35
refuse to make use of this service, since it symbolizes the
control of the Israeli authorities over economic interactions.
Thus, they often complain that if they are allowed to reach
and enter the crossing, they should also be allowed to pass
through it and access directly potential business partners
or investors in Tel-Aviv, Haifa or wherever they may be.
24
This is a good reminder that even when addressing purely
economic development issues, neither side can escape the
political context and its accompanying sensitivities.
Area C
The last enabling condition we wish to highlight in this section
is that which tends to go first on the agenda of international
diplomacy, with regards to unlocking the economic potential
of the Palestinian state. Area C, which is under full Israeli
civil and security control, and which comprises just over 60
percent of the West Bank, includes the major residential and
development land reserves for the entire West Bank. Area C
is richly endowed with natural resources and it is contiguous,
whereas Areas A and B are smaller territorial islands. For
example, the Palestinian stone and marble industry which
is considered a commercial success (ranked 11th in the
world) draws almost all of its raw materials from area C
25
Nevertheless, the manner in which Area C is currently
administered virtually precludes Palestinian businesses
from investing there (World Bank, 2013).
Under the Oslo II Accords, provision was made for three
"Further Re-Deployment" moves by Israel that would enlarge
Palestinian controlled areas. In the "Note for the Record"
which was signed in January 1997, Further Redeployments
were classified as an "obligation for implementation" and not
as an "obligation for negotiation". This meant in practice,
that the Government of Israel had the right to define the
extent of Further Redeployments unilaterally and refrain from
negotiating this extremely important issue. This clause gave
Israeli governments the legally based excuse to maintain full
control of 61 per cent of the area of the West Bank, classified
as Area C. From Israel's point of view, control over these
areas is seen as an important negotiating chip in the effort
to reach a Permanent Status Agreement.
On the other hand, preventing the Palestinian Authority
to take responsibility for most of these areas undermines
the Palestinian capability of establishing a contiguous and
prosperous State of Palestine. During the last decades, the
Civil Administration, prohibits Palestinian construction in most
of area C and severely limits any Palestinian development
initiative.
26
According to World Bank estimates (2016 report
to the AHLC), granting Palestinian businesses access to
24 Interview with Arab-Israeli business entrepreneur, June 2016.
25 Discussion with senior Palestinian economist and businessman,
June 2016.
26 According to the World Bank report (Oct, 2013) restrictions on
economic activity in Area C have been particularly detrimental to
the Palestinian economy (loss estimated at $3.4 billion constituting a
third of local GDP in 2011 alone); and a dramatic fall in submission
of development proposal was observed, presumably due to disbelief
in the possibility of getting their approval.
Area C would increase Palestinian GDP by a third. To our
understanding, there are many possible initiatives in Area C
that would have a large impact on Palestinian state building
and could be advanced in the current reality. However, the
implementation of these initiatives requires a shift of Israeli
policy, whether top down or at the professional level with
the backing of the government.
Consistent with the general status of the conflict, the current
state of affairs in area C is dangerous as it fuels the frustrations
of the Palestinian population. It reinforces radical groups that
call for a return to violence and furthers tensions between
the Israeli and Palestinian leadership. Unfortunately as long
as the principle "nothing is agreed upon until everything is
agreed upon" is being upheld, this situation will continue.
What is needed is a common effort to discuss necessary
understandings and measures that will enable the creation
of a contiguous and prosperous State of Palestine. The angle
for doing so should not be the final territorial agreement, but
the basic economic and social needs of the people. These
are: seeking to create an effective physical infrastructure;
i.e. a Palestinian road and railway network, a sea port and
an airport, providing for optimally free access of movement;
developing an energy and water and sewage infrastructure;
enabling the expansion of agriculture, tourism, industry
and trade, as well as building one or two new cities. All
these important initiatives will make it necessary to expand
Palestinian control substantially into Area C.
Since such a development will obviously impact Israeli
interests, this should be a major issue for reaching mutual
understandings and agreements, before solving all
outstanding core issues of conflict.
Enabling Conditions – Institutional
In addition to the security concerns the prospect of an
independent Palestine often raises among Israelis, there
is also good grounds to doubt the ability of Palestinian
institutions to fulfill the responsibilities of statehood. There
is a need to move forward at the institutional level of the PA
in order to facilitate the infrastructure projects discussed
above, as well as allow for the development of the Palestinian
economy, both in Gaza and West Bank.
In the banking and finance sectors; outstanding debt issues –
on both sides – need to be settled in order to create trust and
move forward towards better cooperation and coordination
between Israeli banks and Palestinian counterparts,
particularly between the BoI and PMA (Palestinian Monetary
Authority). Upgrade of banking arrangements is also related
to customs issues where progress is needed to allow for
Palestinian capacity building. In 2012, the issue of bonded
warehouses for Palestinian customs and VAT handling was
one of the main items on the agenda discussed directly
between the parties, as part of the “MOF-to-MOF” professional
dialogue led by Dr. Yuval Steinitz, then Israeli Minister
of Finance and PA Prime Minister at that time, Dr. Salam
Fayyad. The so-called “Steinitz-Fayyad understandings”
