Publication Inequality / Social Struggles - Analysis of Capitalism - State / Democracy - Economic / Social Policy - Palestine / Israel A Captive Market

The Paris Protocol’s implications for the Palestinian economy



Eness Elias,

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The Barkan industrial area in the West Bank, 2016. Photo: Activestills

An annex to the Oslo Accords hardly known to the public, the Paris Protocol brought the Palestinian economy into permanent institutionalized dependency on Israeli interests. The Palestinian economic system in the West Bank and Gaza Strip today was basically established by Israel after the 1967 War. The policies and practices introduced by Israel since the war integrated the Palestinian economy into the Israeli economy and created the former’s dependency on the latter.

It was widely assumed that the Oslo Accords and in particular the annex “Protocol on Economic Relations” (1994), also called the Paris Protocol, were meant to lead the Palestinian economy gradually towards independence. Yet the opposite has occurred: today, the Paris Protocol is the basis for an increase and institutionalization of Palestinian dependency on Israel.

Eness Elias is a political activist in Israel and regularly writes for the Israeli daily Ha’aretz. In the past she worked at Who Profits, a research centre dedicated to exposing the commercial involvement of Israeli and international corporations in the ongoing Israeli occupation of Palestinian and Syrian territories. This article was originally published by the Rosa-Luxemburg-Stiftung’s Israel Office, and was translated by Ursula Wokoeck Wollin.

As a result, 85 percent of the goods exported from the Palestinian territories were destined for Israel, and 70 percent of Palestinian imports came from Israel in recent years. Most of the money Palestinians earn thus flows back into the Israeli economy in one way or another. At the same time, the situation of the Palestinian economy has deteriorated continuously. Between 1995 and 2014 the gross domestic product per capita rose in real terms[1] from 1,435 to 1,737 US dollars, there was no increase in productivity, and the unemployment rate rose from 18 to 27 percent.

The following article seeks to show how the Paris Protocol has institutionalized and even intensified the Palestinian economy’s dependency on the Israeli economy. The focus here is on the West Bank, given that the situation in the Gaza Strip has been shaped to a large extent by the blockade imposed by Israel during the last 12 years.

Birth of the “Captive Market”

Since the occupation of the West Bank and the Gaza Strip in 1967, Israel has employed a number of mechanisms for “capturing” the Palestinian market. The most decisive mechanism is the creation of a unified customs system, solely under Israeli control. That customs system also became the basis for the Paris Protocol, as will be explained below. First, however, I will briefly sketch out developments under the Israeli occupation until the Oslo Accords.

From 1948 until the 1967 War, the West Bank (including East Jerusalem) was under Jordanian control, and the Gaza Strip under Egyptian. At the time the agricultural sector was the most important sector of the Palestinian economy in the West Bank and Gaza Strip, as is still the case today. No significant industrial sector developed in East Jerusalem or other cities in the West Bank such as Hebron and Nablus.[2]

After the 1967 War, Israel annexed East Jerusalem and the surrounding area, including the Palestinian villages there, while the rest of the West Bank and Gaza Strip were placed under military governance. During the first decade of the occupation, Israel integrated the Palestinian economy in the West Bank and Gaza Strip into its own. At the time the Israeli economy was about ten times the size of the Palestinian economy; the range of products was much broader in Israel and the share of the secondary (manufacturing) sector in Israel’s gross domestic product was four times larger than the Palestinian one. Relations between Israel and Palestine were thus based on an obvious disparity: on the one side, a relatively developed and wealthy country with considerable economic power, and on the other a comparatively poor and underdeveloped country with little economic capacity.

In the first decade, integration was advantageous for the Palestinian economy. It grew faster than the Israeli economy, and there was a significant rise in the standard of living of the Palestinian population in the occupied territories. Although the Gaza Strip was totally cut off from Egypt, in the West Bank the bridges to Jordan were soon re-opened and trade with Arab states in the East and South could resume. Thus, exports and imports to and from the occupied Palestinian territories increased between 1971 and 1977. Many Palestinians earned their living by working in Israel, mainly performing physical labour. The wages they earned were higher than the usual wages in the West Bank and Gaza Strip. The rising income boosted the Palestinian economy and let to a higher standard of living. In addition, the Palestinian agricultural sector underwent modernization through the use of advanced Israeli technologies, which resulted in a rise in the export of Palestinian agricultural products to Israel.