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Paris Protocol: Palestinian Captive Market

Signed as an annex of the Oslo Accords, the Paris Protocol was hardly a secondary document when it came to its substance and significance. The infamous economic agreement has secured the Israeli domination over the subordinate Palestinian economy. Being the most significant document for understanding the economy of the Israeli occupation, this agreement established the import and export regulations, among others. Technically, according to Annex V and IX, most Israeli and Palestinian goods should be exempt from direct taxes, and all industrial goods should enjoy free movement, without any restrictions from both sides. However, the systemic inapplicability of the right to free Palestinian export and import remains the reality on the ground under occupation.

In practice,  the Paris Protocol ensured the free flow of Israeli goods from Israel to the oPt, with no levies or import taxes, while exercising systemic impediments to free movement of Palestinian goods in and out of the occupied Palestinian territory. The result was and still is; further subjugation of the Palestinian captive market.

The effects of the Paris Protocol continue to be tangible for local Palestinian initiatives attempting to depart from the Israeli market towards an independent Palestinian economy.  Today, according to the conservative estimate of the World Bank, the Palestinian economic growth is expected to remain unchanged in 2016 at 3.3%, with a GDP of 2.7 US$. In comparison, the economic Israeli mirror image reflects the figure of 36 US$, 18 times the Palestinian figure, at its current economic growth.

Additionally, the fact on the ground is that the West Bank and Gaza Strip are Israel's second largest importer. According to the Palestinian Central Bureau of Statistics (PCBS), the West Bank alone provides more than $3.3 billion to the Israeli economy annually.

Local Palestinian Initiatives: A Model of Economic Resistance

For Palestinian micro businesses and local initiatives, the journey from the moment of establishment and licensing to the actual process of production is filled with obstacles and drawbacks. In the agriculture sector for example, Israeli settlers grow the majority of fruits and vegetables in the occupied Palestinian territories, and only a small amount of produce is grown by Palestinian farmers. Yet, the export of Palestinian produce can only be executed through Israeli authorities and export companies. The dependency of Palestinian farmers on Israeli export companies stems directly from the Paris Protocol, as will be shown below.

The case study of the Palestinian mushroom initiative (Hereinafter: PMI^[1]), presented in the following paragraphs, will expose a dauntless economic model of resistance while revealing Israel's relentless strangulation of the Palestinian economy.

Until 2013, the captive consumption of Israeli fresh mushroom in the Palestinian market was yet to be challenged by a Palestinian grower. That year, the first Palestinian mushroom farm was founded by a small group of young Palestinians at the Ministry of National Economy in Ramallah. The aspiration to break free from the economic shackles of the Israeli occupation was at the core of this initiative, and the hope to introduce an alternative to the Palestinian consumer was their passionate drive.

Equipped with exported machinery from Europe, endless weeks of research, and the will to challenge the status quo, the PMI persevered and grew organic occupation-free mushrooms. Within three months of their launching, the Palestinian mushroom farm had already taken over more than half of the mushroom market in the West Bank with prospects of export to Gaza as well. With a new alternative in the West Bank's food market, consumers across the market showed unequivocal interest in locally farmed mushrooms. At that moment, a new model of economic resistance had emerged.

However, bolstering the local production was not an easy task for the PMI. The import of vital materials for mushroom growing (including spores and peat moss for the compost) was met with targeted hindrances by the Israeli authorities, and the structural impediments enshrined in the Paris Protocol.

Licensing

After incurring all the necessary documents according to Israeli and Palestinian regulations, and registering in Beit El, an illegal Israeli settlement adjacent to Ramallah, the PMI received the necessary permits for export and import, among which were import licensing from the Israeli Ministry of Health (IMOH), valid for every single shipment.

Notably, all Palestinian manufacturers must receive an import license from the IMOH for all raw materials imported from abroad, regardless of their origin or possible usage. This demand is unique to Palestinian manufacturers, as Israeli producers are exempt from it. There are only a few materials that require a license for Israeli manufacturers, but these can be received on an annual basis, whereas Palestinians are required one for each separate shipment, regardless of whether it is a restricted item^[2] or one that is freely imported by Israeli manufacturers. Applying for a license for every single shipment is time consuming and costly, as license fees need to be paid and manpower must be assigned for the process. ^[3] The license further demands an approval of both PA and Israeli customs and health authorities. The process could take between 3-4 days and many weeks, causing severe delays in production. In the case of production aimed for the international markets, the duration of the process affects the ability to compete in tenders and may cause loss of liability.

Delays and setbacks

Since the first import shipment to the most recent, the Israeli port authorities delayed PMI's material, eventually causing severe damage to their entire line of production.

PMI's first and second large shipments, coming from the Netherlands, were delayed for two weeks, which still made it manageable to peruse their business. Within a year, PMI's fresh mushrooms reached a highly desirable quality, and by the end of 2015 PMI conquered the entire Palestinian market in the West Bank.

In fact, according to their Dutch supplier, PMI had not only competed with large Israeli companies in the quality of their fresh mushrooms, but overshadowed them completely. Because of PMI's raving reviews and unprecedented success, Israeli companies could no longer forcibly export mushrooms to the Palestinian market, as their products were no longer in demand. In other words, PMI had managed to penetrate the Israeli seal around the Palestinian captive market, and introduce a Palestinian product with better quality and a reasonable price, outside the industry of occupation.

After that, the Israeli Ashdod port started to systemically delay PMI's shipments, imported from the Netherlands, and hold them for 45, sometimes 60 and 100 days, per shipment. During this period of delay, and in addition to the standard security checks, the Israeli authorities conducted a lab testing procedure, which included growing the raw materials into mushrooms, in order to check their quality prior to sending them to the buyer, in this case PMI. These procedures were only enforced on PMI's later shipments, after their success in the market, and despite the fact that they had already obtained the IMOH license and the verifications of the Dutch exporting company.

On a more general level, almost every shipment to the occupied Palestinian territory is delayed by Israel for a security inspection, for a period ranging from several days to several weeks, even in cases in which the license has been obtained, or when the shipment has also passed a security check at a European airport. In the case of PMI, the delays of 60 and 100 days per shipment exceeded the "normalized" delays in the Palestinian market.

Economic Costs

For PMI, every delay did not merely mean a setback in production, it also meant inflating amounts of port taxes for the Israeli Port Authority to cover the storage, electricity, and space needed for each container held in the Ashdod port. With delays reaching 45, 60 and 100 days the economic costs for PMI were obscene, driving this local promising initiative into deficits and debts amounting to 5-8 times the cost of one container.  In addition, each time a security check was conducted by Israel, PMI had to also pay a respected share of clearance and taxes. For all imports going into the oPt, the costs of the security check, performed by a private Israeli company, are paid by the Palestinian manufacturer, in addition to the storage costs, which are also charged by a private Israeli company, predominantly Maman.

In this regard, the Paris Protocol allows Israeli companies of cargo management, ground-handling, storage, and transportation services to benefit from the procedure forced on the Palestinian importers. According to the Paris agreements, most of the tax revenues collected by Israel should be transferred to the PA, apart from a small fee of approximately 3% that Israel retains for "management services". ^[4] In reality, the whole import cycle goes through Israel and only Israeli companies benefit from it. The cycle begins with the import license and continues with other services: the use of the port (port tax), storage, ground handling (including custom clearance) and transport, which are owned, managed and manned by Israelis. Palestinian importers must pay private Israeli companies for the security clearance Israel demands for each shipment to the oPt. Once the goods reach the Israeli port, the whole clearance process takes approximately one week and usually costs 5%-10% of the shipment value. Port tax, security checks and VAT add a further 14%. Altogether, 20% of the value of the shipment is allocated to clearance and taxes. To that end, the entire scheme of taxation, cemented by the Paris Protocol, secures Israeli profit of over $310 million annually, peculated from the Palestinian Authority. ^[5]

In this case, being a small initiative and burdened with the abovementioned economic costs, the PMI had to reduce the number of workers to 8 in total. Still, while they were drowning in debt, never did the PMI delay any salaries or treat the workers in any exploitative manner. It should be noted that the PMI's workers were all Palestinian women previously exploited and severely underpaid by Israeli agriculture companies and employers in the fields of Ma'ale Adumim, an illegal Israeli settlement in the West Bank.

ZIM Integrated Shipping Services

Facilitated by the Paris Protocol, Israeli private shipping companies reap enormous profit from the import-export industry and the Palestinian captive market. With no Palestinian shipping companies, Israeli companies land-lock the restricted flow of goods coming in and out of the oPt, and accumulate their profit directly from the hindrances placed on Palestinian trade movement.

In fact, through the governmental Israel Ports Development & Assets Company, the Israel Ports Authority places the Israeli impediments on Palestinian import and export, and controls part of the military checkpoints to serve Israeli economic interest in a systemic manner. As a direct result, 85% of Palestinian export is absorbed by Israel while 75% of Palestinian import originates from Israel, perpetuating the economic subordination of the occupied Palestinian territory and population.

Holding 20% of the shipping market, ZIM is considered to be the biggest cargo shipping company in Israel. The Jewish Agency and the Histadrut General Federation founded the publicly traded company in 1945, and today Kenon holdings holds ZIM privately through the Israel Corporation. The company's previous manager of exports to Europe is now the head of the Israel Ports Authority.

Economic Structure and Financial Information

ZIM, later on ZIM Integrated Shipping Services, underwent aggressive changes in its economic structure turning it from a governmental corporation to a privately held company. The privatization process reached its turning point on January 2005 when the governmental shares of the company were sold to Israel Corporation (held by Ofer Brothers) for 115 million US$ at the time.  However, until this day the government holds what is referred to as a "Golden Share" which grants the government veto when and if the company is offered for sale or auctioning.

Revenues (2015): 2.99 billion US$

Profit (2015): 2 million US$

Today the company is headquartered in the Matam area in Haifa, and currently headed by Rafi Danieli, who retired and will be replaced in the near future.

Positive Investments in Palestine

To address this state of chronic de-development within the Palestinian economy, many believe that the answer is more investment in what will result into a lucrative Palestinian economy. However, not only is the invitation to "invest in Palestine" far from being a real cure, it may at times end up securing further profit for Israel's economy on the expense of the Palestinian population.

In other words, capitalizing on feeding the Palestinian sub-economy under occupation can never be the gateway to any kind of economic independency. As exemplified through PMI, the Palestinian economic basis suffers from structural distortions enshrined in the Paris Protocol, which continue in deepening the dependency of Palestinian trade and economy. To that end, investments in the Palestinian market may boost specific sectors, or assist in minimizing debts for local initiatives in need as PMI, but can never overcome the Paris Protocol's vicious cycle, under a state of occupation.

For PMI, as for the entire Palestinian local market, Israel's regulations and practices have increased the prices of Palestinian industrial and agricultural goods and dampened competiveness. Today, the Palestinian economy remains, in all its natural and human resources, an easy prey voraciously devoured by Israel.