EXCERPTS FROM GPO BRIEFING WITH DAN PROPER AND SAMIR ABDALLAH

(Communicated by the GPO Economics Desk)

THE FOLLOWING ARE EXCERPTS FROM THE BRIEFING GIVEN BY DAN PROPER, PRESIDENT OF THE ISRAELI MANUFACTURERS ASSOCIATION, AND PROFESSOR SAMIR ABDALLAH, DIRECTOR OF THE PALESTINIAN DELEGATION TO THE MULTI-LATERAL TALKS ON ECONOMIC MATTERS ON THE ECONOMIC CONSEQUENCES OF THE ‘GAZA AND JERICHO FIRST’ ARRANGEMENT, HELD AT BEIT AGRON IN JERUSALEM ON 20.10.93:

PROFESSOR SAMIR ABDALLAH: The issue we are going to talk about this morning is a main concern, not only among the business community, but also among people who suffered and waited a lot to see their lives become easier and to see their standard of living rise. The foreign business community also is anxious to come and to do business. Many millions of people who have looked at this area and who have hoped that, one day, they could visit it, but have not because of the political situation, are anxious to come and see the Holy Places and to enjoy the good climate and hospitality.

I think that the DOP put the cornerstone for peace in place for the Palestinian people and for Israel. It is a good start. Maybe it is not enough, because there is a lot of ambiguity. Maybe there are too many things that the negotiators in Oslo left for others to negotiate. But, I think that the major issue, that each party recognizes the rights of the other, is the fundamental issue which, I think, opened the door for solving all outstanding issues.

– Israeli-Palestinian trade relations:

In the economic area, we know that within the last 25 years, relations between the Israeli and the Palestinian markets has grown. If you want to see the figures, we have one-third of our labor force depending on the Israeli market. Maybe after the closure, this ratio declined to 15%-20%, but it is still big. Most of our exports go to Israel, more than 80%-85%. About 90%-95% of our imports come from Israel. I don’t want to talk about other issues and other relations, such as telecommunications, electricity, and water, and other vital areas. We have been inter-connected with each other.

Of course, these relations are long-established and have been influenced by one side, by the Israeli policies. Now, it is time to re-establish this relationship on a new basis, one that recognizes the rights of both parties and which should satisfy both parties’ interests. This basis must be built on reciprocity. For that, I believe that in the area of trade, we, the Palestinians, are interested in increasing our exchange and trade with Israel. This is not because of the proximity or because of any political reason, but because it is our interest.

I believe that if our economy grows and flourishes, the first to benefit will be the Israeli economy. But, the terms of trade should be changed. Before the Agreement and the new era in our relationship, we have been forced to buy from Israel and through Israel. Our choices were very limited. Within the new stage, I believe that our choices will be open and the Israeli business sector will have to compete in our economy. Their existing monopolistic position should be ended.

– Labor:

In the area of labor, the fact that we have one-third of our laborers depending on the Israeli market has been created by the Israeli policies themselves. It is due to the deliberate policy of narrowing our resources, putting obstacles in the way of our businesses, investments, and so on. I don’t want to go into the past but, rather, to look to the future. Now, since the obstacles on our economy will be removed, our relations with all our neighbors will change.

I believe that our economy will be able to absorb much more laborers than before. But, absorbing 120,000 Palestinian workers in one or two years, even in five, is an impossible target. I believe that in this area, we will continue to rely on the Israeli market, to our mutual benefit. The value-added of our laborers’ wages is much bigger than the wages they receive. I think that it is the future Israeli economy will need many more laborers in the areas where our laborers work, in labor-intensive industries. If there is a chance at the beginning for the Israeli companies to compete in the area’s open markets, and even to compete in Europe, they should decrease production costs. Given Israel’s current production costs, it is difficult to compete in the Arab and other markets. We have to live with this issue, and I believe that it is a very important matter.

– Currency:

In the area of money, i.e. currency, we prefer to have one currency as a legal tender. Since we have had this relationship for many years with Jordan, I believe that our position will be one of making an agreement whereby the Jordanian dinar will be our legal tender. This is not a step against the Israeli shekel. The Israeli shekel will continue to play a major role, as a means of exchange, and maybe, if it will be a stable currency, it will play the role of storer of value. But, since our experience with the shekel has seen its value always going down and, therefore erode peoples’ savings, it will mainly play the role as a medium of exchange. It will be the same as any other currency, free to be used.

I believe that we will have a very liberal monetary policy. The reason for this is to have freedom in creating our banking system. If we continue to use the shekel as a legal tender, the Bank of Israel will ask for the right to control our banks. But, of course, the issue of our own currency is a technical matter. Of course we will defend our position in the negotiations that we should have our own currency, but to issue and use our currency as a medium of exchange at the beginning, it will be an impossibility and might even hurt our economy.

– The Palestinian economy:

Maybe at this stage we should ask the question: What will be the role of the Palestinian economy in the area? Is there a chance for this economy to survive? Four factors will play a major role in Palestinian economic life: – First, the removal of man-made obstacles, which tied our economy and hurt our businesses, will make a relief for the business community and for activity in all spheres. – The second factor which will play a role will be the reservoir of skilled manpower which will be capable of acting and realizing their talents. I believe that we will attract many of our experts from outside who will play a major role. – The third factor will be the role the international community will play in helping the Palestinians to overcome obstacles they are facing. We still say that the international pledge of $2 billion is not enough. I believe it will depend on us, the Palestinians, if we can attract much more. It will rely on how we use this assistance. If we use it in the proper way, we will be able to convince the donors to give more. – The fourth factor is the wealthy Palestinian community abroad. I think that there are many Palestinian financial institutions outside the area who are anxious to come and play a part in the rebuilding of the Palestinian economy.

MR. DAN PROPER: First of all, let me say that I really welcome your words on the main subject, namely that we have to discuss and solve the problems of both sides.

– Middle East economy:

In my mind, this is the only way to advance economic values and to build a new Middle Eastern economy. Let me also tell you, about your words on the Oslo Agreement, I am very happy that the politicians did not fill in the whole gap of the economic side. Some people described this particular section as Swiss cheese. I’d rather describe it as an American bagel with one big hole in the middle, which I welcome, because I think that it is very healthy to leave economics to the people who deal with economics. Politicians should deal with what they are used to dealing with.

I believe that the only way to change the economic situation in the Middle East is to have dialogue and cooperation between both sides. I don’t speak in the name of our Government. I speak in the name of an organization of business and industry. We have already spoken to Palestinian business people and we would like to not only continue this dialogue, but to take part together in the changes that all of us want and to look after the interests of both sides and solve the problems of both sides.

Let me first say that the the peace and the peace process bring with them a profound and dramatic economic change in the Middle East. It’s the first time that reality has been quicker than imagination. I think that we have to get used to the fact that we have to plan while building. This is a very difficult process. (…)

– Benefits to Israeli economy:

On the Israeli side, the Israeli economy is already benefiting from the peace process. (…) The fact is that new openings in the world are being created for Israel: new relations, part of them political, part of them only economic. New trade areas and new markets are opening to us. I believe that our first relations with Indonesia will be economic. These are dividends of the peace process, dividends that we are seeing and utilizing. I believe the first few years of the peace process will bring prosperity to the Israeli economy, mainly from outside the area. Only in the second stage do I believe that the major and positive impact will come from the area itself.

– The Arab boycott:

We are witnessing the problems of the Arab boycott. These are still with us. Although the G-7 announced a few weeks ago that the Arab boycott should be removed, it is still on. I do believe that since we are now in the peace process, there is no way that the Arab boycott should remain. There is no common ground between peace efforts and an economic boycott. No country can say that it is part of a peace process and, at the same time, use an economic weapon against the other side. Peace is not only something that occurs on a battlefield, but also occurs in the economic sphere.

I also believe that if look at the economies of the autonomous areas and Israel, and that if we will soon arrive at the stage where these two economies will work together so that there will be free passage of goods, then the Arab boycott is not only against the Israeli economy, but it will mainly hurt the economy of the autonomous areas. The boycott will also affect our partners’ economy, the economy of the autonomous areas. There is no way that people will be able to differ between Israeli products and those of the autonomous areas, or if goods are destined for the autonomous areas or for Israel. Therefore, I think that it is in the interests of both sides that the Arab boycott be dismantled.

We are already seeing better communications today with our Arab business friends from Egypt. This is another dividend of the peace talks. We already see Israeli business people looking for opportunities in the Gulf states. Although these things are still being done behind closed doors, I believe that these doors will open very soon.

– Economic growth:

I believe that if the last milestone in the Israeli economy was in 1985 when we brought inflation down from 400% to 20%, and later on to 10%, then the second milestone will be the peace process in 1993. We are already seeing the results in the Israeli economy. While the Western world is in recession, while Europe’s growth this year will be close to zero, the growth in Israel will be about 3.5%. The growth of exports, due to the opening of markets, will be around 17%. This is an unprecedented figure, which I mainly attribute to the peace process. So, we have a major interest in industry and in economic matters, not only as Israeli citizens, but as participants in its economy, to advance this process as soon and quickly as possible and to get to the higher dividends even quicker.

We have discussed these things with some of our Palestinian colleagues. I believe that, in the near future, the politicians who are laying the foundations of this peace process will leave its construction to the economic people.

We in industry believe that there a few things that must be done very quickly. First of all, let me stress that we in industry are willing to participate in all these operations, but anything that will be done in the autonomous areas will be decided on by their authorities. I believe that it is in the interests of both sides that we participate in the process, but it will be their decision if they want us to participate in their internal processes.

– Infrastructure:

We have to build a new infrastructure in the Middle East, especially in the autonomous areas, regarding communications, roads, sewage, water, and electricity. I believe that we can help with it.

– Standard of living:

We have to raise the standard of living of the inhabitants of the Middle East. I believe that the only peace that is possible, is the peace of people who have full stomachs. That is one thing that we are advocating and that we would like very much to participate in and help. This will, of course, cost Israeli industry, and the Israeli economy, in several ways. Over 100,000 Palestinians are employed in Israel while, at the same time, there is 10.5% unemployment. This unemployment is probably inhibiting immigration from Russia. But, I believe that we have to maintain this figure as long as there are no new sources of employment in the autonomous areas.

– Agriculture:

Regarding entry of goods, we certainly have some of the industry and agriculture. Of course, all of these things must be discussed. These obstacles must be removed. While all these things will cost the Israeli economy, the economy will benefit from other trends of the peace process. I believe agriculture is a major problem. It is the quickest thing the autonomous areas will be able to develop because the infrastructure is already there. On the other hand, the Israeli agricultural sector, like many others in the world, is controlled. Therefore, we have a problem here. I believe that this problem, in the short term, could be solved by countries like those of the EC who would be able to open their markets to the agricultural produce from the autonomous areas so that, in the first stage, this sector, which can develop quickly, will benefit.

– Regional and joint projects:

There will be regional projects. There will be money coming in. I believe that most of the money should be channelled through institutions like the World Bank which will take all possible participants into consideration. I do believe that Israeli companies should be allowed to participate in the projects that will build the Middle East. If we are part of building the peace, we must be part of constructing what is to be constructed. This can be done only if the funds are channelled through international institutions which will put out tenders in which all may participate with the best participant winning.

I believe that joint ventures with the Palestinians will be the first signs of cooperation. Already, there are discussions going on, on joint ventures in the building industry in the autonomous areas. I believe that if there will be no disturbances by any bodies or politicians on any side, and I don’t believe that there will be any, that joint ventures could start the cooperation in building the new Middle East that I have been talking about.

– Economic confederation:

I believe that the first stage of the new Middle East will be an economic confederation between Jordan, Israel, and the autonomous areas. I believe that we will see on the horizon, a Middle Eastern economic bloc that will eventually be like the EC itself. We have almost 200 million inhabitants in the region. There is no reason why this should not be an economic bloc which could then trade with other blocs, especially the EC and the old East European bloc. The geo-political situation of this bloc, with the complementing economies of Israel and the neighboring countries could bring benefits to the whole area. I am optimistic about it. I think that we can achieve the aim of building this new Middle East by working hand-in-hand.

Q: When you talk about the introduction of the Jordanian dinar, is that an official PLO policy?

Professor Abdallah: The official Palestinian position is that the legal tender will be the Jordanian dinar. The Jordanian dinar is already a legal tender in the West Bank, but not in Gaza. We want to have it in the whole Palestinian autonomous area.

Q: Can you comment on the Israeli position on the free exchange of goods? The Israeli position is that there is to be free exchange of goods, then the economies will have to adopt the same customs and tax rates that Israel has. Could you comment on that?

Professor Abdallah: We are not against the free movement of goods and people between the two economies. But, this freedom must work both ways. I hear from the Israeli side that they will continue to protect their agricultural sector. If the Israeli side will insist on this, then I believe that it is a matter of right that our side will seek to protect some industries. Reciprocity should be respected here. But, I hope that there will be no restrictions on the movement of goods and services. The idea of a customs union is not the proper system for the Palestinian economy at this stage for many reasons. The Palestinian and Israeli economies are structurally different, have different priorities, and have different levels of development. A customs union would ignore these differences and might raise tension between the two economies and would our small and weak economy much more. We are asking for a free trade area which would allow us to have our own relations with foreign markets.

Mr. Proper: Of course it is the autonomy’s privilege to say it doesn’t want Israel’s customs duties, the VAT, and the same purchase tax, but let us see what will happen if there will be different customs duties and VATs. You’ll have to stop the free flow of goods. This, of course, will bring up political issues that will have to be dealt with. This would prevent many of the things that I stressed when I spoke, that is to say, the quick development of joint ventures and trade and the raising of living standards will be hindered by such a situation. We do not have an egoistic yearning to have the same customs duties. It would be a loss for the economy of the area. You mentioned the agreement with the EC. Once you have different customs duties on goods from the EC to the autonomous areas, then the autonomy’s exports to the EC will be unable to benefit from the same advantages that we in Israel have. So, it complicates the whole thing and prolongs the process of building the Middle East. Although I understand the point that our economic priorities are different, the major issue of quick growth in the area, which is important to both sides, can be obtained only by having the same customs duties, VAT, etc. (…)