September 11, 1994
ECONOMIC ASPECTS OF THE PEACE PROCESS
Uri Savir, Rafi Benvenisti and Yossi Vardi
What we are attempting now is to develop economic projects of regional nature, interest governments and private sector companies to invest in these projects and thirdly, develop financial mechanisms that will give the kind of economic/political boost to governments and to companies to invest in this beginning of the new Middle East.
This is where the economic factor reinforces the political factor and even encourages the political factor.
The people of the Middle East have a window of opportunity. The donor countries have fashions. Five years ago they were interested in East Europe, three years ago they were interested in the former U.S.S.R., today, the world focus of interest is on the Middle East. This window is not going to stay open forever.
During the last year, we were busy in identifying various projects in the areas of water, energy, transportation, communication, agriculture, trade, industry, and tourism. The projects have different levels of economic benefit. Some are immediate like roads connecting Israel to the neighboring countries, some are much more far-reaching, like the different canal projects.
Tomorrow we meet with the whole delegation of the World Bank which came here in order identify projects along the Jordan Rift Valley. Next year we hope to go to the specific individual projects and we are going to enlarge this kind of effort to additional countries. We should also mention that the beginning of the next week in Cairo, the Monitoring Committee of the Multinational Group on Economic Issue is meeting for the first time. They have invited Israel, Jordan, the Palestinians, Tunisia and Saudi Arabia. This will be the first regional tool to deal with economic development which is going to be established.
The first issue, and where sizable investment will be involved, is the water sector. We actually see it in two parts, first part will be the big size projects that will serve those who will need additional water in the region and everyone in the region will need it, but we define it from the sea to the desert.
The big water project includes desalination on the shores of Israel, or moving of sea water into the Dead Sea area, to use the drop to produce energy and desalinate the sea water. These are huge projects – each one of them is in the order of 3-4 billion dollars, and they have to be evaluated one against the other, because there is no way that we need all these three canals and proposed canals and huge desalination plants on the shore.
The other group project, we call small-size projects which can be done in various places, like catching rain water, desalinating brackish water and other aspects of production of new water.
The third big group project is to investigate ways and invest in water-saving activities in the region. Water can be saved in a major way in all the countries involved.
We know that we have to create water. The price is quite known. We know that if we talk about desalination we talk about anything between 45 cents/cubic meter optimistically, maybe 80-90 cents realistically. We have things which are much more economical, like water treatment. There are institutional barriers which have to be resolved. To what extent are governments and people willing to pay the real cost of treated water. However, treated water costs between 20-30 cents/cubic meter. Once we establish the order of benefits, we can see how more esoteric means of water supply can be economically feasible.
The next cluster of projects, focus on infrastructure. The borders of Israel are like seams and you have to connect all the infrastructure of the region that was disconnected for 50-60 years. This connection means a railway, roads, bridges, telephone lines, electricity lines – in order to create a bridge of the different parts of the world – Asia, Africa etc.
Another group of projects is private sector cooperation in various areas like agriculture, industry and other economic sectors. The development will be in clusters – the Gulf Riveria cooperation which will include a Joint Airport between Aqaba and Eilat. Another idea is to think about Israel giving up its use of its port in Eilat and Jordanians giving port rights to the Israelis. There is an idea for an underwater park to turn all the coral areas of the Aqaba/Eilat area into a park which exists already in the U.S.
Moving north, there will be a focus of tourism, promoting the Dead Sea as the lowest point on earth. The idea is to create a whole Dead Sea area as one big park and the region will be based on two activities – the exploitation of the dead sea minerals and tourism. We are talking about tens of thousands of rooms that can be built around the dead sea. There can be cooperation between the Palestinians, the Jordanians and the Israelis in the development of this concept and the hotel projects.
Moving further north, we have the Jordan Valley in which cooperation in agriculture and other industry can be developed, and the Beit Shean valley which can be a base for cooperation for tourism, transportation and industry.
We agreed on a trilateral basis with Jordanians and Americans to have major work done on preparing a master plan for the Jordan Rift Valley. The paper will encourage the world to participate and invest in the projects that will included and prepared by all sides.
The projects mentioned are mainly infrastructure projects. Those projects traditionally are financed by the governments. However, in recent years there are a number methods where the private sector can participate in financing infrastructure projects by the traditional ways that private sectors participate: being contractors for these projects, or being financiers of the debt portion of the project. In addition there is the traditional role of the private sector of being an equity owner of private projects.
The Casablanca Conference
We made very dramatic progress if we look into what happened on this front in the last year. This will translated at the Casablanca Conference in the most prominent of the efforts to bring together the projects from the multilaterals, the trilaterals, projects with the Palestinians, with the private sector and with existing financial mechanisms, or new financial mechanisms. And that will in itself create a reality in the Middle East that then will combine with the political settlement in creating gradually a new region of cooperation.
In Casablanca we are going to present a package of potential projects which amount to some fifty to twenty billion dollars. These are projects which are usually initiated by governments. The two major sectors are the water sector and the energy sector. The tourism sector is also very important.
To mention just a few of them as an illustration, we are talking about a major rehabilitation of the transportation infrastructure: creating modern roads, creating modern railroads, connecting the middle of the country with the gulf of Eilat by rail, connecting the Gaza Strip by rail to cities in Israel and Egypt. We will create regional centers for industry in five different areas – the El-Arish area for Gaza, Egypt and Israel, the Aqaba-Eilat region, the Dead Sea for tourism, the Jordan Valley, Syria-Lebanon-Israel for the future.
For the Casablanca meeting, the major economic bodies of Israel are preparing an equivalent plan for cooperation in individual projects in the private sectors. By now they have over 100 projects, and in Casablanca we are going to present it. We are also trying to encourage our partners to the peace process to come with similar documents.
Various Zones – Free Trade Zones
The idea has been presented as a possibility of having trade zones. The idea has to further developed – they are not conclusive in terms of their economic benefits. Many economic conditions have to be met for free trade zones to be pursued. For example, export processing zones are based on low cost labor. It’s not yet clear if we have labor costs that will justify competition with India, Sri Lanka, etc.
Financial support from Gulf Countries
I think the business sector in these countries, especially in those countries that already have ties with Israel, will show an interest to get involved in those projects, maybe with an emphasis on areas like energy. I think in Saudi Arabia, there is reluctance. Private sectors are probably more advanced than some of the government thinking.
THE PALESTINIAN TRACK
General Danny Rothschild, and Uri Savir
Early Empowerment – Health and Education
The early empowerment is actually the first foothold for the Palestinian Authority in the West Bank.
The talks on early empowerment were quite complicated because at the end of the day we are going to face two authorities working on the same ground and everyone will be quite confused because he has two authorities to deal with, one with five spheres mentioned in the DOP and the other with 29 other spheres of life. We had to see that the agreement was as detailed as possible, so that afterwards, when implementing the five spheres, it would have a good chance to work. At least two of the spheres chosen, health and education, were chosen because wanted to show every Palestinian that lives in the West Bank that we mean business.
One can hardly find a family in the West Bank that doesn’t need the education system, so the early empowerment spheres are issues dealing with every family. Having said that, these are the most money consuming spheres, the biggest spheres. In education, we are speaking about more than 11,000 employees. In health, we are speaking of nearly 50 percent of the budget.
There is no use in transferring the remaining authorities without being ensured of all the financing capabilities. One should bear in mind that we are dealing with at least one of the spheres which is the biggest money consumer, health, which deals with human life.
Early Empowerment – Direct and Indirect Taxation
In order to finance those spheres, we have decided to add the tax sphere, especially direct taxation. But when we saw that direct taxation will not be enough to finance those five spheres, we added the VAT on local production, which actually finances and balances the expenses vis-a-vis the revenues.
There is no way any government-like organ will be able to run its life without being able to collect at least as much taxes as needed to operate the system. One situation we didn’t want to face is the situation which still goes on in Gaza. A system which doesn’t collect taxes and has to be totally dependent on donations.
We wanted to be sure that there are sufficient resources to finance those spheres which are going to be transferred to the Palestinians. So while we negotiated, we agreed mutually that we are going to approach the donor countries and ask them to finance an interim period of about six months, which is assessed to be a shortfall in tax collection. But we didn’t only ask them. We have committed ourselves that, at the end of those six months, the Palestinian Authority will have a fully efficient tax collection system and we committed ourselves to train the Palestinians, so that at the end of the six months they will have an efficient tax collection system.
In the meantime, in the six months the revenues that the Palestinians are going to collect hopefully will increase while the shortfall will decrease, and at the end of those six months it will be balanced and the Palestinians will be able to stand on their own feet.
What is needed now, is the donors’ financing of those six months, our training the Palestinians, the Palestinians recruiting the people to collect that money – and after six months, it will be balanced.
Another problem which we faced was the enforcement problem. There is no use in transferring authorities, especially not tax authority, without having some sort of an enforcement capability. We mutually agreed that we are going to allow tax collectors to have enforcement capabilities, to give them all the tools which are needed and by that to enable them to collect taxes.
We have reached a good agreement. As we both, the head of the Palestinian delegation Dr. Nabil Sha’ath and myself described it when we initialed the agreement, it’s a ‘win-win situation’.
By focusing as much as we have to on the day-to-day issues, we tend to lose perspective of what really happened to the Palestinians and Israelis in this year. The change is much more fundamental than we generally perceive. While Palestinian-Israeli relations for very long looked really better than they were, today they are actually better than they really look. and are perceived because of certain exaggerated expectations. The pace of change has been so rapid, but we tend not to feel it as when you observe it from a perspective, or from historical distance.
There’s a whole new rapport and discourse with the Palestinians. It really happened through the mutual recognition agreement. Because what happened in the mutual recognition agreement of September 9 was that two movements who had rejected each other, recognized each other, which turned the conflict from an existential conflict to a political relationship. And since then the relationships, the talks, the meetings, the negotiations have created a totally new rapport of a political relationship with its ups and downs, but it’s fundamentally different from a rejectionist existentialist conflict.
Another fundamental change is that the Palestinians are starting to run their own lives. Here I must say that with all the problems, there is at least a serious effort to start to run the show economically, there is a beginning of creating economic structures, they are beginning to create a more organized police, and we have to think in terms of years rather than months to see the Palestinian political body transformed into something which we can then perceive as a full-fledged success, or less than a success. But such a judgement is premature and and we have to see it as a process.
In terms of the basic security situation, we have our ups and downs, and violence especially among Palestinian opposition parties. But it was always the case that the solution to the intifada and to the security problem would be political – by changing the political constellations, which are changing gradually.
The general reconciliation process has just begun. The ignorance about each other between Israelis and Palestinians had very few gaps. We knew very little about each other, we met very few Palestinians, few Palestinians met Israelis and we are in the beginning of a lengthy process of reconciliation between these two people.
Bearing these achievements in mind, there are others of great importance that are not directly linked to the Palestinian track, but occurred because of the breakthrough with the Palestinians. It has opened up a whole variety of breakthroughs in the region, namely with Jordan, normalization with some Arab countries, improved relations with Egypt, improved relations with Morocco, Tunisia and some of the Gulf states. Looking at it from a Foreign Ministry point of view, it has really changed Israel’s international position very significantly.
Flaws certainly exist. They exist in terms of the economic running of the Palestinian show which still has flaws in terms of transparency, accountability. Things are moving a little slow. And in terms of taking the necessary security measures, here too there is no full satisfaction on what the Palestinians are doing. But we have to look at what has fundamentally changed to encourage us to continue on the path of early empowerment.
General Elections and Population Registries
We sat with the Palestinians on the issue of elections, in which they gave us their view of how to run the election. We have some reservations, to say the least, and the DOP says specifically that negotiation will have to take place on the elections.
The Palestinians are saying that they need the population registries for the elections rightly so. One of the reasons is that we are still working on it. One of the reasons for us working on it is because for the last 27 years, those registries were not updated mainly because we were not informed. There are quite a number of people who are here on visiting permits. Once we finish updating those records, we will have good records.
In Gaza we handed the records over to the Palestinians while we negotiated, since in Gaza they were updated on a regular basis because of the nature of Gaza. In the West Bank it will take a little bit time, and we explained it to the Palestinians.
Elyakim Rubinstein and Eytan Bentsur
We’ve achieved with Jordan, over a period of time, a situation in which the state of war has been terminated. That is the heart of the Washington Declaration. The first steps of relationship have been created, modest yet, but there – for instance, the opening of the crossing point in the Arava, and we are now negotiating another crossing point in the North. Probably be in the Beit Shean area and it will create a new reality in that part of the country and of Jordan.
The negotiations now revolve around a number of issues which all should be combined into a package, a tray of peace. The two hard nuts are the boundary and water issues. We believe they are doable, with the goodwill and atmosphere that have prevailed in the last few months. In fact, there has been a basically fine atmosphere with our Jordanian colleagues from the beginning, but the last few months have augmented it with the drama and the flavor of what summits could create.
The boundary issue is difficult, because it is a boundary which must for the first time be demarcated. While negotiations have begun and both sides have presented their positions on the boundaries, with reference to the Mandatory lines, the middle ground, or the way to bridge the differences in the interpretations, is still ahead of us.
Water is at least as difficult as boundaries. The two countries are in need of water, and the available resources are not enough for both. Rightful allocations should be achieved, but must be augmented by joint work on the development of either existing resources which will be better utilized – for example, the lower Jordan River is in need of cleaning, a lot of water could be saved through that effort; or by catching existing water which escapes because there is no mechanism to catch it. We are working on that, together with rightful allocations, and of course desalination is an option which could be developed though it is costly.
We must look at the overall water picture. When things will happen in negotiating with Syria, with the Palestinians.
Security is a third pillar in the three core issues. We’ve had our nightmares from Iraq, which is the Eastern neighbor of Jordan.
Talks move to the Region
It’s been a great achievement to move the talks to the region. Here, when people can travel for an hour or so and meet the other side, you are much more flexible in interacting with the other side. People also feel the atmosphere, they feel part of it. It is more healthy for the peace fabric when real people meet real people in real environment rather than diplomatic environment. It puts things in their natural framework.
We work on energy, on a technical level, joining the grids of both side has been discussed. We are working on civil aviation. Now the hard nut is to finalize the air corridor between the two countries. At this point we don’t have where to go from Jordan, but we definitely would like to enable Jordanians to cross Israel, as His Majesty the King has done in his plane. The question is at what exact altitude, which is a technical consideration, an air force one. One could say that ‘the sky’s the limit’, but the sky is also limited. So, we have to find the right balance.
Trade is still not full-fledged in terms of bilateral trade. We’re moving in that direction. The boycott has to be abolished, and so on.
Trade with the territories is being discussed.
A major contribution is being done by American participation in what is called the Trilateral Economic Committee. Tourism has begun as an enterprise under the auspices of this Committee. It now has a life of its own.
We are trying to work on a variety of issues and a very large scale of activities, with the hope that the major issues will be resolved in the not too distant future to enable the peace package to be wrapped up, in the meantime preparing all the other avenues to be opened right away as the package is finalized – with the hope that some of the things from the Washington Declaration could implemented before the finalization to create a better atmosphere, to have people meet each other.
We would hope that in the not to distant future, Jordanians, Israelis and Palestinians will sit together at tables which we have proposing ever before Oslo, on issues like economics, trade, etc. which seems to be adopted by our Jordanian friends.
THE MULTILATERAL TRACK
Round number seven of the multilateral peace negotiations will soon open when the 42 countries and parties of the working group on the environment meet on October 25-26 in Bahrain. The other four working groups, on water, refugees, regional economic development and arms control and regional security will follow, and in January 1995, the Steering Committee which controls the overall activities of multilaterals will meet to wrap up this seventh round.
Venue moves to the region
Three major developments are worthy of mention in analyzing the multilaterals. One is the fact that the venue of the talks has in most cases moved to the region itself, which also helped the bilaterals come to the region. Tunisia was the first, hosting the working group on refugees in Tunis in October of 1993, and the Steering Committee in Tabarka near the Algerian border. Oman followed Tunisia, hosting the working group on water in Muscat in April 1994. Qatar came with the arms control also in April 1994, and in June 1994 Morocco hosted the working group on regional economic development. Bahrain will host the environment and Jordan has announced its willingness to host the economy in Amman next spring.
It is worthy of mentioning because the move to the region is of importance not only of the logistics, going all the way to Washington, but because of the exposure of the people in the Middle East to the process of peace making.
The fact is that every time we travel to one of these place, each and every news organization from Israel come with us to this negotiation. The fact that Israeli television can broadcast live from Muscat, and Doha, Tunis and Rabat, and the fact that television in those countries show Israeli delegations visiting their countries is of educational importance.
It is also important because this multilateral peace negotiation brought many more Middle Eastern partners to take an active role in engaging with Israelis. Where else can we see Saudis and Moroccans and Omanis and Yemenis intermingling with their Israeli partners.
The second important development that we have witnessed this last year is that the multilaterals as a whole moved from what it used to be before the DOP, a series of seminars and academic exchanges, where learned experts really shared their ideas about the Middle East in general, it moved into actual projects and joint activities.
Just a few examples of the various working groups:
The decision adopted in Muskat, Oman, to establish there a desalination research and technology center with the participation of experts from Israel. This is a project which is actually happening.
In the working group on the environment, we agreed almost a year ago on the establishment of a regional oil spill emergency centers in the northern Gulf of Aqaba. This is a joint Israeli-Jordanian-Egypt project, in the framework of which three centers are being established – one Aqaba, one in Eilat and one in Nueiba – interconnected between them, with equipment being stationed in all the three centers – equipment that can be used by the other two centers in order to fight oil spills if God forbid they occur. This project is now at the stage of experts finalizing the work on the inventory needed to be stationed in each and every one of these centers. Hopefully this will be operative before too long.
In Rabat, another example, we agreed to establish an Aqaba-Eilat- Egypt highway. When this was raised in the multilaterals it was a very nice idea. This is one of the issues being discussed now in the bilateral negotiations with the Jordanians.
Last but not least. An example from the arms control and disarmament. Things that were unheard of before. We held a joint naval rescue exercise in the waters of the Mediterranean and subsequently a meeting of naval officers took place in Halifax.
Multilateral serve as a clearing house
The third and last point is that the multilateral framework serves as a clearing house for many projects that are now either being negotiated or discussed or moving towards implementation, be it in the bilateral negotiations between Israel and the Palestinians, or Israel and the Jordanians. Most of the projects that are going to be presented by Dr. Vardi and Mr. Benvenisti in Casablanca originated in the multilateral peace negotiations.
Unfortunately, to this very day, both Syria and Lebanon are not party to these negotiations, and we hope that in this seventh round reason will prevail, and both the Syrians and the Lebanese will join the multilaterals.