Foreign Trade

3.1 Trade Balance
In 1998, Palestine exported US$444 million and imported US$2.7 billion, for a total trade deficit of approximately US$2.2 billion. As shown on the table below, Palestine has experienced a chronic trade deficit since the signing of the Oslo agreements. The trade deficit in 1997 represents as much as 48% of the GDP and it is clearly a burden for the Palestinian economy.

Development of Palestinian External Trade (West Bank & Gaza)

Sources: For 1990-1991, Axel J. Halbach, “New potentials…” op. cit.; For 1992-1995, UNCTAD secretariat estimates (see UNCTAD/GDS/SEU/2); For 1996-1997, PCBS – foreign trade statistics; For 1998, current account data series from PCBS and PNA, Ministry of Finance - General Directorate of Customs, excise and clearance Dept.

* Data estimates for 1994 are the most reliable for the period prior to availability of PCBS data.

3.2 Main Trading Partners
As of 1998, 94.2% of Palestinian exports were to Israel. The other central trading partner for Palestine’s exports is Jordan with 4.9%. The year 1998 witnessed a substantial decrease of the proportion of Palestine’s imports from Israel, to the rest of the world’s advantage (excluding Egypt and Jordan). While on average, from 1994 to 1997, 86% of Palestine’s imports were from Israel, that number fell to 69% in 1998. Imports from Egypt and Jordan are still very limited, accounting for 0.9% and 1.4% respectively. In 1996 and 1997 an average of 7% of Palestine’s imports were from Europe. The Figures I and II show Palestine’s trading partners from 1994 to 1998 regarding exports and imports.

Exports & Imports by Commodity

3.3 Trends for 1999
The UNSCO report for Autumn 1999 allows some trends for 1999 to be drawn. The data indicates that there was a 9.6% increase in the nominal NIS value of registered Palestinian-Israeli trade transactions (exports plus imports) during the first-half of 1999, as compared to the same period in 1998.

The growth in the value of trade was dominated by Israeli exports, which rose by 12.5% in nominal NIS terms, from a monthly average of NIS 509.6 million during the first-half of 1998 to NIS 573.7 million per month during the first half of 1999. In contrast, the Palestinian exports to Israel amounted to NIS 151.6 million during the first half of 1998 and stayed at this level in the first half of 1999. Direct registered imports from Egypt, Jordan and other countries via Israeli ports increased by 43.4% in the first half of 1999 compared with the same period in 1998. While the imports increase through the Rafah crossing with Egypt was negligible, the imports increase from Jordan through the Al Karama cross point and from the rest of the world (through Israeli port) was substantial.

Market Access

4.1 Trade Policy of the Palestinian National Authority
The Palestinian National Authority has pursued a free market policy, reaching several free trade arrangements with regional and international partners. Although Palestine still faces some non-tariff barriers from Israel, mostly under the guise of security measures, the Paris Protocol has enabled the Palestinian economy to build on its strong industries, and increase its exports to both neighboring and international markets.

4.1.1 Free Trade with Israel: the Paris Protocol
The economic agreement signed between the PLO and the state of Israel in April 1994 is based on the principle of free trade between the two nations. Regarding trade with other nations, the Protocol ensures the following guidelines:

• No export restrictions on Palestinian products.

• Full access to Israeli ports of entry and exit is ensured, as well as equal treatment of Israeli and Palestinian imports and exports, other than security requirements.

• Full access to benefits that of bilateral free trade agreements which Israel currently enjoys with other nations, such as Slovakia and the Czech Republic.

(For trade agreements and arrangements between the PLO and the rest of the world, please see 4.6 Bilateral Agreements)

4.2 Customs Valuation and Procedures

4.2.1 Valuation of imported goods and customs procedures
All documents and goods are examined inside the customs administration. The law of customs & excises in Israel concentrates on the following:

1. All packages must be opened and examined by the customs officer in the presence of the owner or his clearing agent.

2. Any lack of information in the documents or any differences discovered between goods and documents, especially undeclared goods, is considered smuggling: duties are doubled and legal action may be considered.

3. The customs officer has the right to examine all or part of the goods more than once.

4. If goods are spoiled or putrid a committee will examine it. The presence of the clearing agent is favored.

5. The customs officer has the right to send samples to certain authorities or labs, but the owner or his agent should be there.

6. The expenses of examining goods or lab analysis may be charged to the importer.

7. The customs officer also has the right to inspect and check the people and their luggage & packages.

All imported goods to PNA territories are subjected to Israel measures & specifications. The Israeli customs system for clearing imported goods includes the following charges in sequence:

Customs duty: either

a- A compound rate + % ad valorem tariff on Accepted Fair Price ( AFP ) or

b- The higher of an absolute or ad valorem tariff on the AFP

AFP= Total CIF invoice value + Israeli port fees + other charges i.e. real cost of goods through port.

Purchase Tax: compoun% of the AFP + duty after inflation by additional percentage on customs' assessment of the importers' typical mark-up on the goods in question. According to the Israeli customs book it is called "importation rate uplift", commonly referred to as "TAMA". The purchase tax is usually limited to those products that are manufactured in Israel – (a protective tax).

Value Added Tax (VAT): currently 17% of AFP + customs duty + purchase tax with the TAMA. It is applicable to all products and services.

4.2.2 Revenue collection
The goods inside the customs areas cannot be released without the payment of all duties and fees in demand. The driver makes payments on the spot for the account of the Palestinian customs authorities at the Bank of Palestine at the bridges. A receipt is taken and shown to the customs officer to issue the release permission. These payments are done in accordance with the Israeli customs forms.

It should be noted that if the customs officer asks for a different customs duty amount than the one that is carried by the driver, the importer or his clearing agent must provide the remaining amount on the spot or the shipment will not be cleared. In most cases they do a bank transfer from one of the local banks to the Bank of Palestine branch at the bridge, sending a fax to the driver stating that the due amount was paid. If this arrangement does not work (bank is closed, no fax, etc.) the shipment will wait until the next day for clearance.

4.3 Export/Import Control

4.3.1 Customs relations with other parties
There are mutual and well-integrated relations between customs, Ministries and other bodies. Each agency or ministry has its own specific role and task. However, due to the thorough Israeli regulations and requirements to deal with different PNA agencies, customs procedures are sometimes complicated.

Customs regional offices respond to inquiries from traders and clearing agents based on their information. However, several issues are within the purview of the Israeli authorities, and therefore the PNA customs authority or the PNA Ministry of Trade has to check with them. The Israeli authorities do not accept any inquiries from private businessmen.

Customs administration on bridges and crossing points have strong coordination with the Ministry of Civil Affairs. Most of the relations with the Israeli side have to be done by this Ministry.

4.3.2 Current customs rules, procedures & formalities in the PNA
Since 1987, Israel has adopted the harmonised system (HS) and began applying the GATT agreement in January 1998. However, goods and services transactions in Palestinian foreign trade are done according to the Israeli customs laws and procedures dating back to 1962. Every customs territory has both a commercial entry and a passenger entry. The PNA has complete authority over the passengers’ entry, especially in the process of inspection, examination and collection of duties. Below are the major roles of Palestinian customs at these entries:

• Examining and inspecting goods

• Sending expropriated goods to the customs regional office to complete the rest of the procedures.

• Clearing customs on personal cars, following up on problems and solving disputes.

• Storing goods in customs warehouses.

• Handing over any product sample to the ministry of health if it needs further inspection.

• Registering and classifying data for statistic and customs purposes.

However, it should be mentioned that the Palestinian officials check the passengers after the Israeli security procedures are done for the passengers and their luggage. The tariff applied to passengers in West Bank and Gaza Strip is the PNA tariff.

4.4 Import Licenses

4.4.1 Customs Clearance Arrangements and Documentation
The PNA has adopted the following import mechanisms:-

1. For the direct importation of goods or services from outside countries, the customs revenues are directly transferred to the PNA treasury through Israel.

2. For the importing of goods or services produced in Israel the VAT is levied through unified invoices (clearance system).

3. Products imported through Israeli ports and airports cannot be controlled or defined because of Israeli management over clearing procedures.

4.5 Distribution Channels

• Selling factors,

• Use of Agent/Distributors,

• Pricing Products,

• Finding a partner,

• Customer Support,

• Direct Marketing,

• Selling to the government.

•  Joint Ventures,

All of these methods are used. Furthermore, the Palestinian Authority establishes the legal basis for Commercial Agents as follows:

4.5.1Commercial Agency Law
The Commercial Agency Law was passed in May 1999. The present practice reflects the pending law, which contains provisions protecting the principal, the commercial agent/distributor and the consumer. It is structured to be as efficient as necessary for the operation of a free market system in Palestine. The law will unify the geographical areas of the West Bank and Gaza by making the appointment of a commercial agent direct for one jurisdiction.

4.6 Bilateral Agreements

Free Trade Agreements with Arab Countries

The PNA is party to bilateral commercial agreements with Jordan and Egypt, granting preferential treatment to some Palestinian products.

Unilateral custom-free entry of Palestinian products is allowed into Saudi Arabia, Qatar, United Arab Emirates, Bahrain, Tunisia, and Morocco.

In addition, Palestine enjoys the following agreements:

• Declaration of Free Trade – WBGS and the Unites States of America

• Free Trade Arrangement between the Palestine Liberation Organization and Canada

• Interim Association Agreement on Trade and Cooperation between the European Union and the Palestine Liberation Organization.

• Interim Agreement between the EFTA States and the Palestine Liberation Organization

• Agreement on Commercial Cooperation between the Palestine Liberation Organization and Russia

4.6.1 Economic Agreement between the Palestine Liberation Organization and Jordan

The Agreement provides preferential tariffs for goods traded between the WBGS and Jordan. Goods in Lists A1, A2, and B entering the WBGS and the agreed upon products entering Jordan are duty free, provided that the import volume does not exceed the pre-determined quota.

The Jordanian Rule of Origin The rule of origin states that a product should be wholly obtained (grown, produced or manufactured). If not wholly obtained, the product should at least have 35% of the value added produced locally (either WBGS or Jordan). A certificate of origin is required for exemption

4.6.2 Economic Agreement between the Palestine Liberation Organization and Egypt
The Palestinian-Egyptian Trade Agreement states that Egyptian products of national origin are exempt from customs and related duties if in Lists A1 A2 and B (see Annex A, Table 12). Palestinian products are granted duty free entrance to Egypt according to a defined list

• Unilateral custom-free entry of Palestinian products is allowed into Saudi Arabia, Qatar, United Arab Emirates, Bahrain, Tunisia, and Morocco.

4.6.3 Trade with Saudi Arabia
Palestinians can export all types of products to Saudi Arabia. The government of Saudi Arabia grants duty free treatment to the following Palestinian products: agricultural products, livestock, metallic and non-metallic raw materials.

In order to benefit from the preferential arrangement, the rule of origin for Arab countries applies. Moreover, an official certificate of origin is required, stamped accordingly by the Saudi Embassy in Jordan or Egypt, together with the official invoice. The name of the producer, country of citizenship and the rule of origin should be clearly indicated on the product. At the same time import from Saudi Arabia is limited to items listed in A1 and A2.

(For further details on these and other agreements please visit the Palestine Trade Center – PALTRADE – website at www.paltrade.org or contact us at info@paltrade.org)

4.7 Investment Regulations

4.7.1 Company Law
The Company Law was enacted in the fall of 1999 and harmonizes the registration and incorporation process as well as applies uniform fees to both the West Bank and Gaza. It eliminates existing requirements for par value of the share and stated capital and simplifies the incorporation procedures.

4.8 Restricted Products for Imports:

• All sources for internationally controlled substances such as narcotic drugs and psychotropic substances.

• Pornography publications, hate literature and other materials contrary to generally accepted public morals, human, animal & plant health or national security (i.e., counterfeit money).

• Imports of motor vehicles older than 3 years, according to art. 3, par. 11 (a) in the Paris Protocol.

• Imports from countries, which prohibit or limit imports from Israel, mainly countries that do not have diplomatic relations with Israel. Goods listed in list A1, A2 and B represent the only exception.

• International embargoes applied by organizations of which Israel is part.

4.9 Free Trade Zone
The Law on Industrial Estates and Industrial Free Zones was enacted in November 1997. The law designates certain areas as free zones to facilitate the establishment of regional and international export centers. An Industrial Estate and Industrial Free Zone Authority was established to oversee such development. This is an independent and autonomous body overseeing the implementation of the estates and free zones, and creates an enabling and regulatory framework for the success of their operations. A private-sector developer is developing the infrastructure. All the Investment Law advantages are passed on to investors investing in the industrial zones.

4.9.1 Investment Guarantees
Long-term political risk insurance for foreign direct investors is available through the Multilateral Investment Guarantee Agency (MIGA).

4.9.2 Business permitted in the areas

• Industrial projects and other operations for assembling, preparing and replacing processed or semi-processed products

• Mechanical, electronic or chemical works

• Importing goods from inside and outside Palestine, storing such goods and using, consuming or exporting them as they are, wholly or partially

• Manufacturing, cleaning, dismantling, marking, changing, filling, splitting, and other such works

• Data processing services and other similar services

• Providing all financial, banking, and commercial activities and services.

4.9.3 Requirements for operation in Industrial Areas:

1. Projects should be registered with the companies’ registrar in compliance with Palestinian rules.

2. Projects should meet environmental requirements subject to Palestinian Environmental Law and under supervision of PIEFZA.

3. When applications conform to rules and instruction in force, they will be processed by PIEFZA.

4. Obtaining of certificate:

a) Application form is obtained against payment and receipt of payment note.

b) Applications should be directed to the Department of Operations of PFIEZA, which then evaluates the technical and environmental aspects of application

c) Initially, a Memorandum of Understanding will be signed between the developer and the investor until required procedures are completed by PIEFZA.

d) Environmental evaluation will be completed within 21 days from date of presentation of application.

e) Following completion of environmental evaluation, companies’ registrar will be informed to request the approval of registration.

f) Technical assessment of project will also be completed within the same time frame.

g) Executive Director of PIEFZA will present application to Board of Directors for resolution within maximum of one month from date of submission. The Board will then decide on approval within a maximum period of two weeks.

h) If a certificate is granted, it will be prepared and handed over within a maximum period of one week from the date of the decision.

Foreign Companies:

· Foreign Company or branch may register locally

· Requires special authorization

· Audited financial reports must be submitted

4.9.4 Business and materials banned in the Industrial Areas:

1. Any activity that requires the following goods to be used:

· Weapons, firearms, military equipment, or explosives

· Drugs, poisons and dangerous items banned by Palestine Law

· Radiation materials unless special permission is granted for industrial pharmaceutical purposes or scientific research.

· Rotten items with expired validity date

· Goods or services which contravene the Data Contravention Act

4.10 Required Trade Documents

4.10.1 Documents required prior to customs clearance
International Trade Permit: this permit is essential to the Palestinian importers to import via international “recognized” borders (Ministry of Economy and Trade)

Import license (Ministry of Economy and Trade)

Environment permit: for some of the chemical and pharmaceutical raw material consignments, (from Palestinian Environment Authority)

Standards Certificate: depending on the kind of the item imported (i.e. food stuff, electrical appliances, etc.), a certificate of standards should be available. Israeli certificates are the only ones acceptable by the Israeli customs authorities.

4.10.2 Import licensing documentation
An application for an import license of four copies is filled; two copies in Arabic-English and two in English-Hebrew. This application is subject to the following general conditions:

1. The approval of the Ministries of Health and Agriculture for foodstuffs and chemicals (Ministry of Economy and Trade).

2. The approval of the Ministry of Transportation for mobile machines and apparatus (Ministry of Economy and Trade).

3. The conformity of products with the PNA measures and specifications (Ministry of Economy and Trade).

4. For petrol and oil stuffs the approval of the general petroleum association is needed (Ministry of Economy and Trade).

5. If the product is mentioned in list A1,A2, the importer should write in the application “this item is according to list A1 or A2”. A1 and A2 lists contain certain basic commodity and food items.

6. The sticker on the product should show the name of the product, the content, expiry date, and the name and address of the exported company.

When the importer complies with all the above points an importation license is issued for one year. This license is only valid for a certain quantity specified in the import license, and registered at all customs crossing points and listed on the Israeli general customs computer system. The number of import licenses issued by the Ministry of Economy and Trade were as follows:

4.10.3 Export documentation
Palestinian exporters to Arab countries need to obtain export documents from the relevant Chamber of Commerce. The following documents should accompany the product and be delivered to the bank or to the clearing agent (depending on the terms of payment):

1. An invoice from the exporter to the importer specifying the produce, quantity and value certified by the Ministry of Economy and Trade.

2. A certificate of Origin issued by the Palestinian Chamber of Commerce certified by the Customs Directorate.

3. Agricultural products’ certificate of origin and permission for exporting from the Ministry of Agriculture approved by the Ministry of Economy and Trad.

Exports to Arab countries which do not have peace or trade agreements with Israel should have a certificate of origin issued from the Chamber of Commerce certified by the relevant Palestinian Embassy.

4.11 Quality and Technical Standards
All imported goods to PNA territories are subject to Israeli measures and specifications. According to the Paris Protocol, standards for Palestinian imports should be in conformity with Israeli standards, with the exception of goods indicated in lists A1 and A2. Products listed in these lists are subject to Palestinian standards within an agreed upon quantity. If the imported goods exceed the quantitative restriction, Israeli standards apply to the additional quantity.

Standards are set through the Palestinian Standard Institute, which has developed 600 Palestinian standards covering different sectors such as food, chemicals, electrical, light and electronics, construction, mechanics, power and hydraulics, quality systems, paper and leather.

Written standard requirements and specifications are available at the Palestinian Standard Institute as well as at the General Directorate of Trade - Ministry of Economy and Trade.

Standards are divided into mandatory and voluntary. Compliance to mandatory standards is applicable for those products to be marketed in the WBGS. Voluntary standards are additional certifications (i.e. ISO 9000) normally required by foreign agencies in order to qualify certain products for competitive bids, to prove a superior quality of products.

4.11.1 Mandatory Standards
Mandatory standards, if required, are indicated with an “S” in the Tariff Book of Israel. Normally, mandatory standards are imposed on products that directly affect consumer safety such as electrical appliances, food products, food additives, and mechanical parts. Other considerations when imposing standards are quality control of the product, maintenance, liability, and measurement specifications.

Some of the major categories of products that are subject to mandatory standards according to the Tariff Book of Israel are:

Copying equipment (i.e., scanners, photocopiers, etc.)		Medical equipment (i.e. x-ray machines)
Furniture		Motor vehicles
Iron and steel products		Toys
Live animals and animal by-products		Pharmaceuticals and cosmetics
Machinery (i.e., boilers, refrigerators, ovens, TVs and air conditioning systems)		Electrical machinery (i.e., calculators and office machines)
Processed food		Textiles and apparel
Rubber products (i.e. new pneumatics)		Tobacco
Vegetables		Leather

A) Procedures to Comply with Mandatory Standards

In order to ensure that goods comply with mandatory standards, they must undergo the following procedure:

1. Testing of the Sample Prior to Shipment: Prototype Approval

The prototype approval is granted by the Palestinian or Israeli Standard Institute prior to importing and is valid over a period ranging from one to four years for that specific product. This approval is not a precondition for receiving an import license, unless telecommunication related items are imported. However, the prototype approval prevents possible delays and unnecessary expenses, while clearing the goods at the port of arrival.

Testing the product sample could be conducted through the Palestinian Standard Institute’s accredited laboratories, should these laboratories be able to carry out the test (depending on the imported item). The sample size is defined under the standard specification of the imported product. Moreover, the time cycle and the fees associated with conducting the prototype test range according to type and nature of product.

• Requirements for the Prototype Approval

The requirements for the prototype approval vary according to product. However, a sample of the product, as defined in the standards is a mandatory requirement in addition to the following requirements according to the type of product:

1. Product catalogue

2. Operation instructions

3. Manuals

4. Product description

• Approval of the Type after the First Shipment Arrival

After arrival of the shipment, products are tested to verify compliance with the prototype approval. In order to avoid possible damage and additional expenses associated with keeping the shipment in the port or in bonded houses, the Customs Authorities allow clearance. However, it is important to point out that the goods cannot be marketed prior to the type approval. In this case the importer must provide a bank guarantee and sign a pledge not to distribute the products until receiving the type approval.

• Requirements for the Type Approval:

1. Samples of products;

2. Comprehensive description of the product;

3. Product catalogue;

4. Comprehensive list of product parts.

• Time Cycle for Type Approval

The time required for approval depends on the extent to which the product is sophisticated. Simple electronic products require 3 to 4 days while more complex products, such as refrigerators require 3 to 4 months.

B) Testing Fees

There is a significant difference between the fees charged for testing in Israel and those charged in the WBGS. In Israel, testing fees range between 200 to 20,000 New Israeli Shekel (NIS) while in the WBGS they range from 200 to 5,000 New Israeli Shekel (NIS). It is important to point out that testing reports of some of the Palestinian laboratories are considered as valid as originating from Israeli laboratories (i.e. foodstuff and construction materials).

4.12 Advertising Media, Trade Fairs and Exhibitions
(For advertising media, trade fairs and exhibitions, please visit our website at www.paltrade.org or contact us at info@paltrade.org)

4.13 Packing, Marking and Labeling
All products imported to Palestine (through Israeli ports or the passages to Jordan or Egypt) are to be labeled in Arabic, in accordance with the standards requirements of the Ministry of Economy and Trade and other relevant ministries.

All importers who sign a pledge that declares the destination of the product to be PNA areas need not comply with the Hebrew labeling requirements.

If the product being imported is not labeled in Arabic, then the importer will be required to place a bank guarantee which will be held by the customs authority until a check is conducted by the Ministry of Economy and Trade to confirm compliance with the Palestinian Labeling requirements. If any Israeli authority places a requirement for Hebrew labeling on any product being imported to Palestine, then the importer is requested to inform the Palestinian Ministry of Economy and Trade (Israel Desk) at ++972-2-2981214/5/6/7/8. Fax. ++972-2-2981207/10.

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