State of Palestine

Expert Group Meeting

on

Trade Facilitation and Transportation in the Arab Region

UN Economic and Social Council for Western Asia (ESCWA)

Dubai, April 10 – 11, 2013

Key economic indicators (2011) (Sources: 1.Palestinian Central Bureau of Statistics (2012), Press Report Preliminary Estimates of Quarterly National Accounts Second Quarter 2012. 2. Palestinian Central Bureau of Statistics (2012), Labor Force Survey (April-June, 2012) Round (Q2/2012) report , Ramallah, Palestine. 3. PCBS: Registered Foreign Trade, 2010 (2012).

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GDP at constant prices $6.3 billionConsumer expenditure $5.9 billionInvestment expenditure $1.3 billionGovernment expenditure $1.6 billionExports $ 575 million, Imports $3.9 billion Net Exports $ -3.3 billionLabor force 1,059,000Unemployment rate 27%

Sectoral Contribution to GDP (2011) (Source: Palestinian Central Bureau of Statistics – PCBS, National Accounts 2012 and Special Data Dissemination Standard – SDDS, IMF 2012).

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Palestinian Exports by value and destination in 2011 (thousand $US)

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Palestinian Exports by value and commodity in 2011 (thousand $US)

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Palestinian Imports by value and commodity in 2011 (thousand $US)

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Palestinian Imports by country of origin in 2011 (thousand $US)

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Trade Regime and Policy

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Palestinian trade is governed by the Paris Protocol (1994) which provides for “free” trade.

As agreed by the Paris Protocol, the PNA has chosen for a relatively open trade regime which provides a liberal and business-friendly environment. There are no restrictions on foreign exchange and capital transfers.

Palestinian trade policy is formulated and implemented by the Ministry of National Economy. Other PNA bodies involved in the regulation of trade include, for example, the Customs Authority (operating under the Ministry of Finance), the Ministry of Health, the Ministry of Agriculture and the Ministry of Planning; as well as ministries and agencies involved in the regulation of services.( PALTRADE)

Palestine is in the process of establishing a trade regime that can become fully compatible with the principles and disciplines of the multilateral trading system. (WTO).

Trade Regime and Policy

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TARIFFS AND INDIRECT TAXES :Under preferential trade agreements concluded between the PLO and the Arab States (Great Arab Free Trade Area), the European Communities, EFTA, Turkey and Canada, most goods originating in these countries enjoy preferential access to the Palestinian market.

CUSTOMS : The processing of imports by the Palestinian Custom Administration is done through ASYCUDA-Tawasol, the automated customs clearance system developed with donor and UN technical support.

Trade Regime and Policy

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Import Licensing: Import licensing is maintained by the PNA for purposes of tariff quota administration, safety and security reasons. The issuance of import licenses, in most cases, is automatic. There are certain exceptions, such as automobiles, military products, radioactive materials, and products which pose a threat to human, animal or plant health or life, or to national security.

EXPORT REGIME: The PNA does not currently apply export duties, taxes or other charges on exported goods. A range of products is subject to export control and licensing, mainly for sanitary and quality control. Automatic export licensing is the basis for the PNA export regime, with some exceptions of products that cannot be exported without a license, relevant to security and security related technology. There are no export subsidies applied by the PNA.

Trade Regime and Policy

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TRADE IN SERVICES: The PNA has full regulatory jurisdiction over trade in services. It maintains a relatively free trade regime for most services; both for exports and imports.

INTELLECTUAL PROPERTY: The PNA has committed to ensure that legislation and enforcement of intellectual property rights will be consistent with the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The PNA is in an advanced process of drafting legislation to conform to international standards.

LEGAL FRAMEWORK: The Palestinian legal framework is a combination of several layers of laws; ranging from British Mandate laws, Ottoman laws, Israeli military orders, Jordanian pre-1967 laws in the West Bank and Egyptian legislation in the Gaza Strip, and Palestinian laws issued after 1995. Comprehensive legal reform continues. New laws which have been adopted have replaced old laws; and several drafts of new laws are pending approval.

Trade Agreements

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The Interim Association Agreement on Trade and Co-operation between the European Communities and the Palestine Liberation Organization for the Benefit of the Palestinian Authority of the West Bank and Gaza Strip of February 24, 1997.

Recently, on April 13, 2011, the PNA and the EU signed a Duty Free-Quota Free Agreement, giving all agricultural products, processed agricultural products and fish and fishery products originating in the West Bank and Gaza Strip immediate duty free access to the EU market.

The Interim Agreement between the European Free Trade Area states and the Palestine Liberation Organization for the Benefit of the Palestinian Authority of November 30, 1997, grants duty-free access to the EFTA markets for products from the West Bank and the Gaza Strip.

Trade Agreements

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The Joint Canadian Palestinian Framework for Economic Co-operation and Trade of February 27, 1999, provides for duty-free access for a number of Palestinian goods and services to the Canadian market.

The Great Arab Free Trade Area (GAFTA), which was launched in 1997, and to which the PLO is an original signatory; opens the door for Palestinian exports to a large number of regional markets.

The Technical and Economic Cooperation Accord Between the Arab Republic of Egypt and the Palestinian Liberation Organization of January 1994; eases border restrictions and provides for the creation of free-transit areas, and the use of Egyptian ports, air ports and land borders.

Trade Agreements

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The Interim Free Trade Agreement between the Republic of Turkey and the Palestine Liberation Organization for the benefit of the Palestinian Authority, of February 12, 2004.

Reciprocal preferences have been further established with the United States on the basis of unilateral action. The US Presidential Proclamation of November 13, 1996, grants duty-free treatment to products of the West Bank and Gaza entering the US market.

Negotiations of a trade agreement with MERCOSUR has been finalized, and the Palestinian Cabinet has approved the agreement. It is pending parliamentary ratification by the MERCOSUR members to come into effect. Furthermore, the participation of Palestine in the Agadir Agreement has been agreed in principle with the member countries, and negotiations will be soon launched.

Challanges

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Most of our trade (about 85%) is with Israel.Border closures and other barriers make trade

very costly. Transport costs have added about 30-50% to the price of Palestinian products.

Trade is not “free” in light of these very high transport and transaction costs.

Apart from traditional Non-Tariff Barriers (NTBs), Palestinian trade is faced with Non-Traditional Non-Tariff Barriers (NTNTBs) which reflect the fact that Palestinian products are constrained twice!

Establishing of Bonded warehouses

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The Palestinians stand to potentially benefit from the introduction of dry ports/bonded warehouses and in achieving a more effective mechanism for the estimation and collection of taxes. Nonetheless, the scope and breadth of such benefits are incumbent on the nature of the final agreed upon arrangements between the Palestinians and the Israelis. These benefits include:

Increase in Palestinian tax revenues Larger control over custom clearance and collection of taxes, while

establishing a better system of monitoring accurately the goods that enter and leave the OPT

Halting or minimizing indirect importation by leveling the playing field with Israeli importers

Possible larger control over trade policy vis-à-vis third countries (besides Israel)

Creation of jobs in areas where these bonded warehouses are meant to be established

Enhancing Palestinian capacity in running inland dry ports, custom clearance houses and logistical centers which can favorably enhance Palestinian connectivity to international trade routes and position it favorably as a the regional trade hub when a Palestinian state is established.

Establishing of Bonded warehouses

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From Israel’s perspective, the possible benefits to having Palestinian bonded warehouses could include:

Strengthening Israeli seaports in the international transport chain Reducing the use of expensive, centrally located areas in seaports and

Israeli bonded warehouses The seaports gets a larger capacity to process increasing quantities of

imports and exports by freeing up needed space The bonded warehouses allows for an interrupted flow of goods from the

seaports even during times of heightened violence Moves the onus of responsibility and cost on the Palestinian side for the

processing and dealing with the products i.e. some of the technical issues involved, while continuing to maintain a matrix of bureaucratic and customs control that could still be used as political leverage such as withholding tax revenues. In other words, relieving Israel from direct control, while still maintaining effective indirect control.

Consolidating Palestinian dependency on Israeli trade routes by making it more costly to shift to alternate routes; Gaza port, Egypt-Gaza Borders, Jordan-West Bank Borders.

The danger with any such agreement politically is the fact that any interim solution could contribute to a better management of the conflict and maintenance of the status quo, while, also furthering the Israeli drive for an economic peace.

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TRNSPORT SETCOTR

Several key factors are currently constraining the transport sector:

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Physical: network characteristics and status; Institutional: roles and responsibilities for

network and systems development and management;

Accessibility and Connectivity: convenience and cost of network access

Public Transport and Safety.

Key Issues in the Transport Sector

Several key factors are currently constraining the transport sector

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Physical: The already limited existing road network capital under SoP’s control is being destroyed.

Road transport is by far the most important mode.

The overall network is relatively well developed by regional standards. However, almost 50 % of the road network, under SoP’s control, is in poor, very poor or failed condition, and hence beyond economic repair.

This sector faces serious funding problems for regular routine maintenance, reconstruction and expansion..

Several key factors are currently constraining the transport sector

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Institutional: The SoP’s capacity for transport sector management is slowly developing

The Key governmental institutions lead by MoT in

this sector still require considerable capacity building in:

Inter & Intra Institutional Effective Coordination, Planning, regulating, and monitoring

MoPWH, MoLG, PECDAR & MoT

PPP

Several key factors are currently constraining the transport sector

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Accessibility and Connectivity

The SoP has limited control and access to most of the road network used within the West Bank.

The existing Israeli internal and external closure regime together with the “Separation Barrier” severely constrains economic and social development in the West Bank. The route of this Barrier significantly departs from the 1967 Armistice Line and cuts into the territory of the West Bank.

The existing Israeli external closure regime virtually eliminates the possibility of economic and social development in Gaza Strip.

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The Strategy outlines the Government’s plans to upgrade transportation infrastructure over the next three years. The strategy, covering land, rail, maritime and air transportation, aims to:

establish a comprehensive and safe national road network,

begin developing a rail network commence work on connecting Palestine to

the rest of the world by land, sea and air.

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Two “pillars” Programme : 1.Priority Infrastructure Investments, and 2.Institutional Reform and Capacity Building;

and on three themes: 1.Improving Institutional Capacity and Overall

Sector Management, 2.Improving Internal Mobility, and3.Improving External Connectivity.

Way Forward

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The Road Network estimated length is almost 5,000 km, including about 1000 km of bypass roads serving Israeli settlements in Area C.

A large size of the road network, in particular, the main and regional roads outside the municipal boundaries and located in Area C, defined earlier, is still under Israel’s control.

Almost 50% of the road network is considered in Poor Condition.

Needs: Estimated annual is US$100 million.

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The coastal location of Gaza will provide a critical link in Palestine’s economic development through trade and exports.

The existing fishery harbor of Gaza, damaged by Israeli shelling, needs major repair, and the overall Port of Gaza needs to be reconceived local and international as a major economic hub.

This includes passenger lines, freight, storage, processing for customs, associated service companies and manufacturing.

The port also needs to be envisioned as a part of the overall national and international transportation network, including extensions to the interior in the form of “dry ports”, as well as road and rail links.

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Historically, Palestine was part of the 1,400 km Hijaz Rail Network linking Damascus with Al-Madina in Saudi Arabia.

Needs: There is a need to prepare a prefeasibility study to enable the SoP leadership to determine how, when and at what cost such a networks will be developed.

The following scheme shows a preliminary vision of connected to the regional rail network.

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Palestine must have an integrated freight system that allows its nationally manufactured products to move in a single package from a Palestinian source through an export chain to carry it anywhere in the world.

This integrated network must include pedestrian, vehicular, road, rail, air, and seaport systems.

The system must also work in reverse, bringing goods from around the world into Palestine through its several ports of entry, and distributing them easily at any point within the country.

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Investment in the Transport SectorA.Improving Institutional Capacity and Overall Sector Management1.Strengthening Capacity for Policy and Planning, and Overall Sector Management &

(Prepare Road and Transport Master-plan)2.Development of Regional Vehicle Licensing Departments3.Strengthening Road Network Management. Establishing a Road Fund4.Pre-feasibility Study and Conceptual Design for the Regional Rail NetworkB.Improving Internal Mobility1.Strengthening Road Traffic and Transport Management (Technical Assistance to

MOT)2.Road Network Rehabilitation and Maintenance3.Road Network Development (Jenin – Hebron Road)

4.Development of Public Transport5.Gaza – West Bank Territorial LinkC.Improving Connectivity1.Construct Palestine International Airport in the West Bank and Repair of Yasser Arafat

International Airport2.Construction of Gaza Seaport + Fishing Seaport3.Rehabilitation/Development of Border Crossings and Logistics Center

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