Jerusalem, 8 February 1993

BRIEFING ON THE ECONOMY AND AUTONOMY IN THE TERRITORIES

(THE GOVERNMENT PRESS OFFICE)

THE FOLLOWING ARE EXCERPTS FROM A BRIEFING ORGANIZED BY THE GOVERNMENT PRESS OFFICE ON THE SUBJECT OF THE ECONOMY OF THE TERRITORIES IN PREPARATION FOR AUTONOMY, AND ITS AFFECT ON THE ISRAELI INDUSTRY AND TRADE, MONDAY, 8.2.93. THE PANEL INCLUDED BRIG.-GEN. FREDDY ZACH, ASSISTANT TO THE COORDINATOR FOR THE PEACE NEGOTIATIONS; PROF. EZRA SADAN, HEAD OF THE AGRICULTURAL RESEARCH AUTHORITY; DANNY GILLERMAN, PRESIDENT OF THE FEDERATION OF THE ISRAELI CHAMBERS OF COMMERCE; MK EPHRAIM SNEH, CHAIRMAN OF THE SUBCOMMITTEE FOR THE ADMINISTRATION OF THE TERRITORIES.

GILLERMAN: For the last few months I have been chairing a committee set up by all the economic organizations in Israel to look into the implications of self-rule in the territories, and of the peace process. The reason for this is that we in the business community consisting of all the major economic organization in Israel in the private sector felt that somehow economic issues tend to be swept aside during political negotiations. I believe that was the case during Camp David, [where] the emphasis and desire to conclude a peace agreement with Egypt quickly caused us to pay a substantial price in economic terms. When I say us I mean both the state of Israel and Israel’s economic organizations.

In an attempt at avoiding a repeat of that situation and in the realization that whatever happens within the framework of a peace treaty in the territories and with our Arab neighbors will affect Israel’s economic future, we have set up this committee; to make sure that the economic issues are paramount, and that the negotiators are aware of that.

We have been working very hard both in order to study the implications and formulate our recommendations. Our belief is that at the end of the day, the economy is and will be the key to any peace agreement and to successful autonomy in the territories. (…) Secondly, we believe that we should not wait for the politicians to conclude any sort of agreement, but that we as businessmen should try to create facts and make things happen, if possible even before a real, or official agreement is signed between the sides. I have always believed that politicians build walls and businessmen build bridges. We, at the chamber, have tried to be a pioneering force and to initiate direct economic relations even prior to diplomatic relations. We did it with China, we did it with the USSR at the time, as well as other countries in the Eastern Bloc, and we believe that it may be the time to do it now with our Arab neighbors.

The businessmen on both sides should embark on real efforts to try to establish economic ties and, if that is not possible to do publicly and openly, should try to study together the implications of peace and self- rule preparing a business plan on a state level which will present both the risks and the opportunities ahead. We, at the Chamber, have accelerated [contacts with] both Palestinians from the territories and Palestinian and Arab businessmen from other countries who will have quite an affect on what will happen in the region.

I have just returned from Switzerland where I have been attending the World Economic Conference, which may be the world’s most impressive concentration of political influence and economic power. (…) I was there with our Foreign Minister Shimon Peres and the Governor of the Bank of Israel, and with delegation of Israeli businessmen. It was there that our efforts to meet with our Arab counterparts reached a climax. I met with the Saudi minister of finance and with prominent businessmen from Oman, Qatar, Abu Dhabi and Egypt, of course.

We have stepped up the process of human contact between our states. I believe that when you talk things happen. At this stage the contents of our discussion and the agreements reached should not be made public. All sides agreed that the actual fact of our talking should be made public as there is a desire on all sides to try and weigh the economic implications of self rule in the territories and of a peace treaty, so that when it comes, we are prepared.

We have decided to start weighing the real and tangible projects for cooperation between Israel and other Arab countries including joint projects in the territories in the framework of self rule, including multi- lateral projects where more than one country is involved such as cooperation in the Red Sea between Israel, Jordan, Saudi Arabia and Egypt, and many other projects.

I am not saying that we are going into business tomorrow, [but] it seems very encouraging to see a willingness on the Arab part today to sit with Israelis and think of what things may look like when peace comes.

I think that there is a very real understanding that it could be to the benefit of both sides if some real success stories can be pointed out as soon as possible as far as investments in the territories and joint projects are concerned. It is our belief that it is very important that (…) when things happen they happen correctly, successfully, proving that everybody stands to benefit from a peace agreement or from self-rule in the territories.

Our stand is that the desirable model as far as autonomy in the territories is concerned is one entity the territories and Israel we see no possibility and no sense in creating any borders or customs post. (…) We would like to have as level a playing field as possible, so of course we would have to look into the issue of taxation, such as the different rules and regulations on both sides.

We are also aware that there is a distinction between Gaza and the West Bank, as economic entities. (…) Nor can we ignore the fact that there is and will be a very open market between Jordan and the territories as well. So, eventually, what me may be talking about is one economic entity of Israel, the self-rule in the territories and Jordan. As far as we are concerned, that will only be a first stage to what we believe should eventually happen a common market of the Middle East, which will obviously include all the other countries with which we hope to reach peace agreements.

We have prepared a paper which weighs both the risks and opportunities, and which lays out the format and the kind of economic entity which we think would be best in the territories. We have even outlined some projects which we believe should be a factor. We believe that the attitude of all [parties] concerned should not only be passive of trying to guard our interests but mainly an active attitude of how to best make it work and how to make the standard of living in the self-rule/territories rise as quickly as possible.

I want to make this clear: We, in the Israeli business sector, believe that we should encourage and seek a very high and rapid rise in the standard of living and the quality of life in the territories. We would very much encourage investments in the territories, from both Israel and outside.

We believe that we could mobilize world organizations such as the World Bank or the European Bank for Development or, possibly, the establishment of a European bank for the reconstruction and development of the territories and the Middle East. We believe that American, European and other investors would look very favorably at investing in the territories, in order to take advantage of the relative economic advantages which exist there.

What I want to make clear is that we, in the Israeli business sector, regard that as a plus; we do not wish and will never agree to keeping the territories at a lower level than Israel; we think that the better off they are, the better off we (and everybody) will be and the more there will exist an incentive to peaceful co-existence in the region. (…)

SADAN: As indicated before, I am with the Ministry of Agriculture and am an economist by profession. (…) The GNP of the Israeli economy is about $60 billion [as opposed to] the Jordanian economy of about $6 billion. The economy of all the territories at about $3 billion. These magnitudes must be kept in mind; we are not speaking of similar [sizes], and the difference is great when we discuss the inter-dependence of the economies of Israel and the territories. Of the $3 billion making of the GNP of the territories, approximately $1 billion results from services (mostly labor) and goods exported to Israel. (…)

The reason we arrived at the conclusion two years ago that we must accelerate economic development first in Gaza (because Gaza has a GNP per capita of about $1300 per year, [while] it is almost $2200 in Samaria) was because the essence of an accommodation between the Palestinians and Israel is peace and it is very difficult to conceive of a peace process which results in misery. The dependence of Gaza on economic contacts with Israel is about 50% direct, and another 15% indirect.

We arrived at the conclusion that, in order to accelerate development in Gaza and the rest of the territories, we must change the rules that were maintained by the military government for many years and make them accommodate the ideas expressed here hoping that they accommodate the idea of free trade. As of 1 January 1992, there are no economic limitations on the development of industrial enterprises in the territories and the implication of this is that they may sell their products wherever they wish. As to whether the markets of Tel Aviv are open to labor and [goods] from Gaza, the answer given by the military government in 1992 was that they may sell whatever they wish.

What was said here by Danny Gillerman is that he welcomes this development. Let me repeat, we saw during the Gulf war, when Gaza was temporarily separated from the markets the dwindling of funds, particularly in the camps. We saw what it means to oppose the practice and policy adhered to as of the beginning of last year. Without free trade, there is no real economic subsistence for Gaza and and it is of no consequence whether one likes it or not. Political paradigms should be consistent with the need to maintain free trade for subsistence in Gaza, for minimal welfare in Samaria and for something therebetween in Judea. It is a need for us because I find it difficult to believe that one can impose punishment such as was seen during the Gulf war via the peace process.

ZACH: Since the war in the Gulf and during the last six months, the Civil Administration has been focussing on reviving the economy and creating more jobs in the territories. The target is, first, to serve the peace process by creating a better atmosphere and secondly also as one of our means to cope with Hamas and the Islamic fundamentalists.

First, we issued a new order giving three-year income tax exemptions for new products and factories (and even the extension of existing factories). We have already succeeded in Gaza; there are about 17 new factories which followed this order and received this exemption.

Second, we are trying to encourage external, Palestinian and non- Palestinian investment in the territories. We are willing to give a long- visa permit for two years and, after two years if they really ‘mean business’ we even offer residency in the territories. In the last week, we also stipulated (within this order) that we are also willing to accept external investors in housing projects. In Gaza, we had 16 external investors over the last six months with 21 in Judea and Samaria.

We issued another order permitting [individuals] the entry of unlimited funds into the territories, with a declaration that the money is personal [wealth] and not from hostile organizations for sums over 2,000 dinars.

We are trying to encourage export via Israel directly to Europe and, if they would like to use Israeli agencies, they can do so. We are also trying to encourage export vis the Jordanian bridges, which we believe is very important in the long run.

We believe that the trading partners in the long-run will be the Arab markets: Jordan, Saudi Arabia, the Gulf, etc. For this purpose, we sharply reduced the fees on the bridges, to encourage agricultural and other products to [be exported] via Jordan.

We took some agriculture areas primarily in Gaza, where citrus decreased in recent years and we transferred them into industrial parks. We also took some other areas of agriculture and replaced them with advanced agriculture [techniques], such as hot-houses because there is a great demand in Europe for fresh flowers from this area, and Gaza has a soil and [climate] advantage.

We are now investing in seven industrial parks: four in Gaza (with a fifth one coming near Rafiah) and three in the West Bank. We even allocated 400 dunams of state land to this end. State and private land are being combined just to create jobs, and there is a great demand for factories and these industrial zones in the Gaza area.

In the West Bank, [these parks are stationed in the areas of] Hebron, Ramallah and Nablus; here, this is being done via the municipalities which are more qualified in the West Bank than in Gaza.

We are investing in improving the infrastructure in both areas, mainly in communications, electricity, water supply and environment (primarily sewage). The result of these changes is that, in the last year, about 90 new factories were established in the Gaza area and 179 [plants] received approval in the West Bank, with 83 already opened.

I can say that, in the last year, we approved many projects which we did not [authorize] in the past, such as the cement factory in Hebron which was approved in the past six months (and which was allowed to bring $150,000 for research and building). Another example is the approval for flour mills in the West Bank and Gaza, which we had earlier disapproved.

We certainly know that the banking and credit system are very important for economic development; that is the reason that we approved another two branches of the Cairo-Amman Bank in the West Bank (Kalkilya and Jericho) for a total of nine. The Bank of Palestine in Gaza already has three branches, and we approved another branch in the Rimal area. As was published, we also approved (in principle) the re-opening of another Jordanian bank, the Bank of Jordan. And I believe that, in the near future, this new bank will start operating in the territories. There are also some negotiations with other banks.

We approved two insurance companies in the West Bank: one of the Cairo- Amman Bank and the other of a private company (in the Ramallah-Hebron area). These two insurance companies will receive final approval within two weeks, and they will even replace an Israeli company that used to work in the territories.

All these measures were taken just to revive the economy and to create more jobs in the territories. We believe that this will create a better atmosphere for the peace process, and even serve as a means to fight Hamas which oppose the peace process.

SNEH: The most important thing is not to waste time and everything that may improve the economy in the West Bank and Gaza independent of the pace of the peace process should be done as soon as possible. Of course, it is most urgent in the Gaza Strip because the socio-economic situation there is extremely bad, and it is connected to the security situation there. What can be done is to accomplish all the [goals of these] studies and projects that may revolutionize the Gazan economy. If we think about economic change in Gaza, it should be very fundamental not just incremental improvements, but very substantial changes.

I would like to mention two major projects: the first one is the free economic zone and port; there is a Tel Aviv University study [on this]. Several economists do not like this [proposal], mainly because they discovered that it is more economically efficient to expand the port of Ashdod instead of digging another deep-water port in Gaza. But, in our region, the intangibles are the most tangible thing. There are other considerations behind having a separate port in Gaza, connected with the concept of a free trade zone in the Gaza Strip. It is very important to complete the study and find out what is necessary to at least finance the first phase of the construction of the project and to [analyze] its commercial implications.

Another project concerns the supply of electricity and desalinated water to the Gaza Strip; as mentioned before, there is an acute water problem in Gaza. There is at least one proposal which combines the production of electricity with the desalination plant and, again, it should be discussed especially in reference to the idea of transforming agriculture in the Gaza Strip from its present structure to a different one.

Several very important steps in this direction were taken, as mentioned by Freddy Zach. The idea is to transfer Gaza from water-consuming agriculture mainly citrus to selectively irrigated products, which are primarily directed for export to Europe and the Gulf states. Again, a lot of work should be done to better base these studies, with the participation of Gazan farmers and businessmen.

As to the West Bank, the Knesset committee on the administration of the territories visited the West Bank last week. We learned that the main problems of West Bank industry are land for industrial zones and credit. We recommend that more state lands in the West Bank be allocated to local entrepreneurs, and that more banks and financial institutions be licensed. The policy should be to let in more sources of credit.

(…) Simultaneously, with building a banking system in the West Bank, the first measures toward the establishing of a stock exchange in the West Bank should be taken. There is capital for investment in the West Bank. But because of the political situation it is funneled for primitive ways of saving. As we say in Israel, ‘balata [‘mattress’] saving’. It goes mainly for housing and building because this is something this is an investment which is very very tangible. That is why you see relatively more new buildings in the West Bank. But if there is a way the investment can be funneled to Palestinian initiatives, it attracts not only Palestinian money from inside the territories, but Arab money, Palestinian money from outside the territories, and it can be done directly between the investors and the companies without any intervention, so the idea of stock exchange I know it sounds quite weird or premature but I think this idea should be taken very seriously.

I enthusiastically endorse the activity of the Chamber of Commerce of Danny Gillerman to establish a dialogue between the Israeli business community and the Arab business community. I believe that this dialogue, which is extremely important, should be focused now on a very immediate objective: to submit to the negotiators in the peace talks what are the legal contractual framework which is needed to create synergism between the Israeli economy and the Palestinian economy. No one knows better than the businessman from both sides. That is why it is the role of the Israeli businessman and the Palestinian businessmen to find what are the best ways to make that both economies do not compete but will synergistically work together in coordination and those proposals will be submitted to the bilateral committees in Washington. I do not underestimate the discussion of future major economic projects but these are highly and immediately needed objectives. (…)

Q: [It seems that the policy described here is not yet put into action in the territories]?

ZACH: I am speaking about facts. The fact is that you can go to Gaza, to hothouses and you can see beautiful flowers for export to Europe. You can enter Gaza and go directly to Beit Lahiya and see that the first of the industrial zones is completed, with paved roads, electricity, water, sewage and about 40 new factories willing to start and build their factories in this zone. This is a private land (15,000 dunams in plastic and hothouses in Gaza) and we are not fixing the prices; this is an open market.

There are 90 new factories established in the last year; 16 new factories are using the tax exemption. There is still a lack of confidence and we are trying to bridge this lack of confidence between us and the Palestinians and convincing them that we mean business, that we would like to build this confidence which unfortunately was lost during the last five years of Intifada. There is still some to fix but we already have things on the ground.

Q: How can you use the economic measures against Hamas and the Islamic Jihad since it seems that the Hamas strives, and it is among the upper and middle class?

ZACH: I never used the term ‘stick and carrot’ policy. I do not believe in this policy. I would like to say that the Hamas in the last years entered areas where they found neglected infrastructure: in very poor sectors within the refugee camps, in very poor sections near town. What we are trying to do is to invest in these areas and improve the infrastructure, this is the way we would like to cope with the Hamas. We will not use the stick policy against the Hamas in this context of the economy.

Q: Now, that the amendment of the law allowing meetings with PLO has been passed, does it also extend to the business community?

SNEH: (…) With whom can we deal about the economy in the territories? When the bilateral negotiations proceed to the specific subcommittees, the official Israeli representative will deal with those members of the Palestinian delegation which will be the address to deal with the economic matters. With which members of the delegations, I do not know and it is not important. The idea is that it should be within the framework of the bilateral negotiations of the two official delegations. The new law passed in the Knesset makes only one change which relates to what Mr. Gillerman said about informal dialogue between businessmen. The only implication of the new law is that Mr. Gillerman and his colleagues are not obliged to check very thoroughly which is the affiliation of these businessmen they speak with.

Q: Have you raised the economic issues at the negotiations in Washington. If so, what are the results?

ZACH: Multilateral channels: I am also a member in the talks for economic development. There were two rounds, we only participated in the second round in Paris. The result of this round was a tremendous success. There are now four groups in the territories from the World Bank doing a study and the fifth group is coming this week. These groups are designated for the private sector, infrastructure, human resources, agriculture; and we are going to receive another group for the macro-economy. They held a lot of meetings with the Palestinians, we provided them with a lot of material and data and for the first time they are going to do a study for the territories which will be within a bigger study of the economic affairs in the Middle East. This is the result of this meeting in Paris. A French delegation visited last week and came up with a great initiative for transportation and communication in all this region. There is another initiative to improve and promote tourism and there are other initiatives as well. We had only one round and we can say openly that we achieved some successes and we are looking forward to another round and to continue with these successes. The spirit of the multilateral channels is to promote the whole region and not only the territories as we are dealing with the territories in the bilateral channels.

Q: Are there any plans to allocate land for housing and industry? What is the potential for investment?

ZACH: Concerning state lands, we are willing to give state lands even to housing projects. Actually, we have already started: all the projects in Gaza, what we call refugee settlement, are in state lands; so we are willing to do such housing projects even in the West Bank and Gaza also to non-refugees. What they should do is to apply to the Civil Administration and deal with them. The state land is not only for Jewish settlers, it is also for Arab settlers or residents.

SNEH: Regarding the eligible sums of money which can be used for investments: the last time I figured out the numbers was six years ago (summer of 1987) and then it was $240 million, a substantial sum of money. I believe the amount is much higher now.

Q: Are you ready to expand the exemption of income taxes to broader aspects such as private citizens (…) ?

ZACH: It is a good idea to think how to encourage the private sector. But for the time being, these tax exemptions are for companies, projects, factories or extending existing factories; we did not think about the private sector. We will think about it.

Q: Could you comment on the bilateral working groups on economic regional development?

ZACH: Regarding the bilateral peace process, unfortunately the Palestinians in these talks refused for the time being to divide into subgroups and start dealing with the economy, because we are ready, we have a lot of initiatives. Once they accept the idea to deal with economic affairs we are absolutely ready and even eager to start.

Concluding remarks:

GILLERMAN: We believe that with the kind of atmosphere and obstacles which still affect the bilateral, and to some extent the multilateral talks, there is a real advantage in informal talks between business people of both sides: there are areas which in the bilateral talks cannot be touched upon. So far the Palestinians have refused to talk about economy because, in their opinion there other issues which precede the discussion. On the other hand, in our meeting with both Palestinians and Arab businessmen and leaders we hear two voices: one similar to the one heard in Washington: do us a favor, do not do us a favor: just give us the key and we will manage without you.

On the other hand, when you talk to them on an informal level you discover a very serious and urgent interest in economic cooperation. I think that what we may be doing is establishing an informal but very valuable channel of deliberation running parallel or independently from the peace negotiations and advance ideas, plans and projects which would take much longer in the formal side.

Another suggestion we have made to the Israeli negotiators, which is now under discussion, is that there will be a presence of businessmen from both sides either in the talks themselves or as observers and consultants who will follow the talks and will have an input in the negotiations regarding valuable projects and economic ideas. They will be briefed constantly and will be kept aware of what is happening in the economic field in the negotiations. In the meantime, we, businessmen, are going head and move as quickly as possible to the core of the problems.

(…)