It was a small news item during an active news week dominated in Israel by tax
increases, Republican presidential hopeful Mitt Romney’s visit, US Defense
Secretary Leon Panetta’s statements on Iran, and – of course – the
But Tuesday night’s signing in Jerusalem of an economic
agreement on behalf of Israel and the Palestinian Authority by Finance Minister
Yuval Steinitz and Prime Minister Salam Fayyad is not without
It certainly has more significance than one could tell by
the coverage the signing received in the Israeli media; and definitely more
significance than one could gauge by looking almost in vain for the story – a
positive one bespeaking Israeli/Palestinian cooperation at a governmental level
– in the international press.
Quietly, imperceptibly, officials from the
two sides have been working for close to a year on an agreement that regulates
taxation and bilateral trade.
The agreements, meant to improve on the
1994 Paris Protocol that has governed economic relations between Israel and the
PA since then, are designed to fight tax evasion and smuggling and facilitate
Making the agreement even more interesting is that it
was signed by Steinitz, who in the past has loudly called for economic penalties
against the PA if it continues diplomatic guerrilla warfare against Israel, such
as gaining admission as a state in November to UNESCO.
But, never mind,
reality often trumps rhetoric.
According to a Finance Ministry statement,
the arrangements that will go into effect on January 1 “will introduce
mechanisms that better facilitate the movement of goods between Israel and the
Palestinian Authority, and that support both parties’ efforts in reducing
illegal trade and tax evasion. The arrangements will further assist in enhancing
the Palestinian tax system and thus aid in strengthening the economic base of
the Palestinian Authority.”
And PA spokesman Ghassan al- Khatib was
quoted as saying in a statement that the agreement would enable the Palestinians
to build storage facilities and exchange imported goods so they can reduce
illegal trade and limit tax evasions.
Khatib’s statement was significant
because it meant this would not turn into an Egyptian President Mohamed Morsy
moment, meaning that the PA would not do what the Egyptians did when reports
circulated in Egypt Morsy sent a short note to President Shimon Peres – deny
No, there was no denying this agreement, it was even documented in
According to the new accord, the tax clearance mechanism
regarding value-added taxes, purchase taxes and import taxes will be based on
the actual and accurate transfer of goods between Israel and the PA, replacing
the current practice of calculating such tax clearances on the reported transfer
of the goods.
In other words, the two sides are clamping down on a
situation whereby goods meant for the PA – and for which Israel transfers tax
duties to Ramallah – end up staying in Israel, depriving the PA of tax
The sides also agreed that a pipeline would be built “for the
safe and exclusive transfer of petroleum products” from Israel to the
None of this, obviously, is sexy stuff.
It is not a meeting
between Prime Minister Binyamin Netanyahu and PA President Mahmoud Abbas. It is
not an agreement on any of the “core issues” – Jerusalem, settlements, refugees,
But it is an agreement that calls for a great deal of enhanced cooperation, and
as such that says something.
The EU’s Foreign Policy Chief Catherine
Ashton was quick to applaud the agreement. She issued a statement saying she
“warmly” welcomed the accord, and said it was “an important step forward in
promoting Palestinian economic development and further improving economic
relations between Israel and the Palestinian Authority.”
as well as a decision made last month by Israel to advanced NIS 180 million in
collected tax revenues to the financially- strapped PA to help them pay
salaries, bespeaks of a certain pragmatism on both sides.
This is a
pragmatism that says the following: “True, nothing at all is moving on the
diplomatic track, and nothing will move until after the US elections in
November, if then. True, the PA is threatening again about going to the UN for
statehood recognition, and Fatah continues to flirt with Hamas about forming a
unity government that Israel would find impossible to deal with. But at the same
time it is in nobody’s interest for the economic situation in the PA to get out
Over the last few years Fayyad has been busy trying to build up
the PA’s institutional and economic capacity so that it is ready for statehood.
A World Bank report a week ago saying the Palestinian economy was not ready to
support a sovereign state threw a bit of cold water on these
“While the Palestinian Authority has had considerable success in
building the institutions of a future state, it has made less progress in
developing a sustainable economic base,” said the 181- page
Fayyad needs to take steps to strengthen the foundations of the
economy, and agreements such as these with Israel help.
interested in the agreement because of a belief Netanyahu has articulated on
numerous occasions: a stable economic situation can help stabilize the conflict.
Or, put another way, a stronger economy means fewer and fewer people will
support a return to terrorism.
At about this time last year, when Israel
was fretting endlessly about a Palestinian gambit for statehood recognition at
the UN, there was considerable concern in Jerusalem about the outbreak of a
third intifada if Palestinian desires went unfulfilled.
came and went without a UN recognition of Palestinian statehood, but the
Palestinian street remained relatively calm. Many in Jerusalem attributed this
to Palestinian economic well being – the belief that the good economy in the PA
meant that people felt they had more to lose. Ramallah was booming, Jenin was
rebounding, and Bethlehem was welcoming tourists.
According to this
reasoning, the Palestinians did not want to risk all that with a return to
And economic issues are not the only area where the two
sides have found room to cooperate.
Both Israeli and Palestinian security
officials acknowledge close, effective security cooperation between he
There is intelligence sharing and mutual security assistance.
There are regular meetings at the brigade and division level between
Since Hamas is a threat to both the PA and Israel, there is
cooperation in fighting it.
What both this week’s economic agreement and
the ongoing security cooperation demonstrate is that the two sides are able to
cooperate when doing so furthers their interests. Netanyahu took a lot of heat
during his campaign when he advocated the idea of “economic peace,” of building
peace with the Palestinians from the bottom up – creating mutual, intertwined
interests that would create a much better space for diplomacy.
be done, his critics argued – it is just a way of avoiding the real issues, of
sweeping the real problems under the rug.
It was impossible, Netanyahu’s
critics said, to expect a peace agreement to emerge from economic projects and
agreement on tariffs and trade. Indeed, soon after Netanyahu was elected in 2009
the PA leadership, including Fayyad, refused to meet him and other senior
government officials to talk about various economic projects. The Palestinian
concern was that if they cooperated on economic issues, Israel would avoid
dealing with the political ones.
But this week’s accord with Fayyad shows
that approach has given way to another, and there now seems to be a realization
that even though the political echelon is not talking, economic discussions for
everyone’s benefit can still take place.
Call it the “Turkish
Jerusalem and Ankara’s diplomatic relations are at their worst
ebb in a generation, yet the economic relationship between the two countries is
Money talks. If only the political echelons could now just
follow the money.