Economic interactions among participants in the Middle East peace process

Middle East Journal

Volumn 51, Issue 2, 1997, Pages 214-228

  Awartani, Hisham ^a   Kleiman, Ephraim ^b  

^a AN NAJAH NATIONAL UNIVERSITY   (Palestine)

^b NONE

Author keywords

[No Author keywords available]

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EID: 0042359006     PISSN: 00263141     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (58)

1. "Sextet" will hereafter refer to these five countries and the Palestinian Territories.
2. For the evolution of the Benelux group, see James Edward Meade, H. H. Liesner and S. J. Wells, Case Studies in European Integration (Oxford: Oxford University Press, 1962).
3. See Table 1 in the expanded version of this paper, reproduced in Justin Yifu Lin, ed., Contemporary Economic Issues, Vol. 1, Regional Experience and Systems Reform (London: Macmillan, forthcoming). Merchandise trade figures for the Palestinian Territories, from Israel, Central Bureau of Statistics (CBS), Statistical Abstract of Israel 1994 and Monthly Bulletin of Statistics 46, no. 10 (November 1995). For all other countries, figures are from International Monetary Fund (IMF), Direction of Trade Yearbook, 1995 (Washington, DC: IMF, 1996).
4. See Table 1 in the expanded version of this paper, reproduced in Justin Yifu Lin, ed., Contemporary Economic Issues, Vol. 1, Regional Experience and Systems Reform (London: Macmillan, forthcoming). Merchandise trade figures for the Palestinian Territories, from Israel, Central Bureau of Statistics (CBS), Statistical Abstract of Israel 1994 and Monthly Bulletin of Statistics 46, no. 10 (November 1995). For all other countries, figures are from International Monetary Fund (IMF), Direction of Trade Yearbook, 1995 (Washington, DC: IMF, 1996).
5. See Table 1 in the expanded version of this paper, reproduced in Justin Yifu Lin, ed., Contemporary Economic Issues, Vol. 1, Regional Experience and Systems Reform (London: Macmillan, forthcoming). Merchandise trade figures for the Palestinian Territories, from Israel, Central Bureau of Statistics (CBS), Statistical Abstract of Israel 1994 and Monthly Bulletin of Statistics 46, no. 10 (November 1995). For all other countries, figures are from International Monetary Fund (IMF), Direction of Trade Yearbook, 1995 (Washington, DC: IMF, 1996).
6. GATT, Article I, paragraph 3. See, for example, the GATT Secretariat, The Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts (Geneva: GATT Secretariat, 1994), pp. 485-558.
7. It probably also reflects a reporting bias: Palestinian imports from abroad through Israeli agents and importers used to be registered as Israeli imports from abroad and then as Palestinian imports from Israel (Israeli exports to the Palestinian Territories).
8. Strictly speaking, there seem to be no clear criteria for judging whether the relative trade propensities observed here are large or small. The inclusion of trade in services might have increased the regional trade intensities, as it is probably more sensitive than merchandise trade to the geographic proximity and the cultural affinities of the region. But the available data on trade in services do not allow for their simultaneous classification by countries of provenance and destination.
9. See Nadav Halevi and Ephraim Kleiman, "Regional and Non-regional Economic Integration: the Case of the Middle East," paper presented at the Conference on Regional Integration and Economic Growth, organized jointly by the Centre for Economic Policy Research, London, and the Tel Aviv University Sapir Center for Development, Tel Aviv, 14-15 December 1995; and Ephraim Kleiman, "Geography, Culture and Religion, and Middle East Trade Patterns," Working Paper No. 262, Department of Economics, Hebrew University of Jerusalem, 1992, Table 3.
10. See Nadav Halevi and Ephraim Kleiman, "Regional and Non-regional Economic Integration: the Case of the Middle East," paper presented at the Conference on Regional Integration and Economic Growth, organized jointly by the Centre for Economic Policy Research, London, and the Tel Aviv University Sapir Center for Development, Tel Aviv, 14-15 December 1995; and Ephraim Kleiman, "Geography, Culture and Religion, and Middle East Trade Patterns," Working Paper No. 262, Department of Economics, Hebrew University of Jerusalem, 1992, Table 3.
11. See Alan Richards and John Waterbury, A Political Economy of the Middle East (Boulder, CO: Westview Press, 1990); Nemat Shafik, "Has Labor Migration Promoted Economic Integration in the Middle East?" Discussion Paper Series No. 1, The World Bank, Middle East and North Africa Division, Washington, DC, 1992; and Stanley Fischer, "Prospects for Regional Integration in the Middle East," in Jaime de Melo and Arvind Pangariya, eds., New Dimensions in Regional Integration (Cambridge: Cambridge University Press 1993).
12. See Alan Richards and John Waterbury, A Political Economy of the Middle East (Boulder, CO: Westview Press, 1990); Nemat Shafik, "Has Labor Migration Promoted Economic Integration in the Middle East?" Discussion Paper Series No. 1, The World Bank, Middle East and North Africa Division, Washington, DC, 1992; and Stanley Fischer, "Prospects for Regional Integration in the Middle East," in Jaime de Melo and Arvind Pangariya, eds., New Dimensions in Regional Integration (Cambridge: Cambridge University Press 1993).
13. See Alan Richards and John Waterbury, A Political Economy of the Middle East (Boulder, CO: Westview Press, 1990); Nemat Shafik, "Has Labor Migration Promoted Economic Integration in the Middle East?" Discussion Paper Series No. 1, The World Bank, Middle East and North Africa Division, Washington, DC, 1992; and Stanley Fischer, "Prospects for Regional Integration in the Middle East," in Jaime de Melo and Arvind Pangariya, eds., New Dimensions in Regional Integration (Cambridge: Cambridge University Press 1993).
14. In the regional context, economic integration means the convergence of prices, in this case wages, across the region's markets. With great income disparities between countries, such convergence cannot occur without large international movements of either labor or goods produced by it.
15. Shafik, "Has Labor Migration Promoted Economic Integration?" pp. 15-17.
16. See, for example, Sena Eken et al., "Economic Dislocation and Recovery in Lebanon," Occasional Paper No. 120 (Washington, DC: IMF, February 1995).
17. For the factors leading to the abrogation of the Syrio-Lebanese customs union, see Mohamed A. El-Hafez, La Structure et la Politique Economique en Syrie et au Liban (Economic Structure and Policy in Syria and in Lebanon) (Beirut: Khalife, 1953).
18. For a summary of the Israeli trade regime, see Nadav Halevi and Ephraim Kleiman, "Israel's Trade and Payments Regime." paper prepared for the Regional Trade Report Group, Institute for Social and Economic Policy in the Middle East, Kennedy School of Government, Harvard University. Cambridge, MA, December 1994.
19. The myth of enormous quantities of Israeli goods being covertly exported to Arab countries is just that - a myth. The much flaunted figure of $1 billion (up from $500 million several years ago), popularized by the media, seems to be based on a misreading of the Israeli trade data: while this figure does, indeed, refer to trade with "unclassified" (sic!) countries, it represents almost exclusively exports of the metal, machinery and electronics industries, suggesting a completely different destination pattern. See Israel, Central Bureau of Statistics, Foreign Trade Statistics Quarterly 45, no. 1 (January-March 1994), Appendix 1.
20. CBS, Statistical Abstract of Israel 1988, Tables VII.2 and XVII. 10;
21. and CBS, Statistical Abstract of Israel 1995, Tables 7.3 and 27.11. The main commodity imported from Jordan was raw palm oil. The total annual value of these imports did not exceed $10 million.
22. See Hisham Awartani, "Palestinian-Israeli Economic Relations: Is Cooperation Possible?" in Stanley Fischer, Dani Rodrik and Elias Tuma, eds., The Economics of Middle East Peace (Cambridge, MA: MIT Press, 1993), pp. 281-304; and Hisham Awartani, "The Palestinian Trade Sector," paper prepared for the Regional Trade Report Group, Institute for Social and Economic Policy in the Middle East, Kennedy School of Government, Harvard University, Cambridge, MA, December 1994.
23. See Hisham Awartani, "Palestinian-Israeli Economic Relations: Is Cooperation Possible?" in Stanley Fischer, Dani Rodrik and Elias Tuma, eds., The Economics of Middle East Peace (Cambridge, MA: MIT Press, 1993), pp. 281-304; and Hisham Awartani, "The Palestinian Trade Sector," paper prepared for the Regional Trade Report Group, Institute for Social and Economic Policy in the Middle East, Kennedy School of Government, Harvard University, Cambridge, MA, December 1994.
24. On the development of the Egyptian trade regime, see Hanna Kheir El-Din and Ahmed El-Dersh, "Foreign Trade Policy of Egypt, 1986-1991,"
25. and Said El-Naggar, "The Basic Issues," in idem, ed., Foreign and Intratrade Policies of the Arab Countries (Washington, DC: IMF, 1992), pp. 206-41.
26. Although it seems to have slowed down recently. See Economic Intelligence Unit (EIU), Country Report: Syria, 2nd Quarter 1994 (London: EIU, 1994), pp. 11-12,
27. and EIU, Country Profile: Syria 1995-96 (London: EIU, 1995), p. 13.
28. Ibid., and EIU, Country Report: Syria, 4th Quarter 1996 (London: EIU, 1996), p. 8, which speaks of "serious economic reforms [as being] unlikely."
29. Ibid., and EIU, Country Report: Syria, 4th Quarter 1996 (London: EIU, 1996), p. 8, which speaks of "serious economic reforms [as being] unlikely."
30. See Tayseer Abdel Jaber and Mohamad Amerah, "Trade Regime and Trade Pattern in Jordan," Center for International Studies, Royal Scientific Society and Arab Consulting Center (Amman, July 1994); and the World Bank, Peace and the Jordanian Economy (Washington, DC: The World Bank, 1994), p. 23, from which the expression in quotes is taken. Protection consists not only of tariffs proper, but also of special surcharges, fees, etc., imposed on imports.
31. See Tayseer Abdel Jaber and Mohamad Amerah, "Trade Regime and Trade Pattern in Jordan," Center for International Studies, Royal Scientific Society and Arab Consulting Center (Amman, July 1994); and the World Bank, Peace and the Jordanian Economy (Washington, DC: The World Bank, 1994), p. 23, from which the expression in quotes is taken. Protection consists not only of tariffs proper, but also of special surcharges, fees, etc., imposed on imports.
32. In alphabetic order: Egypt, Lebanon, Libya, Morocco, Sudan, Tunisia and Yemen. See Mu'assasat Tanmiyya al-Sadirat wa al-Marakiz al-Tijariyya al-Urdiniyya, Al-Taqrir al-Sanawi li Harakat al-Sadirat wa al-Mustawradat ma'a Duwal al-Ittifaqiyat, 1994 (Annual Report on Exports and Imports with Protocol Countries in 1994) (Amman: Jordan Export Promotion Institute and Arab Trade Center, 1995). Some sources mention no less than 50 bilateral trade agreements. See, for example, Tayseer Abdel Jaber and Mohamed Amerah, "Trade Regime and Trade Pattern in Jordan," p. 16. But this figure seems to include agreements referring only to technical cooperation, provision of information, etc., as well as purely declaratory ones.
33. In alphabetic order: Egypt, Lebanon, Libya, Morocco, Sudan, Tunisia and Yemen. See Mu'assasat Tanmiyya al-Sadirat wa al-Marakiz al-Tijariyya al-Urdiniyya, Al-Taqrir al-Sanawi li Harakat al-Sadirat wa al-Mustawradat ma'a Duwal al-Ittifaqiyat, 1994 (Annual Report on Exports and Imports with Protocol Countries in 1994) (Amman: Jordan Export Promotion Institute and Arab Trade Center, 1995). Some sources mention no less than 50 bilateral trade agreements. See, for example, Tayseer Abdel Jaber and Mohamed Amerah, "Trade Regime and Trade Pattern in Jordan," p. 16. But this figure seems to include agreements referring only to technical cooperation, provision of information, etc., as well as purely declaratory ones.
34. Except insofar as the protected goods are those that would have been otherwise imported from within the region, which most probably was not the case here.
35. Hence the importance of the recent initiative of the European Union, to offer FTA agreements to all the countries on the southern littoral of the Mediterranean by the year 2010. This would have been much more effective had it not been restricted only to manufactured goods. See Commission of the European Communities, "Proposals for Implementing a Euro-Mediterranean Partnership," European Commission, COM (95) 72, Brussels, 8 March 1995.
36. It should be pointed out that most attempts to forecast the trade potential within the triad come up with rather low estimates. A study, utilizing a number of alternative forecasting methods, estimated Jordanian exports to Israel at $100 million at most, in 1992 values. The results for Jordanian-Palestinian trade were even lower. See Aryeh Arnon and Jimmy Weinblatt, "Potenzial ha-Sahar bein Israel, ha-Palestinaim ve Yarden" (The Trade Potential between Israel, the Palestinians and Jordan), Discussion Paper Series 94.10 (Tel Aviv: Bank of Israel Research Department, July 1994), Table 9. The methods used, however, made no allowance for the very short distances involved and the resultant potential for border trade.
37. See "Agreement on the Gaza Strip and Jericho Area. Annex IV: Prot[o]col on Economic Relati[o]ns," Rashumot: Kitvei Amana (Official Gazette: Treaties) 35, no. 1067 (Jerusalem: Government Printer, 1995) (hereafter referred to as "Paris Protocol").
38. See "Agreement on Trade and Economic Cooperation between the Government of the State of Israel and the Government of the Hashemite Kingdom of Jordan," Rashumot: Kitvei Amana (Official Gazette: Treaties) 35, no. 1124, Annex II (Jerusalem: Government Printer, 1996) (hereafter referred to as "Trade Agreement").
39. As later developments have shown, once borders effectively came into being, the Israeli government was pressured by the Israeli farming lobby and similar groups to protect their interests.
40. See Paris Protocol, Article VIII.10.
41. For two views of the Paris Protocol, see Ephraim Kleiman, "The Economic Provisions of the Agreement Between Israel and the PLO," Israel Law Review 28, nos. 2-3. 1994, pp. 347-73; and Sharif Elmusa and Mahmud El-Jaafari, "Power and Trade: The Israeli Palestinian Economic Protocol," Journal of Palestine Studies 24, 1995, pp. 20-32. For the sake of symmetry, the agreement also specified a quota for a sixth farm product, in which the traffic used to go in the opposite direction.
42. For two views of the Paris Protocol, see Ephraim Kleiman, "The Economic Provisions of the Agreement Between Israel and the PLO," Israel Law Review 28, nos. 2-3. 1994, pp. 347-73; and Sharif Elmusa and Mahmud El-Jaafari, "Power and Trade: The Israeli Palestinian Economic Protocol," Journal of Palestine Studies 24, 1995, pp. 20-32. For the sake of symmetry, the agreement also specified a quota for a sixth farm product, in which the traffic used to go in the opposite direction.
43. See Hisham Awartani, "The Implementation of the Palestinian-Israeli Economic Agreements," Palestine-Israel Journal 2, no. 1 (Winter 1995), pp. 95-99.
44. Thus, for example, domestic value-added amounting to 35 percent of the ex-factory price is required for industrial goods to qualify under the US-Israel FTA agreement, as well as under the recent Israeli-Jordanian one. In the case of the agreement between Dubai and the other Gulf Cooperation Council states, the threshold was 40 percent. See Rodney Wilson, "The Economic Relations of the Middle East: Toward Europe or within the Region?" The Middle East Journal 48, no. 2 (Spring 1994), p. 278. But the smaller an economy the higher, as a rule, the import component in its output and the lower the value-added domestically. Lowering the rules of origin value requirements correspondingly, however, would allow goods which were only assembled in one partner country to be imported duty-free into the other. Hence the importance of "cumulation rules" in dealing with the former problem in FTA's involving a number of small countries.
45. Industrial parks are areas designated, usually by local authorities, for the location of industrial activities. Provided with the necessary infrastructure of power and water supply, sewage and tele-communications, the mere concentration of businesses there creates external economies of scale in the supply of labor, transportaion, and other inputs, especially important for small firms.
46. List 1 of the Palestinian-Jordanian Trade Agreement, on "Jordanian goods exempt of tariff duties" and also of Palestinian specifications, is drawn from the goods in Lists A1 and A2 of the Israeli-Palestinian Economic Protocol, on goods with regard to which "the PNA will have all powers and responsibilities in the sphere of import and customs policy," which also exempts them from Israeli specifications. See Paris Protocol, schedules attached to Article III. Similarly, List 2 on "Jordanian goods exempt of tariff duties [but] subject to Palestinian specifications" is drawn from the goods in List B of the Israeli-Palestinian Protocol, with respect to which the PNA has the authority to determine customs rates, but not other conditions of importation, which continue to be determined by Israel. Compare "Mahdar Ijtima' al-Lajna al-Mushtaraka al-Filistiniyya al-Urdiniyya" (Minutes of the Joint Palestinian-Jordanian Committee [in Amman, in May 1995]), Al-Quds (Jerusalem), 5 July 1995; and Israel, Ministry of Foreign Affairs, Agreement on the Gaza Strip and Jericho Area, Annex IV: Protocol on Economics.
47. See Al-Quds, 5 July 1995.
48. For a somewhat different assessment of the options open to the Palestinians within the Israeli-Palestinian-Jordanian context, see Ishac Diwan and Michael Walton, "Palestine between Israel and Jordan: The Economics of an Uneasy Triangle," (Washington, DC: The World Bank, July 1994). See also the World Bank, Peace and the Jordanian Economy.
49. For a somewhat different assessment of the options open to the Palestinians within the Israeli-Palestinian-Jordanian context, see Ishac Diwan and Michael Walton, "Palestine between Israel and Jordan: The Economics of an Uneasy Triangle," (Washington, DC: The World Bank, July 1994). See also the World Bank, Peace and the Jordanian Economy.
50. See "Trade Agreement," Annex II.
51. That this was the original intention is clearly hinted at in the reference to "the Jordanian delegation's difficulty on explicitly committing itself now to a future Israel-Jordan free trade zone," in the communiqué issued by the spokesperson of the Israeli industry and trade ministry a day before the signing of the actual agreement. See "Israeli and Jordanian Trade Ministers to Sign Trade Agreement," newsflash posted on the Israel Information Service Gopher, 24 October 1995. (The frequent use of the term zone in this context has been the source of much misunderstanding in the Middle East in recent years, causing unilaterally decreed free industrial zones to be confused with bi-or tri-laterally agreed FTAs.)
52. The lists of Jordanian goods enjoying Israeli tariff concessions consists of 88 items, as against 66 items in the list of Israeli goods enjoying (the much more limited) Jordanian concession. But as some of these items refer to whole classes of goods, such a comparison is of little value. See "Trade Agreement," Tables 1 and 2.
53. See "Trade Agreement," Annex II. For the value-added requirement, see Ibid., Annex I.
54. See "Trade Agreement," Annex II. For the value-added requirement, see Ibid., Annex I.
55. Which is also one of the reasons why future Israeli-Jordanian relationships should develop towards an FTA agreement, rather than towards the customs union advocated in Robert Lawrence, ed., "Towards Free Trade in the Middle East: The Triad and Beyond," in Report by a Team of Israeli, Jordanian and Palestinian Experts, Institute for Social and Economic Policy in the Middle East, The Kennedy School of Government, Harvard University, Cambridge, MA, June 1995.
56. It should not be inferred from the above that only the Arab members of the sextet or the triad stand to gain from greater economic integration. But because of the disparity in economic size, Israel's gains can be expected to come more from the establishment and operation of joint ventures in the countries involved than from trade with them. Furthermore, Israel's main economic gain may come from the expansion of its trade and investment outside the region, with countries such as Indonesia, Malaysia or India, which abstained from closer contact with it as long as Israel's relationships with its immediate neighbors had not been normalized.
57. See Hisham Awartani, "The Psychology of Trade - a Palestinian Perspective," paper presented at a seminar on "The Psychology of Peace and Conflict," sponsored by the Konrad Adenauer Foundation, Jerusalem, 25-26 October 1995; and Samir 'Awad, Al-Mashari' al-Filistiniyya al-Isra'iliyya al-Mushtaraka: Al-Afaq wa al-Mahadhir (Palestinian-Israeli Joint Ventures: Constraints and Prospects), Center for Palestine Research and Studies, Nablus, April 1994.
58. See Hisham Awartani, "The Psychology of Trade - a Palestinian Perspective," paper presented at a seminar on "The Psychology of Peace and Conflict," sponsored by the Konrad Adenauer Foundation, Jerusalem, 25-26 October 1995; and Samir 'Awad, Al-Mashari' al-Filistiniyya al-Isra'iliyya al-Mushtaraka: Al-Afaq wa al-Mahadhir (Palestinian-Israeli Joint Ventures: Constraints and Prospects), Center for Palestine Research and Studies, Nablus, April 1994.