Here's a selection from the second chapter of my thesis, "The Oslo Process and the Economics of Peace." Chapter 1 provides a brief economic history of the West Bank and Gaza Strip (WBGS) under Israeli occupation from 1967-1993. The following two sections from Chapter 2 build upon an understanding of historic Israeli policies with respect to Palestinian economic development, but I think the argument, which is on the political nature of the policies rather than on their purely economic aspects, should be pretty clear without having read the preceding chapter. I did not include here the political background to the Oslo Accords or a discussion of the Paris Protocol, the arrangement between Israel and the Palestinians on all things economic. For that, I'd recommend the relevant chapter in the MERIP primer on the Israeli-Palestinian conflict.
One more thing: my sources didn't transfer over as footnotes, and I don't particularly feel like doing in-texts right now, but suffice it to say I rely here cheifly on Sara Roy's The Gaza Strip: The Political Economy of De-Development, Leila Farsakh's Palestinian Labour Migration to Israel: Labour, Land, and Occupation, Avram Bornstein's Crossing the Green Line Between the West Bank and Israel, Arie Arnon, et. al., The Palestinian Economy: Between Imposed Integration and Voluntary Separation, and articles by Nu'man Kanafani, Sheila Ryan, and Sharif El-Mousa and Mahmoud El-Jaafari, for those familiar with the literature.
Please, your honest critiques on all matters, including historical accuracy, argumentation, and spelling/grammar are more than welcome.
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The Question of (Economic) Sovereignty
In negotiating an economic regime to accompany the changing political relations between Israel and the PLO, two diverging opinions arose within the Palestinian delegation on the matter of trade relations with Israel. One camp stressed the economic gains of continued integration with the Israeli economy and favored an arrangement that would support unhindered trade and labor mobility between the WBGS and Israel. Palestinian integrationists noted that the entangled trade, utility, and transportation networks between Israel and the territories were an unchangeable fact, established by the Israeli occupation for exclusively Israeli benefit. Adnan Samara, Deputy Minister for Economy, Trade and Industry for the Palestinian Authority, recalls of the negotiations in Paris that “the difficulty of separating the economies was agreed upon, [and] the [Paris Protocol] was based on the fact that we are one economy. If this means anything, it means free movement of goods and people.” Rather than attempt an abrupt divorce, the integrationists preferred to work within the existing regime to make economic exchanges between Israelis and Palestinians fairer and more favorable to Palestinian considerations.
The opposing view held that the disparity in size and strength between the Israeli and Palestinian economies precluded mutually beneficial policies that treated Israel and the WBGS as a singular economic entity. While integration under occupation had brought about unprecedented national income levels, that economic growth was distorted as an external phenomenon, one that did not originate from domestic Palestinian economic strengths per se but from the flows of labor and goods directed by the more developed Israeli economy and manipulated by occupational policies. According to this analysis, integration essentially denied the Palestinians any real sense of economic sovereignty, thereby undermining political disengagement and the viability of a future independent Palestinian state, or at least limited self-rule in the short run.
Arie Arnon, a prominent Israeli economist and critic of the economic framework laid out in the Oslo process, says of the Paris Protocol,
[some] Palestinians preferred a free trade agreement (FTA), which would have necessitated delineating borders between their economy and Israel. The Israelis, on the other hand, had firm instructions from Prime Minister Rabin…to reject the notion of any borders being drawn between the two economies. The reasons for these different positions were both political and economic: the Palestinians sought to acquire as many attributes of sovereignty as possible, whereas the Israelis wanted to defer as many decisions as possible to the negotiations over the Palestinian territories’ final status. The Palestinians aspired to set their own priorities, without Israeli interference, including the formulation of a new Palestinian trade policy, which would reflect their own best interests; the Israelis tried to convince the Palestinians that a more protectionist policy would reduce the Palestinians’ chances of building a prosperous economy, and proposed to continue the existing de facto customs union, which, of course, did not require the creation of trade borders between the two economies.
These negotiations revealed an important axiom regarding the relationship of economic considerations to political concerns during the Oslo process. Essentially, economic development could be used as a means to pursue certain political goals, but economic considerations were rarely thought of as the end goal themselves; put succinctly, politics determined economics. Such a line of thinking obviously has the potential to institute inappropriate economic policy in the pursuit of other beneficial gains, subjugating economic development to political concessions. The litmus test for the Protocol’s economic arrangement would prove to be development in the territories during the Oslo process, to be discussed in detail in the next chapter. Regardless of the outcome, the highly political nature of the document is cause for a good deal of scrutiny and apprehension when approaching the Paris Protocol as an economic plan for “mutual benefit” between two parties. Perhaps more appropriately, the Protocol should be seen as reflecting a series of political considerations couched in the language of economics, and what economic policies are contained therein ought not be disassociated from their broader political aims.
Accordingly, the agreed-upon economic regime was important for Israelis and Palestinians at the negotiating table largely insomuch as it achieved certain non-economic goals, especially on the question of sovereign borders. The Israeli delegation favored the establishment of economic relations promoting sustained or increased integration precisely because such a regime would either avoid delineating clear economic borders, and consequently present or future territorial borders, and/or because it would perpetuate the existing economic relations that gave primacy to Israeli economic and political concerns. In the final stages of negotiations, the Palestinians were offered a free-trade agreement as a bargaining chip with the caveat that Israel would restrict Palestinian labor inflows, introducing a tradeoff between economic development and employment under continued integration or reduced national income under increased sovereignty; in the end, the two parties agreed on the customs union.
The championing of the Israeli position, both an economic and political victory for Israel, suggests that the Protocol was largely a ‘legalized’ continuation of the state’s previous economic relationship to the territories. What emerges from a reading of the agreement is how fundamentally similar the economic relations it prescribed are to what existed between the Palestinian territories and Israel before the outbreak of the first intifada. While in principle the Protocol called for a more liberalized movement of labor and goods between the two economies, the document ceded control of significant decisions regarding that movement wholly to Israel. Without explicitly establishing the pre-intifada economic asymmetry as the new Oslo regime, neither did the Protocol eliminate it.
Occupation and the Politics of IntegrationIf the Economic Protocol therefore merely institutionalized the pre-intifada economic relationship between Israel and the Palestinians, just what was the nature of that relationship and upon what Israeli concerns was it built? These questions are closely linked to the Israeli political debates following the Six-Day War concerning the state’s relationship to its newly captured territories. While right-of-center parties favored outright annexation, the ruling Labor government of Prime Minister Levi Eshkol was publicly split on the future of the occupation, particularly as it applied to economic relations. Non-integrationists feared that the free-flow of labor and capital would lead to premature and highly sensitive final-status discussions regarding territorial borders, discussions on which Labor was internally divided. Annexing the WBGS into Israeli proper, while appeasing the ‘Greater Land of Israel’ religio-political movement that sought to return to a biblical mandate of Jewish-controlled Palestine, would force a polarizing and contentious decision on the status of the territories’ Arab residents: should they be transferred to the surrounding Arab countries, thereby undermining the democratic nature of the state, or be given full citizenship and equal political rights, diluting the Jewish nature of the state? Granting the Palestinians an independent, sovereign state was equally controversial, particularly for security concerns and to a lesser extent religious ones.
The Israeli integrationists, headed by then-defense minister Moshe Dayan, contended that economic borders need not follow territorial ones, and that Israel could economically incorporate the territories without full annexation; this “Open Bridges” policy won out on the ground, allowing for the free movement of goods, labor, and input factors between Israel and the WBGS without assimilating the Palestinians into Israeli civic society. A 1970 report by the Israeli Ministry of Defense,
Development and Economic Situation in Judea, Samaria, the Gaza Strip and North Sinai, frankly describes the occupied territories as “a supplementary market for Israeli goods and services on the one hand, and a source of factors of production, especially unskilled labor, on the other.” Balancing competing political positions, Dayan avoided definitive territorial claims while stressing security concerns and green-lighting settlement expansion in Gaza and the West Bank. Best described as ‘imposed integration,’ Dayan’s economic policies sought to ensure benefits to the Israeli economy, while certain protectionist measures, particularly in agricultural protectionism and industrial restrictions, mitigated the risk of any competitive threats from the growing Palestinian economy.
While accruing to Israel neo-mercantilist benefits such as cheap labor and increased access to natural resources, these economic incentives were accompanied by an equally favorable and intentionally sought-after political situation. Described by one Israeli commander in the West Bank as “giving [the Palestinians] something to lose,” the Open Bridges approach allowed Israel to levy practical and psychological control over the every-day affairs of Palestinians while appearing benign to their economic condition. On a practical level, economic integration increased Palestinian dependency on Israeli economic activity and externalized the territories’ income sources, thereby offering increased living standards and economic appeasement to the Palestinians in efforts to control violence, resentment to the occupation, and nationalist aspirations, and eroding the structural requirements upon which a viable Palestinian state could be built in the future. On the psychological level, the prevention of self-sustaining, domestic growth undermined the economic and social linkages necessary for building a cohesive, effectual national conscious.
Israeli economic policy was historically a function of its political outlook, a means to achieve a desirable political situation rather than an end goal to attain. As Sara Roy argues,
Preventing the emergence of a severing Palestine alongside the state of Israel has been a critical focal point of official policy and one reason for Israel’s obsession with maintaining control of the occupied territories…For Israel, it also required the dismantling of those indigenous forces and the relations between them whose growth and development could comprise and infrastructural base…Economic policy in the occupied territories became a critical component of this policy.
Leila Farsakh outlines the four main “pillars” upon which Israeli economic policy vis-à-vis the Palestinians was structured: labor flows from the WBGS into Israel that stunted domestic Palestinian economic growth and amplified the potential economic costs of unrest or resistance to the occupation; a customs union trade regime which vested decision-making power solely in Israeli authorities; a macroeconomic policy that both regulated daily economic life in the territories and established Israeli currency and institutions as the means of financial transactions; and an integration of land, water, and energy resources into Israeli networks. The Economic Protocol changed little of that: the free movement of labor was upheld, the customs union regime was maintained, Palestinian macroeconomic policy would still be tied to Israel’s, and no arrangements were made for Palestinian resource networks separate from Israeli ones.
The pre-Oslo economic relationship between Israel and the WBGS was built upon two Israeli interests that ultimately worked in tandem to support each other: the economic exploitation of Palestinian resources and political pacification of the Palestinian populace. Integration proved to be the strategy whereby Israel could achieve both. Economic exploitation via integration furthered political pacification via economic dependency, which allowed for continued Israeli exploitation in a self-supporting cycle. With a plan for development during the peace process that changed little about Israel’s economic approach to the WBGS, the Paris Protocol then seems hardly fitting within the good faith supposedly put forth for the “mutual respect” of each party’s economic priorities or for any end goal within the two-state solution framework.
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