,000, who have to be over the age of 30, compared with the 60,000 or so who were routinely let in before.

No one seems to have done a rigorous economic study of what this really means, but income lost to the territories as a whole, if you figure it over a year, must run into the hundreds of millions of dollars. Since the West Bank and Gaza had a gross national product of $3.7 billion in 1993, lost income could easily be on the order of 20 percent of GNP, a staggering hit.

Loss of this income will have a further ripple effect on employment in the territories: less money coming in will mean fewer jobs in Gaza and the West Bank, with more workers chasing those fewer jobs thanks to unemployment in Israel.

This is disastrous, particularly for Gaza, where unemployment is now well over 50 percent. (Always ineffectual as an economy, Gaza has by now probably reached some kind of lower depth as an international basket case.)

And let's not forget that the Palestinian National Authority's tax base, which was not much to begin with, will suffer too. And with lower revenues coming in to the PNA, government services in the territories will be fewer and poorer.

All in all, a mess.

Trade Another Major Issue

Jobs aren't the only issue here. Trade is another. All goods entering Israel from the territories are delayed, ostensibly for searches, making what economists call the "transaction cost" rise steeply.

The delays can even kill off some kinds of trade. Take cut flowers, a product Palestinians and Israelis compete with each other to sell on world markets. Israeli exporters need to be at the airport one hour ahead of flight time. A Palestinian from Gaza has to be at the airport 12 hours before a flight, but getting his flowers from Gaza past the border checks and into Israel may take him 24 hours. The total trip to the airport takes him a day and a half, at which point the flowers are dead.

The Economic Protocol

Last April, Israel and the Palestinian National Authority signed an agreement called the Protocol on Economic Relations. It's supposed to be a framework to govern how the Palestinian territories and Israel do business with each other.

Essentially what the protocol does is set up a customs union between Gaza, Israel and the West Bank. Goods and labor are supposed to move freely among all three areas. Israeli tariffs apply everywhere, though the Palestinians are allowed to apply their own tariffs to a tightly-defined group of food and industrial imports. (This is to allow the Palestinians to have less encumbered trade relations with neighboring Arab states and to import cheap industrial goods that Israeli standards might otherwise not allow in.)

The protocol isn't a complete statement of how to govern such trade. It's a kind of basic agreement and has to be fleshed out with more definite regulations that the Israelis and Palestinians have to negotiate. Likely items for discussion are a range of what Palestinians consider "non-tariff barriers" in Israel to the sale there of goods from the territories.

One example is the Israeli water subsidy. Israel pumps water from the West Bank and sells it to Israeli concerns at way below cost. These Israeli concerns—whether they're farms or factories that use water—can pass along this saving to their customers. The Palestinians can't since they get no such subsidy. (In fact, they face water rationing, but that's a separate issue.) The cheaper water gives the Israelis an advantage that is just as good as one that a tariff would cause, only a subsidy isn't really a tariff.

Another example is the Arabic-language label that Israeli law requires goods from the territories to carry. Palestinians suspect this requirement, which the last Likud government dreamed up, was introduced deliberately to increase consumer resistance.

Industrial standards are another problem. Israeli standards for industrial imports are high. They exclude competing low-cost products from China, India and the like and protect Israeli industry. But the Israelis apply these standards also to the Palestinian areas, the result being that the Palestinians can't import low-cost goods for input into their own industries, which raises the cost of goods in the Palestinian territories and makes them just that much harder to sell in Israel.

Such are the issues Palestinians and Israelis ought to be dealing with under the protocol.

But they're not.

"Actually we are in a worse situation than when the protocol was being negotiated," says one Palestinian economist. "In terms of the suspicion, the harassment of traders, the closure of borders, the difficulty with which the [Palestinian] traders have dealing with their Israeli counterparts, we are in a much worse situation than when the agreement was being discussed."

The liberalization that economists were hoping for just hasn't taken place and in the current atmosphere isn't likely to.

Which brings us back to those high unemployment rates in the territories and the loss of income. We're a far cry from the optimism people felt in September 1993. Visitors to the territories speak of seething anger and of life moving toward the edge. This can't be in anybody's interests.

Colin MacKinnon is chief editor of the Washington-based Middle East Executive Reports.