Between Disengagement and the Economic Road Map

The “Aix Group” of Israeli, Palestinian, and international economists and policymakers was formed in 2002 to generate ideas for future economic arrangements between Israelis and the Palestinians. The Saban Center hosted four members of the “Aix Group” who discussed their recently released report, “Between Disengagement and the Economic Road Map,” which proposes an economic framework to parallel the political process outlined in the Road Map.

Arie Arnon of Ben Gurion University and Israeli coordinator of the paper presented the main findings of the report, focusing on past economic arrangements, as well as ideas for both the short-term and the long-term future. The paper seeks to address of the lack of any vision regarding the economic situation in Israel and the Palestinian territories in coming years. In the past, Israel and the Palestinian territories alternated between economic integration, such as the partial imposed economic integration between 1967 and 1993, and the Paris Protocol of 1994 onward, which led to external and eventually internal closures.

The three major economic issues facing Israel and the future Palestinian state today are trade and labor, internal closures, and territorial linkages. In order to address these issues, the Aix Group has developed what it calls the “Economic Road Map”. The Economic Road Map (ERM) works in the opposite direction to the political Road Map in that it addresses final status issues first, while the political Road Map moves step by step towards final status negotiations. The ERM is based on the working assumptions that the Palestinian state will have economic sovereignty; economic cooperation between Israel and a future Palestinian entity will occur in good faith; there will be contiguity of Palestinian territory with a link between the West Bank and the Gaza Strip; and there will be a clear agreement on borders.

The goal of the ERM is to promote growth in both economies and promote a convergence of standards of living. It is a classic Track II approach that develops the ground work for future policies. Saeb Bamya, Economist and Assistant Under Secretary at the Palestinian Ministry of National Economy and the Palestinian coordinator of the paper, argued that since 1967 the Palestinian economy has been restructured so as to become entirely dependant on Israel. Today the Palestinians need to diversity trade; strengthen the private sector; become members of the World Trade Organization (WTO); develop a legal framework; and remove any obstacles to economic growth. The ERM addresses these issues.

The ERM states that the Gaza Strip and the West Bank should have the same economic arrangement and encourages immediate economic recovery in the Gaza Strip following disengagement. Furthermore, the ERM hopes to limit Palestinian reliance on remittances by encouraging the diversification of the Palestinian economy. The ERM calls for regulated arrangements regarding the export of Palestinian labor as a part of final status negotiations.

Regarding the customs union and border regime, Bamya argued that Rafah is the best model for a two state solution. He noted the challenge in creating a balance between Israeli security concerns and Palestinian economic recovery and advocated bringing in a third party to oversee the customs union and allay any Israeli fears. Ron Pundak, the director general of the Peres Center for Peace, which published the Aix Group report, argued that third party involvement is unnecessary if Israel can trust the Egyptians. However, he said that there is a major lack of trust on all sides, thus a third party must be introduced to deal with the sensitive areas such as the harbor and the airport.

The Economic Road Map assumes significant international economic support. This support would help develop a new architecture of Israeli-Palestinian economic relations and would support the Palestinian economy by encouraging private investment. In the long-term, the international community should prepare a financial package to address some of the issues between the two sides and create incentives for growth. The international community could also play a role in assisting with the resumption of negotiations. Pundak noted that Gaza is very small in terms of land mass and population, thus any big investment in terms of funds or infrastructure will have a major impact in both the short and long-term.