State of Israel
Measures Taken by Israel in Support of Developing the Palestinian Economy and Socio-Economic Structure
Report of the Government of Israel to the Ad Hoc Liaison Committee (AHLC)
New York, September 23, 2012
Acronyms AHLC – Ad Hoc Liaison Committee BoI – Bank of Israel COGAT – Coordinator of Government Activities in the Territories DFID - UK Department for International Development EU – European Union GDP – Gross Domestic Product GoI – Government of Israel ICBS – Israel Central Bureau of Statistics ICD – Israel Customs Directorate IMF – International Monetary Fund JWC – The Joint Water Committee MCM – Million Cubic Meters MOF – Ministry of Finance NIS – New Israeli Shekels PA – Palestinian Authority PCBS – Palestinian Central Bureau of Statistics PACE – Palestinian Authority Customs and Excise PMA – Palestinian Monetary Authority USAID – United States Agency for International Development USD – United States Dollars UNDP – United Nations Development Program UNRWA – United Nations Relief and Works Agency for Palestinian Refugees VAT – Value Added Tax WFP – World Food Programme
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Executive Summary The Government of Israel continues to view the bilateral track with the Palestinians as the only way forward to a sustainable solution, based on two states for two peoples. Israel calls once again for the renewal of bilateral dialogue in order to achieve this goal. As of September 2012, the PA faces a severe fiscal crisis, with substantial arrears owed to the private sector and suppliers, NIS 617 million in debt to the Israel Electric Corporation, and difficulty meeting salary payments. The economic slowdown in the West Bank (5.4% growth rate) poses a major challenge to continued PA financial and institutional stability. While the present Palestinian fiscal crisis was caused by a shortfall in donor aid, there was also overspending in the implementation of the 2011 budget, as demonstrated by the PA's disbursement for development expenses, for which no funds were available, at the expense of recurrent expenditure. In the first half of 2012, budgetary goals, which from the outset were projecting financing gaps of more than USD 150 million, were not met. The public finance management system's role in the current crisis may undermine its track record as a system that meets the requirements of a well-functioning state.1 Israel has twice taken upon itself to transfer advance payments to the PA in order to facilitate the timely payment of salaries to PA employees. These Israeli measures reflect the common interest to support PA economic stability and help the PA manage the fiscal crisis successfully. They are part of the following significant measures taken by Israel since the beginning of 2012:
1
o
Following the last AHLC meeting in March 2012, Israel appealed to the IMF to support Prime Minister Fayyad's call for special IMF assistance. Thus far, the IMF has not managed to find a way to make IMF resources available to the PA.
o
Development of the Gaza Marine gas field will generate revenues that could contribute dramatically to Palestinian fiscal sustainability. After discussions between PM Netanyahu and Mr. Blair, following an approach by the Palestinian Authority, Israel confirmed its intention to engage in a meaningful discussion with the aim of developing the Gaza Marine gas field. In this context, official letters were submitted and meetings took place between Israeli representatives and the Palestinian leadership. These were followed by initial negotiations
For further information, see Chapter One, below.
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between the relevant parties regarding the development of the Gaza Marine gas field. o
On July 31, 2012, Israeli Minister of Finance, Dr. Yuval Steinitz, and PA Prime Minister, Dr. Salam Fayyad, concluded arrangements for the transfer of goods between Israel and the Palestinian territories and related tax procedures. These arrangements introduce mechanisms that better facilitate the movement of goods between Israel and the Palestinian Authority, and support efforts by both parties to reduce illegal trade and tax evasion. They will enhance the Palestinian tax system, thereby helping to strengthen the economic base of the Palestinian Authority.
o
On September 4, 2012, an agreement was signed between Malam2 and the Palestinian Authority Customs and Excise to lay down the technological interface needed to share computerized customs information.
o
In order to assist the PA in the timely payment of salaries on the eve of Ramadan, in July Israel transferred an advance payment of NIS 180 million to the PA.
o
On September 11, 2012, due to the Palestinian financial crisis, Israel's PM decided to transfer NIS 250 million as advance payment of PA tax revenues collected by Israel.
In order to help the PA reduce the level of unemployment, since February 2011 Israel has increased the number of working permits for Palestinian employees in Israel by 40%, reaching 41,450 permits. At present, almost 32,000 Palestinians earn their living in Israel and 27,750 Palestinians work for Israeli employers in the West Bank. This Israeli measure contributes directly to improving the economic reality for thousands of households in the West Bank. In order to facilitate trade, Israel continues to improve the commercial crossings – upgrading the infrastructures, streamlining procedures, shortening passage time and reducing the cost of transporting goods from the West Bank into Israel and to Israeli ports. Israel continues to cooperate with the PA, increasing the number of permits for businessmen who travel frequently in and out of the West Bank, to and via Israel. Israel has also adopted special procedures to ease the transfer of goods. An upgraded passenger terminal at the Allenby Bridge commenced operations in September 2012, aiming to improve services offered to Palestinians and visitors to the West Bank.
2
An Israeli company.
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Trade between Israel and the PA declined by about 7% compared to the first half of 2011, totaling USD 2.2 billion compared to USD 2.38 billion in the first half of 2011. Palestinian purchases from Israel accounted for approximately 65% of total Palestinian purchases in the first half of 2012, a drop of approximately 2% compared to the previous year.3 Tax revenues transferred by Israel to the PA4 increased by 12.55%, totaling NIS 2.75 billion5. A higher volume of commercial goods was shipped from the West Bank to Israel via the land crossings. In the first half of 2012, there was a 34% increase in the movement of commercial goods via the Allenby Bridge.6 Israel, for its part, continues to cooperate with the PA and the international community in order to provide the necessary conditions for economic and financial stability. Israel continues to reduce the number of checkpoints, which are normally open, to ensure that traffic flows relatively smoothly. During the month of Ramadan more than one million Palestinian worshipers visited the Al-Aqsa mosque in Jerusalem, due to the issuance of a record number of permits to visit Israel. On February 27, 2012, an agreement was signed between the Israel Electric Corporation and the Palestinian Energy Authority for the construction of four electricity substations (one of them in Area C). When completed in 2014, these substations will supply approximately 200 additional megawatts of electricity. Since 2011, reflecting its wish to respond to the needs of the local population, Israel has approved 328 projects in Area C. These projects are submitted by the PA, some are sponsored by the international community and some are initiated by the Civil Administration. Among these projects, 97 have been implemented, 99 are in the planning stages and 25 were declined. In addition, the implementation of 53 projects has been suspended due to lack of funding. Israel welcomes the international community’s support for approved projects in Area C and calls for a coordinated application process through the legal procedures and the Planning Committee. Israel encourages donors to sponsor and fund 16 projects which have already been approved by the Planning Committee but have not been implemented due to a lack of funding. Over the last few months, Israel has made considerable progress in drafting new master plans for Area C. This has been done with the involvement and PCBS During the first half of 2012. 5 Israel Ministry of Finance 6 Israel Airports Authority. Excluding the import of vehicles 3 4
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cooperation of the Palestinian side. These master plans, once approved, will accelerate planning procedures for further economic development. Israel maintains its coordinated cooperation with the international community on project development in this area, responding to the needs of the local population and implementing fast-track approval wherever possible. The Gaza Strip, which has been under illegitimate Hamas control since June 2007, is outside of the PA's reach. Despite this, the Gaza Strip places a significant financial burden on the PA, accounting for more than 50% of the PA's total expenditures. Since June 20, 2010, and despite ongoing attempts by Hamas and the Islamic Jihad to terrorize Israeli cities and the crossings between Israel and the Gaza Strip, Israel continues to implement a policy that contributes to economic and social well-being of the Gazan population. The years 2010-2011 marked a period of significant economic recovery in Gaza following this policy, yet in the first quarter of 2012 growth declined to 6%, and unemployment rose from 28% to 30% compared to the same period last year.7 Israel has approved 219 projects led by the international community in the Gaza Strip and has upgraded the infrastructure and capacity of the Kerem Shalom crossing to 450 trucks per day, far beyond actual use. In July 2012, Israel installed a new container scanner at the crossing in order to facilitate export from Gaza. During the first half of 2012, 24,506 people exited Gaza for humanitarian and business purposes, a 23% increase compared to the parallel period in 2011. Agricultural and textile exports to international markets have been expanded and the export of furniture and date bars to the West Bank has been approved and implemented. Since the beginning of 2012, 650,000 tons of aggregates for international projects and private sector pilot projects have been shipped into Gaza, in addition to 120,000 tons of cement and 25 tons of iron. Israel provided the necessary permits for a UNDP project to upgrade the production capacity of the electricity power plant in the Gaza Strip, and it now reaches 100 megawatts. From June 7 to August 6, 2012, in cooperation with Egypt and the PA, Israel facilitated the daily transfer of approximately 7 million liters of diesel fuel to the Gaza Strip, within the implementation of a 30 million liter donation by Qatar, transmitted from Egypt via Israel into the Gaza Strip. The transfer was suspended following the terrorist attack on August 5, and has not yet been resumed. During the first half of 2012, security in southern Israel along the border with the Gaza Strip remained under constant threat. A brutal assault of rockets IMF - Staff Report Prepared for the Meeting of the Ad Hoc Liaison Committee, September 23, 2012. 7
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and mortar shells from Gaza continued to terrorize a million Israeli civilians, paralyzing their daily lives. Since the beginning of 2012, 530 rockets have been fired into Israeli territory. This fire is deliberately aimed at heavily populated areas in Israel, including Beersheba, Ashdod, Ashkelon and surrounding areas, forcing a million Israeli citizens to take refuge in shelters. The terrorist attack on August 5, 2012, in the area of the Kerem Shalom crossing and the Israel-Egypt border, which targeted civilians living in the vicinity, underlines the severity of the increased security threat in this area, posed by possible cooperation between terrorists in Gaza and the Sinai Peninsula. This unbearable security reality is an alarming reminder of the proliferation of terrorist military capacity in the Gaza Strip, which jeopardizes prospects for peace and regional stability. Through the Implementation of its policy, Israel supports economic development in the West Bank and humanitarian sustainability in the Gaza Strip, while commending the international community for its crucial financial support, and calling upon the Palestinian leadership to return to the negotiating table to revive the bilateral track, which is the only way to reach a sustainable solution, based on two states for two peoples.
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Chapter One The Economic Situation in the West Bank8 A. General Analysis In the first quarter of 2012, real GDP in the West Bank amounted to USD 1,115 million, constituting a 5.4% growth rate, in comparison to the parallel quarter in 2011. This growth rate was similar to the rate recorded in the previous year. Economic growth was led by the services sector, as well as the wholesale and retail trade sector, both of which grew by approximately 12%. However, most of the growth in the services sector stemmed from the continued expansion of publicly-funded services, particularly education, health and social services. Additionally, the contribution of the telecommunications and information sector was pronounced, with a growth rate of approximately 8.5%. In contrast, there has been a decline in activity in construction, agriculture and industry (at rates of approximately 9%, 7% and 4%, respectively). The decline in business activity is reflected in the scope of investments in the economy, which is vital for long-term growth. Thus, in the first quarter of the year, investments in non-real estate capital dropped by 22% compared to the parallel quarter in 2011, totaling approximately 4% of the GDP. Increasing debts by the PA to suppliers and other private sector parties have also contributed to the erosion of public confidence in the PA private sector and economy, and have helped dampen spirits among the Palestinian public. Unemployment has increased, reaching approximately 17.1% in the second quarter of 2012, compared to 15.4% in the parallel quarter the previous year. Unemployment rates are particularly high among the young. Despite the economic slowdown, the standard of living in the West Bank continues to rise. Thus, the real GDP per capita in the first quarter of 2012 grew at a rate of approximately 2.4%, compared to the first quarter of 2011. In conclusion, although the West Bank economy maintains a stable growth rate, it is clear that most of this growth stems from industries based on government funding, while productive sectors continue to decline. The small scale of local and foreign investments hinders private sector development, particularly tradable sectors with a high added value. This is critical for the development of a sustainable economy that will meet the population's growing needs and supply the income needed by the government. Another 8
Unless stated otherwise, all data is from PCBS.
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issue posing a challenge is high unemployment rates, particularly among the young. B. The PA Fiscal Crisis The PA has faced financial difficulties due to a shortfall in international financial support and the inability to tap the local banking system to finance this shortfall, after having reached its upper credit limit (approximately USD 1.2 billion). These financial difficulties loomed heavily as an obstacle to the stability of the Palestinian economy and the PA administration. The fiscal crisis is especially acute because much of the West Bank economy still depends on the public sector and on construction projects, both still heavily financed by foreign aid. It also serves as an alarming warning sign for the stability of the Palestinian economy. While the present fiscal crisis was caused by a shortfall in donor aid, there was also overspending in the implementation of the 2011 budget, as demonstrated by the PA's disbursement for development expenses, for which no funds were available, at the expense of recurrent expenditure. In the first half of 2012, budgetary goals were not met, which from the outset were built upon financing gaps of more than USD 150 million. The public finance management system's role in the current crisis may undermine its track record as a system that meets the requirements of a well-functioning state. The following figures from the first half of 2012 reflect the impact of the fiscal crisis9: A. Total revenues were approximately USD one billion, about USD 100 million less than projections. This resulted primarily from non-realization of an expected change in the payment system, as well as low revenues from local collection, due to the economic downturn. B. Non-wage expenditures totaled approximately USD 1.65 billion, almost USD 100 million more than planned. This gap can be attributed mostly to social transfer expenditures - demonstrating the increasing difficulty in controlling these expenses- and subsidies for local authority electricity payments (net lending), chiefly due to an increase in electricity prices and the difficulties experienced by the Palestinian Electric Company in collecting payment from consumers. C. Development expenditures reached almost USD 120 million, about two thirds more than planned. It should be noted that the scope of incoming aid for development was just USD 50 million, and therefore it
9
Unless stated otherwise, all data is from the Palestinian MOF.
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would appear that the government continued to channel funds from the recurrent budget to development. In addition, the substantial gap between PA expenses in the Gaza Strip (almost half of the government's expenditure) and income there from (just approximately 2% of government income), remains pronounced. Furthermore, the relative proportion of expenses related to Gaza exceeds the proportion of Gazans within the general Palestinian population (approximately 38%), as well as Gaza's share of Palestinian GDP (approximately 27%). In this context it is important to emphasize that the PA does not have effective control over Gaza, which is governed illegitimately by Hamas. In total, the recurrent deficit amounted to approximately USD 630 million, exceeding a planned six month deficit of approximately USD 500 million. Including development expenses, the overall deficit totaled approximately USD 750 million. The deficit was funded through the following channels: A. External aid for the recurrent budget, at a rate of approximately USD 400 million, accounting for approximately 80% of the planned six month deficit. B. External aid for development, which amounted, as stated above, to approximately USD 50 million. C. Continued arrears to suppliers and contractors, totaling approximately USD 260 million, despite the resultant damage to the private sector and the increase in public dissatisfaction towards the PA stemming from non-payment. D. Bank funding at a scope of approximately USD 40 million – a substantially lower figure than previous years, since as stated above the PA has reached the limit of lending capabilities from the banking system (estimated at USD one billion, based on the scope of equity in the bank balance sheet).
Exhaustion of the above credit outlets led the government to a cash flow crisis approaching Ramadan. As a result, the government was forced to delay and stagger salaries to employees, on the eve of the holiday. After receiving an advance payment of about NIS 180 million from Israel the PA was able to pay most salaries before the holiday. During the same period, the PA received aid from Saudi Arabia and Iraq, in the amounts of USD 100 million and USD 25 million, respectively.10
Figures relating to Saudi aid are based on news reports, while figures relating to Iraqi aid are based on information from the Palestinian Ministry of Finance. 10
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In addition, on September 11, 2012, Prime Minister Benjamin Netanyahu ordered the transfer of an additional advance payment to the PA, in the amount of NIS 250 million. In any case, while the above solutions helped the PA address immediate needs, they will not solve long-term needs. In order to enable the PA to continue paying salaries in the coming months, while reducing debt to suppliers and the private sector, there is a need for continued aid from the international community, particularly from Arab states as well as additional Palestinian reforms. In an effort to assist the PA in increasing its budget revenues, in 2011 and the first half of 2012, discussions were held between the ministries of finance of Israel and the PA, paving the way for new arrangements for the transfer of goods and related tax procedures, which were agreed on July 31, 2012. For further information on these arrangements, see Chapter Two Fiscal Cooperation, below. Development of the Gaza Marine gas field will generate revenues that could contribute dramatically to Palestinian fiscal sustainability. After discussions between PM Netanyahu and Mr. Blair, following an approach by the Palestinian Authority, Israel confirmed its intention to engage in a meaningful discussion with the aim of developing the Gaza Marine gas field. In this context, official letters were submitted and meetings took place between Israeli representatives and the Palestinian leadership. These were followed by initial negotiations between the relevant parties regarding the development of the Gaza Marine gas field. The above underlines the shortcomings of the PA's current fiscal management framework, which helped contribute to the present fiscal crisis. This demonstrates the need for further reform in order for the PA to meet the standards of a well-functioning state. It also emphasizes the need to intensify investment in developing private sector activity. Israel strives to support this effort. C. Trade11 In the first half of 2012, trade between Israel and the PA declined by about 7% in comparison to the first half of 2011, totaling UDS 2.2 billion (compared to USD 2.38 in the first half of 2011). Israeli purchases of goods from the PA totaled USD 258 million, and declined by about 12%, as the Israeli economy slowed down following the European debt crisis. Israeli purchases of services 11
Unless stated otherwise, all data is from PCBS.
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from the PA also declined by 12% and totaled USD 180 million, compared to USD 204 million in the first half of 2011. Similarly, Palestinian purchases of goods from Israel in the first half of 2012 declined by about 6% compared to the first half of 2011, totaling USD 1.67 billion compared to USD 1.77 billion in the first half of 2011. Palestinian purchases of services from Israel declined by 11%, totaling USD 100.4 million compared to USD 112.8 million in the first half of 2011.12 Purchases from Israel accounted for approximately 65% of Palestinian purchases from Israel and the world in the first half of 2012, a drop of approximately 2% compared to the previous year.13 D. Employment14 The economic slowdown is also reflected by the labor market. Unemployment increased, reaching approximately 17.1% in the second quarter of 2012, compared to 15.4% in the parallel quarter the previous year. (It should be noted however, that unemployment dropped by 3% compared to the first quarter of 2012.) Despite this, there has been a slight increase in the rate of participation in the work force, which reached approximately 45.4% (compared to 45.3% in the parallel quarter in the previous year), while this figure remains low among women at approximately 19% versus 71% among men. In total, during the past year, the percentage of the employed within the general population dropped by approximately 0.7% (from approximately 38.3% to approximately 37.6%). Therefore, it appears that an additional drop in the economy's growth rate will continue to limit its ability to supply employment for those entering the labor market. Within this context, there has also been an increase in the unemployment rate among the young, which remains higher than the rate among the general population. Thus, the percentage of unemployed between ages 15 and 29 increased from approximately 24% in the second quarter of 2011, to approximately 26% in the second quarter of this year. Employment in Israel continues to serve as a major source of income for salaried employees in the West Bank. The percentage of employees working in Israel and the settlements, from among all employees, remained similar to the previous year, amounting to approximately 13% (about 59,540 employees: 31,800 in Israel and 27,750 in the West Bank). Average wages of Palestinians working in Israel are approximately double those of workers in the PA (the average daily wage in Israel and for Israeli ICBS PCBS 14Unless stated otherwise, all data is from PCBS. 12 13
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employers in the West Bank stands at approximately NIS 163, versus NIS 87 in the PA(. As a result of this difference in wages, income from work in Israel and for Israeli employers in the West Bank accounts for approximately 23% of total wages in the West Bank. As a basis of comparison, it should be noted that employment in the public sector accounts for approximately 17% of wages. As of August 2012, the total number of working permits available for Palestinian laborers in Israel amounted to 41,450 (of which 31,800 are utilized).15 E. The Banking System16 The banking system continues to maintain a stable pace of development, although slightly slower than previously, due to the downturn in the economy. Thus, in 2011 there was an approximately 17% increase in credit to the private sector in the West Bank, alongside an approximately 4% increase in deposits. As a basis of comparison, in 2010 the aforementioned figures amounted to 30% and 7%, respectively. Additionally, banks are maintaining limited exposure to the PA, as demonstrated by stress tests carried out by the Palestinian Monetary Authority. This limited exposure led, inter alia, to a substantial limitation in loans given to the government. As of June 2012, the total scope of government debt to the banking system remained close to USD 1.2 billion. In conclusion, the PA is facing increasing economic uncertainty, jeopardizing its ability to supply basic services and threatening its stability. At this sensitive juncture, and in the absence of substantial external aid to the Palestinians, it is vital for the PA to continue implementing institutional and fiscal reforms, as well as for donors to continue the constant flow of aid, and even to increase the scope of such aid, particularly from Arab donors. In parallel, Israel continues to serve as a stable support for the PA, taking the necessary steps to facilitate economic stability, including inter alia in the areas of trade, employment and finance, as outlined throughout this Report.
15 16
COGAT Palestinian Monetary Authority
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Chapter Two Fiscal Cooperation17 A. Arrangements regarding Transfer of Goods and Related Tax Procedures On July 31, 2012, Israeli Minister of Finance, Dr. Yuval Steinitz, and PA Prime Minister, Dr. Salam Fayyad, concluded arrangements for the transfer of goods between Israel and the Palestinian Authority and related tax procedures. The arrangements are the result of professional consultations conducted between the parties over the past few months, and are intended to facilitate the implementation of previous agreements in the economic sphere, particularly the "Paris Protocol". The objective of the arrangements is to introduce mechanisms that better facilitate the movement of goods between Israel and the Palestinian Authority, and support efforts by both parties to reduce illegal trade and tax evasion. The arrangements will help enhance the Palestinian tax system, thereby helping to strengthen the economic base of the Palestinian Authority. According to the arrangements, the tax clearance mechanism for Value Added Tax (VAT), purchase tax and import tax will be based on actual transfer of goods between Israel and the Palestinian Authority, replacing the current practice of calculating such tax clearances based on the reported transfer of goods. To support these efforts, the Israeli and Palestinian tax authorities will enhance the exchange of information regarding the actual transfer of goods. Furthermore, in order to improve monitoring and ensure efficient movement of goods, advanced technologies will be employed, Palestinian storage facilities will be established, and the transfer of goods will generally be conducted via designated Israeli crossings. In addition, pipelines for the safe and exclusive transfer of petroleum products from Israel to the Palestinian Authority will be constructed. The implementation of the new arrangements will commence on January 1, 2013, and will be monitored by a joint team of experts, comprising representatives from both parties. As mentioned by Israeli Finance Minister Dr. Yuval Steinitz, this is an important step in strengthening the economic ties between Israel and the Palestinian Authority. This cooperation between the two tax authorities will assist in fighting tax evasion, increasing Palestinian Authority revenues from the proper collection of taxes, and reducing illegal trade.
17
Ministry of Finance
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As further mentioned by Palestinian Prime Minister Dr. Salam Fayyad, the arrangements concluded will help to strengthen the economic base of the Palestinian Authority, by bolstering the tax system and increasing revenue from the proper collection of taxes. He also believes that these arrangements will improve the economic relations between the Palestinian Authority and Israel. Israeli Prime Minister, Mr. Benjamin Netanyahu, welcomed the conclusion of the new arrangements and added that they represent another component of his overall policy to support Palestinian society and strengthen the Palestinian economy. He expressed hope that the conclusion of the arrangements will help to further the relations between the parties in other areas as well. In order to accelerate implementation, on September 4, 2012, an agreement was signed between Malam (an Israeli company) and PACE to build the technological interface for sharing computerized customs information. This is an important step towards upgrading the professional capacity of PACE, within the process of building an improved tax collection system. The computer interface will enable the daily electronic transmission of information stored in the import entries of Palestinian importers. This will provide PACE with a wide database for its customs control work and for the establishment of an infrastructure for macro-economic data. B. Monthly Transfer of Clearance Revenues Cooperation between the ministries of finance of Israel and the Palestinian Authority includes, inter alia, the regular transfer of tax clearance revenues to the Palestinian Ministry of Finance by the Israeli Ministry of Finance, meetings of the joint bilateral MOF professional team, and training for Palestinian professionals on customs and tax systems. In accordance with the Paris Protocol, Israel collects customs and other taxes on behalf of the PA, and at the beginning of each month transfers the previous month's tax revenues to the PA. Tax revenue transfers have been made on a monthly basis. Revenues transferred constitute one of the PA’s primary sources of income, and are indispensable, together with budget support provided by donors and local tax collection, in enabling the PA to sustain operations including payment of public sector salaries and private sector contracts. In the first half of 2012, total taxes collected for the PA amounted to NIS 2.75 billion (indirect taxes: NIS 2,749,500,000). Due to the PA's budget crisis, and in order to assist the PA in the timely payment of salaries on the eve of Ramadan, on July 27, 2012 Israel transferred an advance payment of NIS 180 million to the PA.
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In addition, on September 11, 2012, Prime Minister Benjamin Netanyahu ordered the transfer of another advance payment to the PA, in the amount of NIS 250 million. In September 2012, PA debt to the Israel Electric Corporation reached an alltime high, totaling NIS 617 million. Despite extensive efforts by the Israel Electric Corporation, it has encountered grave difficulties collecting the debt from the PA. This situation, in which the PA does not repay its electricity debt, yet continues to consume electricity normally, places a heavy financial burden upon Israel Electric Corporation, which effectively subsidizes electricity consumption in the PA. The following table illustrates indirect tax transfers since 2007: Figure 1 :Transfer of Indirect Tax Clearance Revenues 2007-2012 (Millions of NIS)
Year
Import Taxes
Fuel Excise
VAT
Purchase Tax
Total (Indirect Taxes)
2007
Half I
581
737
532
0
1,850
2007
Half II
682
702
690
23
2,097
2008
Half I
581
675
602
7
1,865
2008
Half II
732
690
625
6
2,053
2009
Half I
717
640
665
7
2,029
2009
Half II
805
737
793
8
2,343
2010
Half I
767
736
788
8
2,299
2010
Half II
863
767
852
6
2,488
2011
Half I
865
782
793
3
2,443
2011
Half II
938
840
844
3.8
2,629.6
2012
Half I
940
936
870.7
2.75
2,749.5
8.6%
19.7%
9.8%
-8.3%
12.55%
% Increase Half I 2012/Half I 2011
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C. Joint Ministry of Finance Team At the beginning of 2011, the Israeli Ministry of Finance and the PA Ministry of Finance decided to establish a joint team (MOF to MOF) headed by the Director General of the Israel Customs Directorate (who was later appointed as DG of the Israel Tax Authority) and the Palestinian Accountant General (who was later appointed as Head of the PA Revenue Administration). The Joint Team held several meetings throughout the first half of 2012, agreed on an agenda and addressed issues such as updating existing economic arrangements, increasing transparency, and mutual information sharing. The team discussed principles for cooperation on several issues. D. Israel Tax Authority Training Activities for the PA Tax Administration The Israel Tax Authority supports international efforts to provide technical assistance to the PA in the area of taxation. It plays a major role in the implementation of a comprehensive reform of tax administration with technical assistance from the IMF, DFID and USAID. E. Cooperation between the Israeli and Palestinian Customs Authorities The Israel Customs Directorate (ICD) continues to support capacity building for the development of PACE, and views it as an important element both for PACE and for strengthening cooperation between the customs administrations of both sides. ICD is an active partner and as such is willing to assist in the professional capacity building of PACE. In the first half of 2012, Israel Customs continued to make efforts to strengthen its relations with PACE, and to contribute to PACE capacity building, as follows: F. Working Meetings between Officials of ICD and PACE In the first half of 2012, a number of meetings were held between senior customs officials of ICD and PACE in order to discuss and clarify certain issues, receive updates, exchange information and forward requests. Within the framework of the ongoing cooperation between the two administrations, meetings at the level of the Director General as well as the senior professional level are held periodically between the two sides. As mentioned above, on September 5, 2012, an agreement was signed between Malam (an Israeli company) and PACE to build the technological interface for sharing computerized customs information.
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G. Meetings with Palestinian Importers Meetings were held between ICD officials and Palestinian importers as per the importers' request. In February 2012, a meeting was held between the Director General of the Israel Tax Authority and a group of key Palestinian traders including importers and exporters. The meeting aimed to discuss various problems and matters of interest, and to examine solutions. In February 2012, a visit of Palestinian traders, importers and exporters, was held at Ashdod Port. The visit program included a lecture by a customs official and a guided tour of the Ashdod container scanner x-ray site. H. Training Activities o In January 2012, within efforts to assist PACE capacity building, ICD responded to a PACE request to hold a meeting with a Jordanian expert in the field of vehicle valuation. The meeting was held at the Allenby Bridge Border Crossing, and senior Israeli and Palestinian customs officials participated. o
In February 2012, a course on customs related issues started under the auspices of the Israeli Chamber of Commerce. The course, which ended in July 2012, was intended for Palestinian businessmen, and focused primarily on issues of classification, valuation, legality of importation, international shipping and other issues. In this course, a variety of ICD officials gave lectures. In addition, the course included study visits to the Nitzana Border Crossing between Israel and Egypt, the Gilboa land crossing between Israel and the PA, the Na'aman warehouse which is under customs control and where seized goods are stored prior to their sale or destruction, the Haifa and Ashdod container scanner x-ray sites, and the Regional Customs Office at the Ben-Gurion International Airport. During all these study visits senior ICD officials explained working procedures at the location and answered questions posed by the Palestinian businessmen. The participants expressed their satisfaction from the course, its content and the topics discussed.
o
In April 2012, in a meeting on classification, 2012 updates of the EU tariff were discussed. ICD and PACE officials, a Jordanian consultant and a representative of USAID participated in this meeting.
o
Joint working procedures have been formulated by the customs authorities to enable the clearing of goods from customs control under the various conditions of conditional exemption, for coordination and cooperation between them.
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o
I.
Additional training programs are planned for the future, including a training course on the topic of investigations, a seminar for PACE officials on Israel's free trade agreements, and a meeting on the topic of risk assessment between representatives of ICD, PACE and Jordanian customs.
Other Cooperation between PACE and ICD o
In 2010, a procedure that allowed Palestinian importers to take cars out of bonded warehouses in Israel, in order to display them in stores in the PA, was approved. This procedure continued into the first half of 2012.
o
Establishment of a new site for the inspection of vehicles- in the course of the upcoming year, construction will begin on a new site for the inspection of vehicles at the Allenby Bridge Land Border Crossing. An advanced device for the inspection of vehicles will be installed at the site, and will help optimize both the quality and time-span of the inspection process.
o
A project is underway for the construction of a fixed x-ray site for the scanning of containers and trucks at the Allenby Bridge Land Border Crossing. This project was initiated for the facilitation of trade and assistance to the PA, as part of capacity building. The scanner will be imported from Holland as it will be financed partially by the Dutch government.
J. Cooperation with the Private Sector The Israeli Chamber of Commerce arranged a six month long course for Palestinian businessmen on customs and international freight forwarding. The course was found to be useful and comprehensive, and was regarded as a success. K. Transfer of Deficits Collected from PA Importers and Electronic Transmission of the Details of the Deficits for Collection by PACE According to an arrangement pursuant to the Interim Agreement, ICD transfers to the PA taxes collected for imports destined for the Palestinian territories. In cases where inaccuracies are uncovered, based on postclearance audits, deficits are collected from the importers. ICD and PACE representatives meet on a monthly basis to determine the amounts to be transferred. In these meetings, each side raises issues it would like to discuss. In addition, in the middle of each month, pre-clearance preparatory meetings are held on a regular basis between the sides. 09
Since May 2008, ICD has transferred the deficits collected from Palestinian importers to PACE on a monthly basis. In the first half of 2012, ICD transferred to PACE approximately NIS 16.8 million in deficits collected from PA importers. Concurrently, ICD transfers information on deficits of Palestinian importers that it was unable to collect due to lack of accessibility to the PA territories. This process and the information forwarded gives PACE the necessary tools to deal with the importers within its territories, an essential stage in the professional capacity building of PACE. In the first half of 2012, ICD continued a pilot that began in February 2010, giving PACE full responsibility for handling deficits resulting from the importation of vehicles into the PA territories. L. Clearance of Donations to the PA: In the first half of 2012, 135 donations intended for the PA were cleared by the Israel Customs Directorate. The donations consisted of: 60% medicines and medical equipment; 12.6% vehicles including cars, ambulances and trucks; 3% food donations; and 6.7% water and electricity infrastructure. The volume of donations in the first half of 2012 decreased by 23.7% compared to the first half of 2011. The distribution of donations between the West Bank and Gaza In the first half of 2012 differs from the first half of 2011. In the first half of 2012, 52% of donations were destined for the West Bank, compared to 60% in the first half of 2011. In the first half of 2012, 48% of donations were destined for Gaza compared to 40% in the first half of 2011. M. Cooperation between the Bank of Israel and the PMA 18 The Bank of Israel (BoI) has been working with the Palestinian Monetary Authority (PMA) to smooth banking relations between the respective economies, subject to security concerns, Israeli anti-terror-financing legal requirements, and international standards. These requirements, combined with a low profitability of business relations with Palestinian banks, have induced commercial banks to limit their commercial relations with Palestinian banks. Specifically, they do not conduct business with branches located in the territory controlled by Hamas (the Gaza Strip). BoI continues to exchange damaged banknotes, in coordination with the GoI, the banking system in Gaza, and subject to the approval of the GoI. Due to risks related to the financing of terrorism, some Israeli banks are still concerned about handling cash transfers from Palestinian banks. At the same time, West Bank residents have begun to deposit increasing amounts of cash 18
Bank of Israel
21
in West Bank banks due to the improvement in the security situation. This has generated large amounts of excess cash in the West Bank, although it cannot account for the entire increase. The trend of increasing amounts of cash deposits made by Palestinian banks in Israeli banks (including BoI as described herein) continues and has even intensified. The BoI and the PMA cooperate in transferring the excess cash to Israel. Specifically, since August 2009, the BoI, in coordination with the GoI, has arranged cash transfers from the West Bank to Israel. The BoI and the GoI also cooperated with the PMA in finding solutions for other problems that arose from time to time in Palestinian banks, such as depositing cash surpluses and exchanging worn and unfit bank notes.
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Chapter Three Economic Cooperation A. Projects in Area C Since 2011, reflecting its wish to respond to the needs of the local population, Israel has approved 328 projects in Area C. These projects are submitted by the PA, some are sponsored by the international community and some are initiated by the Civil Administration. Among these projects, 97 have been implemented, 99 are in the planning stages and 25 were declined. In addition, the implementation of 53 projects has been suspended due to lack of funding. Israel welcomes the international community’s support for approved projects in Area C and calls for a coordinated application process through the legal procedures and the Planning Committee. Israel encourages donors to sponsor and fund 16 projects which have already been approved by the Planning Committee but have not been implemented due to a lack of international sponsor and funding. Figure 2 Summary of Projects in Area C19 Type
Approved Completed Lacking Funds Clinics 6 4 Schools 20 8 7 Roads 69 27 36 WWTP 12 1 7 Industrial Zones 3 2 Waste Sites 12 8 1 Land Rehabilitation 15 11 1 Agriculture 18 17 Water 75 11 Electricity 29 7 1 Quarries 10 Master Plans Telecommunications 59 1 Total 328 97 53
19
COGAT
22
In Planning 1 16 21 8 2 9 14 28 99
Denied 2 4 7 2 10 25
Over the last few months, Israel has made considerable progress in drafting new master plans for Area C. This has been done with the involvement and cooperation of the Palestinian side. These master plans, once approved, will accelerate planning procedures for further economic development. Israel maintains its coordinated cooperation with the international community on project development in this area, responding to the needs of the local population, and implementing fast track approval wherever possible.
B. Developing Industrial Zones Bethlehem Industrial Area - In this project, initiated with the support of the French Government, a number of companies have already commenced operations, or plan to commence operations, including a number of training centers, a car dealership, a dairy manufacturer and others. Israel's Ministry for Regional Cooperation assists coordination between the entrepreneurs behind the project and French and Palestinian parties involved. The Ministry is currently working together with the Land Crossings Authority to execute a series of arrangements to facilitate the smooth flow of goods and raw materials to and from the Area, through the Tarkumiya Crossing.20 Jericho Agro-Industrial Park – This project is sponsored by the government of Japan. On April 29, 2012 a four way meeting (Japan, Israel, Jordan and the PA) convened in Jordan, to discuss relevant issues for the project's development and implementation, including the issues of water supply, electricity and an access route. Additional local meetings have been held to further discuss the different issues and produce a feasible working plan for the project. Israel supports these projects and considers them crucial for further Palestinian economic growth, by improving the level and volume of Palestinian trade, as well as providing new jobs.
C. Cooperation in Water Supply Israel continues to cooperate with the Palestinians in the area of water relations, and to fulfill its obligations under the Water Agreement, part of the 1995 Interim Agreement, which remains in force. The Agreement contains clear provisions, particularly with regard to amounts of water, relating to a timeframe even beyond the interim period. Unfortunately, despite this cooperation on Israel's part, the Palestinians have been reluctant to reciprocate and in some cases have even ignored or 20
The Ministry for Regional Cooperation
23
violated the agreement, primarily in the critical areas of drilling wells not agreed upon in the agreement, and failing to treat wastewater that flows into Israel. Without proper monitoring and Palestinian cooperation, the Mountain Aquifer shared by Israel and the Palestinians will be destroyed, as the Gaza aquifer has been. During the past year, the Israel Water Authority and COGAT have responded to requests by the Minister and Head of the Palestinian Water Authority, and have made efforts to promote a series of steps and projects to increase water supply to Palestinians in the West Bank. Accordingly, they have acted over the past six months to push ahead projects that were approved by the Joint Water Committee (hereinafter: JWC), yet encountered difficulties in implementation for different reasons. Israel has demonstrated good will and flexibility with regard to the issue of water prices, in order to enable the supply of additional amounts of water the Palestinians have requested in Bethlehem and Hebron, as well as in the Gaza Strip. However, the Palestinians have refused to sign the protocol on this issue, due to internal Palestinian disputes and political considerations. Israel's efforts to assist the Palestinians in improving the water and sewage system in the West Bank and Gaza have been met with refusal by the Palestinians. Over the past year, they have refused to approve Israeli projects within the JWC, including sewage projects, causing damage to their own environment. This undermines the role of the JWC and the ability to approve new projects by both sides under the Water Agreement from 1995. Nevertheless, one recent example of fruitful cooperation between Israel and the Palestinians is a sewage treatment project in the Hebron area. Thanks to this project, in which the Israeli and Palestinian water authorities, COGAT, the Civil Administration, USAID, the European Union and the international community all participate and cooperate, the level of sewage pollution in Hebron has been reduced. Israel and the Palestinians continue to cooperate in regional frameworks, by participating in meetings and workshops as well as joint courses on wastewater and desalination, among the most advanced in the world in this field. In January 2012, Palestinians and Jordanians participated in a course held at the Dan Region Reclamation Project for treating wastewater. In June 2012, Palestinians and Jordanians participated in a special course, the first of its kind in the world, on desalination and use of solar energy. The courses, which were held in Israel, were sponsored by the organization MEDRC. In addition, a workshop for Palestinians, Jordanians and Israelis was held in Israel in July 2012, funded by the European Union through the programs "SWIM", and Horizon 2020. 24
Israel considers implementation of the Water Agreement to be an important tool for promoting bilateral cooperation and serving the needs of the local population, and commends the role of regional frameworks supporting cooperation between the parties on this issue.
D. Marketing Dairy and Meat Products to Jerusalem – Capacity Building Marketing Palestinian meat and dairy products and capacity building has been discussed between the parties in several bilateral meetings over the last two years. The Israeli authorities, the Office of the Quartet, the US, the EU and other international organizations have joined forces in a project intended to help Palestinian food manufacturers meet the veterinary standards required to sell their goods to Jerusalem and the rest of the world. The project will help develop veterinary capabilities in the PA, and adherence to international standards. Temporary authorization to market these goods to East Jerusalem has been granted until the end of 2012.21
E. Upgrading Electricity Infrastructure In the West Bank, electricity supply is based on several sources, including conduction cables and distribution cables of the Israel Electric Corporation and distribution cables of the Jerusalem District Electricity Company. In addition, electricity can be produced independently through photo-voltaic technology. In total, the Israel Electric Corporation provides 435 million voltamperes, the Jerusalem District Electricity Company supplies 280 million voltamperes, a line from Jordan supplies 30 megawatts and another 30 megawatts are produced independently, amounting to approximately 775 megawatts. Since electricity needs amount to 810 megawatts, there is an inherent supply gap of approximately 35 megawatts.22 In February 2012, an agreement was signed between the Israel Electric Corporation and the Palestinian Energy Authority to build four electricity substations throughout the West Bank, and connect them to high voltage lines. The substations will be built in Jenin, Nablus, Atarot and Tarkumiya. The substations will substantially increase capacity to supply electricity throughout the West Bank, and will increase the potential for economic development. Construction on the project commenced in January 2012, and is expected to supply the Palestinians with an additional 200 megawatts upon completion at the end of 2014.23
COGAT, Ministry for Regional Cooperation COGAT 23 COGAT. This agreement was made possible due to support offered by the European Investment Bank (EIB). 21 22
25
Furthermore, increased electricity connection capacity is underway in Tulkarem (100 amperes) and Jenin (7 megawatts). Project completion is projected in the upcoming months.24
F. Developing Potential in the Tourism Sector In the first half of 2012, there was a slight increase in the number of tourists entering the West Bank, numbering 1,207,760, compared to 1,202,346 in the first half of 2011. The Office of the Quartet, together with Israel's Ministry for Regional Cooperation and the private sector in the PA, cooperated on a project to mark out tourist routes through the West Bank, with the objective of offering joint tourism packages together with the Palestinian Ministry of Tourism. Within this project, with the help of the Civil Administration, procedures were formulated to enable the passage of tourists through the Jalame/Gilboa Crossing, and continuous travel through the West Bank. Tourists have already begun benefiting from these new procedures. 25 In addition, thanks to the introduction of new technology, and authorization for tourists to pass through the Minharot Crossing, long lines have been eliminated for tourists at the Rachel and Bethlehem Crossings.26 Furthermore, ten new hotels are currently under construction in the Bethlehem area.
G. Agricultural Cooperation and Capacity Building27 During 2011 and the first half of 2012, there was extensive Israeli Palestinian cooperation in the agricultural field, including with the Palestinian Ministry of Agriculture, Palestinian farmers and agricultural unions. The following is a short overview of some of the joint cooperation efforts in this area: Pest Extermination- a number of projects were conducted in this field, including: o Continuation of a project which began in February 2010, to stamp out Mediterranean fruit flies. The transfer of shipments (2 million flies a week) began on June 27, 2012. o A joint project in the Jordan Valley to exterminate the red palm weevil "Rhynchophorus Ferrugineus", a pest which damages date palm trees,
COGAT Ministry for Regional Cooperation 26 Ministry for Regional Cooperation 27 All data the Civil Administration. 24 25
26
o
o
was implemented. Within this project, date palm territory in the Jordan Valley was mapped out and the maps were transferred to the Palestinian Ministry of Agriculture. Joint meetings were held to map out the laying of traps. The Civil Administration funded the purchase of 300 traps, which were provided to the Palestinian Ministry of Agriculture in July 2012. Representatives from the Palestinian Ministry of Agriculture participated in a joint study day in the Negev with the Plant Protection and Inspection Services, regarding the peach fruit fly, "Bactrocera Zonata". Several study tours were held with experts from Israel's Ministry of Agriculture to find solutions for parasitic broom-rape (Orobanche) plants.
Agricultural Projects in the Jordan Valley – throughout 2011 experts from Israel's Ministry of Agriculture provided professional assistance, including providing fertilizers, marketing produce, sampling water and soil. The following are the main projects: o A project to grow 100 dunams of cherry tomatoes and peppers for export, in the Jordan Valley. o A project in Jiftalik, encompassing 200 dunams of greenhouses and net houses distributed into 80 dunams of spices, 30 dunams of cherry tomatoes, and 90 dunams of multi-colored peppers. o A project encompassing 120 dunams of net houses for multi-colored peppers, in the Fadail area. o A project in Ujja, encompassing 200 dunams of spices and 100 dunams of greenhouses for growing vegetables. Agricultural Exhibitions in Tel Aviv - In 2011, a large delegation of 360 leading Palestinian farmers, businesspeople and Ministry of Agriculture representatives participated in the Agro Mashov Exhibition in Tel Aviv, and for the first time a special 80 meter booth was allocated for presentations by Palestinians from the West Bank. In 2012, 301 Palestinians participated in the Agro Mashov exhibition. In May 2012, 169 Palestinians participated in the global Agri-tech Exhibition in Tel Aviv, which included a booth for Palestinian presentations. This was a unique opportunity for Palestinian presenters to gain exposure to the tens of thousands of visitors from throughout the world who attended the exhibition. Sampling of Pre-harvest Produce - Together with the Palestinian Ministry of Agriculture, samples are conducted of fresh pre-harvest produce (microbiological tests and tests for traces of pesticides) in order to guarantee that produce reaching Palestinian and Israeli consumers is clean. In 2011 a total of 1853 samples were conducted (959 in the first half of 2011). In the first half of 2012, 821 samples were conducted. 27
Cooperation to Treat Diseases – There was cooperation to address two outbreaks of the Avian Flu disease in the Gush Etzion area, as well as an outbreak of Foot and Mouth Disease in the PA (Nablus, Hebron, Dora and Tulkarem). Supply of Vaccines – In 2011, Israel provided 616,700 vaccines to the PA, at a cost of NIS 2,198,200 (in the first half of 2011 172,500 vaccines were provided). In the first half of 2012, the number of vaccines provided reached 355,500. Palestinian Agricultural Trade Imports - In 2011, agricultural imports from throughout the world amounted to 7,725,623 Euro plus USD 85,933,295. The number of import licenses issued reached 814 (393 in the first half of 2011), an increase compared to 2010, when 725 licenses were issued (332 in the first half of 2010). In the first half of 2012, 380 licenses were issued. Exports and Sales to Israel and Gaza – the Israeli Ministry of Agriculture made efforts to promote Palestinian export of spices and other produce. Spices provide about 1000 tons of export-bound produce, primarily to the United States. In addition, in the first half of 2012, 40 tons of leather, 155 tons of frozen meat, and 23,500 plants/seedlings were exported. In addition, in 2011, 7 export licenses were issued for olive oil, frozen poultry, leather, and fresh vegetables and spices, at a total value of 3,125 tons or USD 6,050,000. During 2011, West Bank growers sold 66,250 tons of produce to Israel (38,540 in the first half of 2011). In the first half of 2012, West Bank growers sold 37,852 tons of produce to Israel. In 2011, a total of 24,334 tons of agricultural produce was sold by West Bank growers to Gaza. Study Sessions - In 2011, over 800 Palestinians participated in a total of 21 joint professional training sessions, meetings, agricultural exhibits, study days and tours, which were conducted for representatives of the Palestinian Ministry of Agriculture and Palestinian growers, in the fields of: plant protection, veterinary medicine, afforestation, pasture, and export in the olive sector. In the first half of 2012, over 750 Palestinians participated in 12 such joint study sessions.
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Chapter Four
Facilitation of Access and Movement A. Upgrading of Commercial Crossings28 During the first half of 2012, Israel continued to upgrade the infrastructure of the commercial crossings between Israel and the West Bank. The volume of commercial activity at the crossings continued to grow, with an average of 1,431 trucks passing through the crossings each day in the first half of 2012 (compared to 1,332 in 2011 and 1,270 in 2010). In total, 93,354 trucks entered the West Bank through commercial crossings in the second quarter of 2012, compared to 84,708 in the similar period in 2011, which represents a 10% raise in volume activity. Figure 3 Back to Back Trade29 Number of Trucks entering the West Bank (including empty trucks) through Crossings 30
+10% +2% +22%
B. Pedestrian and Vehicle Crossings31 In the first half of 2012, an average of 19,256 pedestrians passed through the main West Bank terminals each day, a 20% increase compared to 2011, when a daily average of 16,076 pedestrians passed through the main West Bank terminals each day (the 2011 figure represented a 12% increase compared to Ministry of Defense, Land Crossings Authority Ministry of Defense, Land Crossings Authority 30 Except Reihan 31 Ministry of Defense, Land Crossings Authority 28 29
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2010, when the daily average numbered 14,375 pedestrians). In June 2012, an average of 11,000 vehicles passed through the crossings each day.32 Several projects are underway for the upgrading of pedestrian crossings. C. Crossings in Area Surrounding Jerusalem33 The following data reflects movement at the crossings surrounding Jerusalem, during the first half of 2012: o
o o o
The number of pedestrians passing through the crossings surrounding Jerusalem (Rachel, Zeitim and Atarot) in the first half of 2012 numbered 6,491,160. The number of vehicles passing through the crossings (Rachel, Kalandiya and Beituniya) during the first half of 2012 totaled 1,225,513. Shipments passing through Beituniya Crossing numbered 18,374. Significant steps have been taken to ease movement at the Kalandiya Crossing. The crossing is now opened early, from 4:00 AM, all five lanes are open, and assistance is given to those with special needs (medical teams, humanitarian cases, school children).34
In 2011 and the first half of 2012, the Civil Administration invested a total of NIS 214,000 in the upgrade of infrastructure at the crossings: Kalandiya, Beituniya Sawahra, and Sheikh Saad. The IDF and the Government of Israel invested NIS 31,270,000 in the upgrade of the pedestrian and vehicle crossings: Shuafat, Rachel, Sheikh Saad, Sawahra, Zeitim, and Kalandiya. A number of additional measures were taken in order to improve service at the crossings, including: o o
Special authorization for medical staff and ambulances to pass quickly through the crossings. Changes in operating procedures at the crossings improved service for the Palestinian population and cut waiting times.
The crossings are unfortunately still targeted by terrorists, and violent attacks are perpetrated regularly at the crossings. At the Kalandiya Crossing alone, there were 60 stone-throwing attacks and 12 Molotov cocktail attacks. In addition, four explosive devices were confiscated, and one was thrown into the crossing. Four knives were also confiscated. At the Shuafat Crossing, there were 25 stone-throwing attacks, 25 Molotov cocktail attacks, two knives were confiscated, and there was one stabbing and one attempted stabbing.
Crossings Authority Israeli Police 34 COGAT 32 33
31
D. Allenby Bridge The Allenby Bridge serves Palestinian trade with international markets35 as well as the passage of pedestrians and vehicles. The volume of traffic passing through the Allenby Crossing in the first half of 2012 was as follows36: o
The volume of shipments in the first half of 2012 numbered 12,242, (8,271 imports and 3,971 exports), a 34.09% increase compared to the parallel period in the previous year, when the number of shipments passing through the crossing was 9,130.
o
The volume of passengers at the Allenby Bridge numbered 809,565 in the first half of 2012 (421,035 entries and 388,530 exits). This constituted a 9.60% increase compared to the parallel period in the previous year, when 738,660 passengers passed through the Crossing. A renovated passenger terminal opened in the beginning of September.
o
The volume of vehicles passing through the Allenby Bridge in the first half of 2012 numbered 5,239 (3,050 entries and 2,189 exits), a 13.87% increase compared to the parallel period in the previous year, when 4,601 vehicles passed through the Crossing.
For the past few years, the hours of operation of the Allenby Bridge have been extended, and the bridge is now open from Sunday through Thursday until midnight (8:00 – 24:00) for passengers and for commercial traffic. On weekends (Friday and Saturday), the bridge is open until late afternoon (8:00 – 15:00). At the beginning of Ramadan the Bridge was kept open for 48 hours straight, in order to enable the passage of more than 25,000 visitors. A joint project by COGAT and the Israel Airports Authority, at a cost of USD 2.5 million, aims to upgrade the Allenby Bridge.37 In addition, Israel is cooperating with the Quartet and the Dutch government in order to facilitate the installation of a security scanning system at the Allenby Bridge, donated by the Dutch government. The Dutch Government is sponsoring the project by financing the scanner, at a total cost of USD 3 million. Israel will invest USD 9 million over and above the Dutch donation, and is currently funding the preparation of the architectural plan for the project. Use of the scanner is expected to improve trade conditions and increase the competitive capabilities of Palestinian manufacturers, enabling Palestinian output for Palestinian international trade is also transported through Israeli ports and airports. Israel Airports Authority 37 COGAT 35 36
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export to increase by 30% (based on a survey conducted among Palestinian merchants).38 The Israeli investment in upgrading facilities of the Allenby Bridge totals USD 11.5 million.
F. Measures to Ease Movement and Access Despite the continued security challenges, a number of steps were taken to ease movement and access in the West Bank. As of August 21, 2012, seven checkpoints and roadblocks had been removed39: o o o
Hashomronim Checkpoint near Nablus was removed in December 2011. Roadblocks in Beit Dajan and Ariel – Salfit, were removed. Checkpoints were removed in Zawta, Izbet Shufa, Highway 60, and Beit Anoun East interchange.
There are 13 checkpoints remaining, which operate as "normally open", enabling the smooth transit of vehicles and pedestrians. West Bank IDs for Gazans Residing in West Bank - the GOI has agreed to authorize 5,000 West Bank residents who currently hold Gaza IDs to change their address for ID purposes to the West Bank. Thus far, 3,857 residents have submitted requests. 2,993 requests have been approved.40
Measures to Facilitate Religious Worship - A number of steps were taken to facilitate religious worship, particularly during holidays. The number of entrance permits granted to Palestinians to visit Israel during the month of Ramadan reached its highest level since August 2000. 121,000 multi-use permits were granted to visit Israel during the Ramadan period. These permits enable the holder to enter Israel with his family multiple times throughout all five weeks of the Ramadan holiday. Approximately one million Palestinians visited and prayed at the Al-Aqsa mosque during Friday prayers throughout the month. Permit holders are also able to tour Israel, and many of them visit shopping and recreational centers in Jerusalem, Jaffa and many other cities in Israel.41
Ministry for Regional Cooperation COGAT 40 COGAT 41 Civil Administration 38 39
32
Measures to Encourage Trade- Additional measures have been taken to encourage trade: o The number of permits for traders has been increased by 500 and is currently 16,500.42 o A growing number of Israelis are now entering Area A in order to procure goods and services. They provide a significant contribution to the Palestinian economy in the West Bank. o The number of Business Person Certificates (BMC), which ease the movement of key Palestinian business people, was increased to 900.43 o The number of permits for trips to Israel was increased. 44
G. Access to Health Services in Israel45 Thousands of Palestinian patients receive medical treatment in Israel each year. Between January 1, 2012 and August 21, 2012, 138,884 permits were granted for patients and accompanying individuals to enter Israel for medical treatment. Figure 4 below demonstrates the numbers of patients from the West Bank who received medical care in Israel from 2008 to August 2012.
Figure 4: Palestinian Patients from the West Bank Treated in Israel46 2008 – August 2011 Palestinian Patients from West Bank Treated in Israel 250,000 200,000 150,000 100,000 50,000 0 2118
2119
2101
2100
January August 2012
In addition, Israel is participating in an NIS 38.5 million project to construct three clinics for emergency medical care, which will serve Palestinians in the vicinity of the clinics (Hebron, Nablus, Bethlehem, and surrounding villages). These centers are expected to make quick medical care available to Palestinian patients in emergency situations.47 COGAT COGAT 44 COGAT 45 COGAT 46 COGAT 47 Ministry for Regional Cooperation 42 43
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Chapter Five
Israel's Policy towards the Gaza Strip A. Introduction The Gaza Strip, which has been under illegitimate Hamas control since June 2007, is outside of the PA's reach. Despite this, the Gaza Strip places a significant financial burden on the PA, accounting for more than 50% of the PA's total expenditures48. The PA does not benefit from the tax collection system operated by Hamas in Gaza. An extensive network of more than 1000 tunnels serves for the smuggling of all kinds of commercial goods from Sinai into the Gaza Strip, including fuel, cars, cement and other construction materials. This network is also used to smuggle a highly dangerous volume of weapons into Gaza, weapons that target Israel's civilian population. Since June 20, 2010, and despite ongoing attempts by Hamas and the Islamic Jihad to terrorize Israeli cities and the crossings between Israel and the Gaza Strip, Israel continues to implement a policy that contributes to economic and social recovery in Gaza. Israel enables the free flow of commercial goods and raw materials49 into Gaza. Thus far, Israel has approved 219 infrastructure and humanitarian projects implemented by the international community, the passage of businesspeople has been extended, Kerem Shalom crossing has been upgraded, and the there is an ongoing supply of electricity and fuel. The years 2010-2011 marked a period of significant economic recovery in Gaza following this policy, yet in the first quarter of 2012 growth declined to 6%, and unemployment rose from 28% to 30% compared to the same period last year.50 A brutal assault of rockets and mortar shells from Gaza continues to terrorize a million Israeli civilians, paralyzing their daily lives. Since the beginning of 2012, 530 rockets have been fired into Israeli territory. This fire is deliberately aimed at heavily populated areas in Israel, including Beersheba, Ashdod, Ashkelon, and surrounding areas, forcing a million Israeli citizens to take refuge in shelters.
Payment for salaries as well as electricity and water supplied from Israel. With the exception of dual use materials. 50 IMF - Staff Report Prepared for the Meeting of the Ad Hoc Liaison Committee, September 23, 2012. 48 49
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Figure 5 - Rockets Fired into Israeli Territory51
Figure 6: Gaza Strip Rocket Ranges52
Israel calls on the international community to condemn these attacks. As stated by UN Secretary General Ban Ki-Moon: "For many years I have been fully condemning those rocket attacks on civilians. This is totally unacceptable and against the fundamental principles of human rights."53 Despite this, the State of Israel has kept the land crossings to Gaza open. Erez crossing has remained open for passengers (businesspeople and humanitarian cases) and international organization employees. Kerem Shalom has remained open for the daily delivery of commercial goods from Israel to Gaza. http://www.terrorism-info.org.il/en/article/20388 As of August 28, 2012. http://www.terrorism-info.org.il/en/article/17947 53 http://www.haaretz.com/print-edition/news/un-chief-to-haaretz-palestinians-will-only-get-astate-through-negotiations-1.410687 51 52
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B. Projects Implemented by the International Community54 Israel works with the international community and the Palestinian Authority to advance and streamline procedures for the approval of internationally funded projects. To this end, a coordination and monitoring mechanism has been set up for the implementation of internationally funded, monitored and implemented projects. Thus far, 219 internationally funded projects have been approved, in a wide variety of fields. Seventy-eight projects were approved in 2010, 98 in 2011, and 43 thus far in 2012. Of these 219 projects, 53 (24%) have been completed, 82 (37%) are in progress, 74 (33%) have not yet commenced implementation, and 9 (4%) have been cancelled.55 The projects are in the following areas: 88 in the field of education; 40 infrastructure projects, 29 projects for sports, recreational and other activities; 17 agriculture projects; 17 health projects; 15 housing projects and 13 road projects. The projects are funded by the following international donors: 92 projects by UNRWA, 61 projects by USAID, 40 projects by UNDP, 3 World Bank projects, 3 Red Cross projects, 2 French projects, 14 German projects, one Egyptian project, one Belgian project, one Dutch project and one Swedish project. Turkey and Qatar have each promised to promote projects with a scope of approximately USD 300 million a year.56 As of July 1, 2012, 19,920 trucks have entered the Gaza Strip for projects: 15,436 trucks carrying aggregates; 2,856 trucks carrying cement; 987 trucks carrying equipment and other miscellaneous items and 641 trucks carrying steel.
C. Trade In 2011, there was a substantial increase in trade from the Gaza Strip through the crossings with Israel, as measured primarily by the number of trucks passing through them. Thus, in the last year there was an approximately 13% increase in the number of shipments entering the Strip, and an approximately 47% increase in the number of shipments exiting the Strip. In the first half of
COGAT COGAT 56 These projects are promoted in coordination with the Hamas regime, and have not been coordinated with Israel. 54 55
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2012, 26,877 trucks shipped goods into the Gaza Strip through Kerem Shalom (723 tons), compared to 25,579 last year (664 tons). 57 According to different reports in the Palestinian media, most foreign trade (more than 50%), continues to be smuggled through the tunnels along the Egyptian border. D. Increased Exports58 On December 8, 2010, Israel’s Security Cabinet adopted a decision on additional measures to expedite increased exports from the Gaza Strip, thereby boosting the Gaza economy.59 In order to support the private sector in Gaza, GoI authorized export of agricultural produce, furniture and textiles. A scanner was recently installed at Kerem Shalom, to make the infrastructure suitable for export needs in Gaza. Agricultural produce has been exported in accordance with the decision. During the agricultural season from November 2011 – May 2012, the volume of agricultural exports was: 436.4 tons of strawberries, 9,000,000 flowers, 57.2 tons of peppers, 57 tons of cherry tomatoes and 158 tons of regular tomatoes. In addition, in the beginning of August 2012, 39 tons of tomatoes were exported to Jordan in three trucks. In May and July 2012, 4,000 sweaters were exported to Britain, in two shipments. Two trucks carrying furniture exited the Strip to participate in an exhibition in Jordan, one in January 2012 and one in June 2012, totaling 45 shipments. Approval was also granted for the sale of Gazan furniture to the Ministry of Education in the West Bank. In March 2012, within a project by the WFP (World Food Programme), 140 tons (4 truckloads) of date bars were marketed. A request for an additional 720 date bars has been approved, and is expected to commence in September 2012.
E. Upgrading Infrastructure in Kerem Shalom Crossing Kerem Shalom serves for traffic in commercial and humanitarian goods, fuels, aggregates and grains in bulk. The capacity of the crossing today far exceeds actual use for the transfer of commercial goods, construction material, aggregates and grains in bulk. COGAT COGAT 59 The full text of the Decision can be found at: http://www.pmo.gov.il/PMOEng/Communication/Spokesman/2010/12/spokedes081210.htm http://www.mfa.gov.il/MFA/HumanitarianAid/Palestinians/Security-Cabinet-Decision-on-GazaStrip-Exports+-8-Dec-2010.htm 57 58
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Thus far, Israel Land Crossings Management Authority has invested approximately NIS 80 million in the development of the crossing. Improvements completed include the expansion of the crossing area from 120 dunams to 600 dunams, in order to enable the intake of additional trucks and increase the crossing's daily capacity to 450 trucks. As mentioned above, the installation of a scanner was recently completed, to be used for exports. At present, the crossing's capacity is 450 trucks a day, although as of August 21, 2012, the average number of trucks at the crossing was just 280 trucks a day.60 In addition, hours of operation at the crossing have been extended and the number of workers at both the Israeli and Palestinian sides has increased. Efforts to expand the transfer of fuel through the crossing are currently underway. The aim is to increase the level of diesel fuel transferred from 540,000 liters to 1,170,000 liters; and the level of gas from 180 tons to 230 tons. The level of benzene is expected to remain at 400,000 liters.61 F. Movement of People62 Israel enables the passage of businesspeople and passengers who seek medical treatment in Israel or elsewhere. In the first half of 2012, there was a 23% increase in the number of entries and exits at Erez Crossing, from 19,251 in the first half of 2011, to 24,506 in the first half of 2012. The number of foreigners entering the Strip remained relatively stable, at 4,392 entries in the first half of 2011, and 4,399 entries in the first half of 2012. In the first half of 2012, a total of 8,538 Gazans left the Strip to receive medical treatment in Israel (including accompanying family members), compared to 9,736 during the parallel period in 2011. In addition, 274 ambulance evacuations from Gaza were recorded in the first six months of 2012, compared to 210 in the first six months of 2011. Moreover, in the first half of 2012, 2,545 businessmen and merchant passes were issued, enabling businessmen to leave Gaza for Israel and/or the West Bank. Consequently, 11,772 exits by businessmen from Gaza were recorded in the first six months of 2012, compared to 6,864 during the parallel period in 2011. In addition to humanitarian cases, businessmen and merchant passes, high level PA officials and Gazans with a range of circumstances, such as COGAT; Ministry of Defense, Land Crossings Authority Ministry of Defense, Land Crossings Authority 62 COGAT 60 61
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participation in local or international conferences, internships in Israel, or study abroad etc., have also exited Gaza during the first half of 2012. 4,196 such exits were recorded in the first half of 2012, compared to 2,651 in the parallel period in 2011.63
G. Transfer of Cash64 Throughout 2011 and 2012 (January through August), monthly cash transfers in the amount of USD 13.5 million were transferred to UNRWA, to cover ongoing expenses and salaries. In addition, new banknotes were transferred to the Gaza Strip to replace worn-out banknotes as follows: on 15.1.12 NIS 13 million; on 13.6.12 NIS 20 million. On May 10 2012, NIS 75 million was transferred to the Strip to cover urgent obligations of local banks.
H. The Energy Crisis in Gaza Electricity is supplied to Gaza from three primary sources: 10 feeding lines from Israel, which supply approximately 124 megawatts; 2 feeding lines from Egypt, which supply approximately 22 megawatts, and electricity from the power station in the Gaza Strip. Until recently, the power station's capacity was approximately 50 megawatts (depending on the supply of fuel), but a newly completed UNDP project to upgrade the power station's capacity has increased capacity to 100 megawatts. Thus, the total capacity available is now approximately 246 megawatts, although consumption requires approximately 300 megawatts, causing a supply gap of approximately 54 megawatts (which is expected to grow when the desalination plant is built). Additionally, recent operational difficulties at the Gaza Power Station have exacerbated the gap.65 During the first months of 2012, there was a substantial decrease in the volume of fuel smuggled from Egypt through the tunnels, leading to a severe shortage and difficulties in the daily lives of residents. In particular, this was reflected by a shutdown of the Gaza Power plant, due to a shortage in fuel to power the plant, thereby leading to power outages of up to 16 hours a day. Israel continued to provide the regular supply of fuel it transfers to Gaza. The Hamas government (like the PA) refrained from purchasing Israeli fuel at market prices, until increased public criticism regarding the crisis forced them to do so. Furthermore, a complete shutdown of the electricity network was prevented primarily because of the continued regular supply from Israel, which amounts to approximately 120 megawatts, out of total consumption of approximately 300 megawatts. COGAT COGAT 65 COGAT 63 64
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In April 2012, the situation improved significantly, following a Palestinian decision to purchase fuel from Israel to operate the power plant, which consumes approximately 500,000 liters a day. In the first half of 2012, approximately 19.4 million liters of diesel fuel were transferred into the Gaza Strip. On June 7, 2012, the transfer of 30 million liters of Qatari diesel fuel donated by Qatar commenced. The fuel was transferred from Egypt via the Nitzana and Kerem Shalom crossings, into Gaza. Accordingly, 6.9 million liters of diesel fuel were transferred, until August 6, 2012, when, following the terror attack on the Sinai border, the transfer of the diesel was suspended.66 I.
Cooperation on Water Supply67
Israel has expressed its willingness to assist the Palestinians in rehabilitating Gaza’s water supply system, which was destroyed due to Palestinian mismanagement, mainly over-pumping. In this context, Israel continues to support the establishment of a desalination plant in the Gaza Strip, and remains willing to assist the Palestinians in this regard. Accordingly, Israel holds desalination training courses for the Palestinians and Jordanians, as mentioned above in Chapter Three. Palestinian officials from the PA Water Authority in Gaza were given a professional guided tour of the desalination plant in Ashkelon, and Israel has provided professional consultations on this matter. Water consumption in Gaza is approximately 170 MCM, of which 90 MCM are for household consumption and 80 MCM for agricultural use. This entire amount is pumped from the aquifer, which has a natural capacity of just 55 MCM68, causing severe overuse, and the aquifer has fallen below the black mark, and become contaminated. The aquifer may be completely destroyed by 2020 if the Palestinians do not begin repairing it soon. At present, 5 MCM are supplied per annum by Israel via the Kisufim water pipe. Israel has expressed its agreement in principle to transfer a water increase of up to 5 MCM per annum to the Palestinians via Nachal Oz, but the Palestinians’ continued unwillingness to sign a protocol on the price (as mentioned above in Chapter Three) is preventing this increase from being implemented. Despite this, Israel has decided to embark on the infrastructure work required for transferring this water increase so that when the price is
COGAT COGAT, Israel Water Authority 68 Based on Palestinian figures. 66 67
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agreed upon it will be possible to make the transfer without further delay. Work on a pipe Israel is laying in this context is in its final stages. Water and sewage projects in Gaza are continuing according to plan, with emphasis on large wastewater projects in Beit Lahiya in the Northern Gaza Strip, sponsored by the World Bank and Sheikh Ajleen in Central Gaza, sponsored by the German government. A budgeting gap is delaying the UN project in Khan Yunis in the Southern Gaza Strip.69
J. Fiscal Developments As stated in Chapter One, the Palestinian government continues to channel a substantial portion of its budget to employees in the Strip, as well as the payment of allowances to eligible population groups, and funding for public services and infrastructure. These payments continue to flow while the PA has no tax collection capabilities in Gaza. This situation, whereby the PA does not take in revenue from Gaza, exacerbates the PA's budget crisis, while in parallel the illegitimate Hamas regime continues to develop its tax collection system and to increase its revenues from economic activity in the Gaza the Strip. Furthermore, for the first time the de facto legislative council in the Gaza Strip, controlled by Hamas, has published budgetary figures regarding Hamas government operations in the Strip. These figures reflect a substantial increase in local collection, in light of economic growth. Thus, total local revenues in 2011 reached approximately USD 190 million, versus approximately USD 80 million in 2010. Moreover, the Hamas government budget reflects a substantial increase in expenditures, totaling approximately USD 390 million. This can be explained, inter alia, by an increase in the number of Hamas government employees, to approximately 40,000 in 2011 (versus 35,000 in 2010). The distribution of expenditures demonstrates that most expenditure (approximately 80%) is directed towards salary payments, especially to the Ministry of Interior and social service ministries. The Hamas government in Gaza is the primary beneficiary of growth in the economy, enabling it to continue to establish itself and increase its local income. In contrast, it appears that the PA's status, despite its role in the economic sphere, is deteriorating.
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