Captive Economy

The Pharmaceutical Industry and the Israeli Occupation

This report describes the involvement of Israeli and multinational pharmaceutical industries in the occupation. As the pharmaceutical industry is a highly globalized arena, the report reveals some of the ways in which Israel's occupation of Palestinian lands offers opportunities to exploit the captive Palestinian market. Concurrently, the report describes the development of a vibrant but struggling Palestinian industry. For the vast majority of the Palestinian population, this situation generates higher prices of basic health products, which is especially troubling in light of the fact that the economic situation continues to deteriorate.

A new report by Who Profits investigates the involvement of Israeli and multinational pharmaceutical industries in the occupation and the structure of a Palestinian captive market.

The Paris Protocol, which regulates the financial relations between Israel and the Palestinian Authority, is a significant part of the 1993 Oslo Accords. The Protocol placed Israel and the future Palestinian state under the same taxation envelope. In general, this means that Palestinians continue to depend on Israeli policies, customs laws, and services for the import and export of goods. In the case of the international pharmaceutical industry, this dependency has inflicted strong negative economic effects on the OPT, as will be described in the report. Moreover, the Israeli Ministry of Health insisted that the import of drugs to the West Bank and the Gaza Strip would be allowed only for drugs that are registered in Israel. This decision implied that the neighboring Arab market (with minor exceptions) would be denied to the Palestinian population and pharmaceutical industry. The Palestinian market is thus unable to maintain import or export relations with its closest and most natural markets. Other important pharmaceutical products that have been denied access are the cheap generic drugs manufactured largely in India, China, and the former USSR states. This exclusion stems from the fact that the drugs registered in Israel are mainly imported from the EU, North America and Australia.

As in other cases, economic interests are often disguised as 'security reasons'. This can be demonstrated in the Palestinian industry's inability to send drugs in bulk (usually to large pharmacy chains in Europe and North America) via the close-by Ben Gurion Airport. Hence, the goods are shipped through Jordan with a heavy levy of added costs. Uniquely in the case of pharmaceuticals, 'quality reasons' are sometimes used in conjunction with economic and political justifications. One such case is the refusal to allow Palestinian pharmaceuticals into occupied East Jerusalem medical institutions - hospitals and pharmacies - and even vaccines given at Palestinian-run schools. At other times, political and economic reasons are intertwined in the humiliation of an occupied people. This is seen in the demand of Palestinian representatives of large multinational companies to request a 'non-objection' letter from their Israeli colleagues in order to receive an import license from the Israeli Ministry of Health. This demand must be met by authorized Palestinian representatives even in the absence of such requirement from their Israeli counterparts.

The situation in Gaza, under strict closure and Israeli control over all products that enter and leave the strip, yields an absurd situation in which drugs - either donations or commercial pharmaceuticals - can enter the Gaza Strip; However, under Israel's strict 'security' regulations, no pharmaceutical can leave the strip. Hence, all expired products are left to the care of the receiving Palestinian health institutions and Gaza Strip's Palestinian Ministry of Health. This is a heavy burden that requires professional solutions, including toxic waste dump stations and qualified personnel. Moreover, many multinational pharmaceutical companies and NGOs prefer, for various reasons, to send in-kind donations in the form of drugs, some of which approach their expiry date by the time they reach their destination. Despite the good intentions, this tendency leaves the brunt of handling and disposal of huge amounts of bio-chemical waste on the Gaza Strip authorities in one of the most densely populated parts of the world.

The Palestinian pharmaceutical industry suffers from various hindrances. The burden of the annual licensing of imported raw materials (in some cases even per shipment), the costs of back-to-back deliveries to and from the West Bank and from the West Bank to the Gaza Strip, the costs of shipping drugs in bulk through Jordan, the exclusion of large Arab markets in nearby countries as well as in Israel, and the inability of the Gazan industry to develop and expand due to the prohibition on export. All these obstacles generate extra costs that harm the development of the Palestinian pharmaceutical industry.

Israeli and multinational companies enjoy the aforementioned situation in several ways. From the four largest, originally-Israeli companies (Teva, Perrigo Israel - formerly Agis, Taro and Dexcel Pharma), to smaller companies (such as Trima), all Israeli companies enjoy easy access to the Palestinian market, free of customs and checkpoint disturbances (e.g. change of trucks at cargo checkpoints). The Israeli manufacturers and agents do not have to amend any of their products in order to sell them in the Occupied Palestinian Territories. As a result, Israeli and multinational companies can sell drugs that are not labeled in Arabic to an Arabic speaking population. The multinational pharmaceutical companies, e.g. Pfizer, AstraZeneca and Bayer, to name but a few, meet little to no competition from the cheaper generic drug industry, as a result of the Israeli Ministry of Health  restrictions on drug registration in Israel and the enforcement of these restrictions on the Palestinian market. Moreover, a differential pricing policy is applied by multinational companies worldwide according to the population's socio-economic status. This policy, often called "price discrimination", overlooks the situation in the OPT. According to the Paris Protocol, Israel and the OPT are part of the same economic envelope and the prices of drugs (to OPT representatives) are fixed according to the prices in Israel, which appears in the same category of high income markets as EU countries. This is clearly problematic in light of the fact that the OPT's major economic parameters, such as GDP and average income, fall far below the figures of that of Europe and even Israel.

In conclusion, despite the proclaimed reciprocity at the introduction of the Paris Protocol, it's agreed upon economic envelope has, in fact, enhanced the Palestinian market's dependency on Israel. To date, it is de facto a captive market, held by binding economic agreements, subject to impediments and restrictions imposed by Israel, often in the name of security and quality-control. The Palestinian pharmaceutical industry has limited access to trade in various parts of the world, including the Arab world- it's immediate market, and suffers from difficulties transferring merchandise from the West Bank to the Gaza Strip. All the while, the Israeli industry enjoys international trade, including within the Palestinian market. Large Israeli pharmaceutical companies have expanded into multinational corporations, encompassing worldwide markets; the Palestinians, on the other hand, must deal with the Israeli customs and health regulations in order to import raw materials and end products, or export pharmaceuticals. We therefore wish to offer a detailed description of the roots of the situation and discuss its implications.