Israel will reopen economic agreements with Palestinians

Israel’s consent to adjustments to the Paris Agreements, as urged by the defense establishment, has paved the way to a compromise on fund transfers to the Palestinian Authority.

As part of the move that recently enabled the transfer of tax receipts to the Palestinian Authority, Israel agreed to reopen the Protocol on Economic Relations, also known as the Paris Agreements, with the Authority, “Globes” has learned. For eight months, the Palestinians have been refusing to receive the taxes that Israel collects on their behalf, and that have accumulated to a total of some NIS 500 million. The refusal stems from the Palestinians demand that the Paris Agreement, dating from 1994, should be renegotiated and brought up to date.

Among other things, the Palestinians are demanding the removal of restrictions applying to Palestinian exports to Israel and other countries and to imports in the Palestinian Authority. The restrictions were put in place because of Israeli fears that products bought cheaply by the Palestinian Authority would find their way into Israel.

According to a senior Palestinian source, there is already agreement on a number of important changes that will enable the Palestinian Authority to make progress towards economic independence. Israel, which for years has refused to reopen the agreement, recently consented to a compromise initiated by Minister of Finance Moshe Kahlon, with the support of the defense establishment.

The compromise with the Palestinians was one of the contentious items on the agenda at this week’s meeting of the security cabinet. The disagreement is a substantial one, given the approach by right-wing politicians, represented by Minister of Transport Bezalel Smotrich, that an aggressive and uncompromising line should be taken with the Palestinian Authority, with the long-term aim of re-imposing Israeli control on areas ceded to it and the application of Israeli law to Judea and Samaria.

Kahlon’s approach, which is supported by Prime Minister Benjamin Netanyahu and led by the entire defense establishment -the Israel Security Agency (Shin Bet), the Civil Administration in Judea and Samaria, and the IDF – is that the quiet in Judea and Samaria is the outcome of a reasonable economic situation, and that a stable Palestinian economy is in Israel’s interests.

Security fear

Thus end long months of a power struggle between Israel and the Palestinian Authority, with the Palestinians eventually deciding, contrary to the declared position of Palestinian Authority president Mahmoud Abbas (Abu Mazen), to reach a compromise, because of the difficult financial position of the Authority itself, and in exchange for the reopening of the economic agreements with Israel.

In July 2018, the Knesset passed the Offset Law, which stipulates that sums that the Palestinian Authority grants to the families of terrorists must be deducted from tax and customs revenues that Israel transfers to the Authority. Because of warnings by the security forces, among other considerations, Netanyahu delayed implementation of the law until February this year. More than NIS 40 million monthly were deducted from the transfers.

In an extreme response, Mahmoud Abbas announced that because of the offset, the Palestinian Authority would refuse to receive any of the tax revenues, more than NIS 500 million monthly, accounting for about 40% of the Authority’s entire budget. The Palestinian Authority returned the monthly bank transfers to Israel, causing a severe financial crisis that forced it to cut its employees’ salaries.

Waiting for a government

Israel Security Agency head Nadav Argaman and coordinator of government activities in the territories Kamil Abu-Rukun warned Netanyahu that the funding cut would harm security cooperation between Israel and the Palestinian Authority. Together with Kahlon, the only Israeli government minister who maintains contact with the Palestinian Authority, the compromise was formulated. First an exemption on fuel excise was granted to the Authority, restoring some NIS 1.5 billion to it, and last week, at a meeting between Kahlon and the head of the Palestinian General Authority of Civil Affairs, Hussein al-Sheikh, the full compromise was formulated.

The sides agreed to disagree on the offset issue, and Israel will continued to deduct NIS 40 million monthly form its transfers to the Palestinian Authority, in accordance with the law passed last year.

Sources inform “Globes” that in the talks with al-Sheikh, the question of the formation of a new Israeli government arose, and the view was expressed by the Israeli side that in the event that a unity government is formed, Israeli policy towards the Palestinians, both economic and diplomatic, will change.

Al-Sheikh said at a meeting with Palestinian businesspeople that there was no basis to the talk of economic disengagement from Israel, and that the nearly 200,000 Palestinians who work in Israel inject some $3.5 billion into the Palestinian economy from the wages they earn. The implication is that even if the heads of the Authority talk about economic independence and disengagement from Israel, these are no more than slogans.


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