Country Profile : Market Profile

How to Export

Required Documents
Procedures/Transportation
Exporting & Re-Exporting

How to Import

Required Documents
Licensing System
Standards & Testing
Technical requirement/Labeling/Packaging
Clearance Procedure
Taxes/Tariff
Transportation

Trade Finance

Trade Environment

Introduction

The financial sector is developing rapidly in the WBGS. A total of 22 banks are operating with a combined total of over 100 branches located in the main cities. In addition to banks, the financial sector comprises venture capital, equity funds and donor-supported lending NGOs.

Trade finance is the category of services geared towards financing import and export transactions. It is an extremely important tool in facilitating international trade and contributing to the expansion of international commerce. Financing trade transactions ranks first in the distribution of credit facilities available by sector with 29% of available capital allocated to trade (consolidated balance sheets of the operating banks in Palestine, December 31, 1998, Palestinian Monetary Authority). Banks finance trade activities primarily through provision of direct and indirect credit facilities.

Direct Credit Facilities

Direct credit facilities constitute financing tools as overdraft facilities and loans with specific repayment schedules. Overdraft facilities provide the client with a ceiling that may be exploited as required. In turn, the client is committed to deposit money in the overdraft account covering the overdraft ceiling with no fixed repayment schedule. Overdraft facilities are annually renewable by the bank depending on the cash flow activity of the account. In addition to overdraft facilities, banks offer loans with specific repayment schedules. In this case, the bank offers the loan amount to the client and the client is committed to repay the loan by depositing scheduled installments.

Direct credit facilities enable the borrower to make cash payments to suppliers and benefit from the discount on cash without paying the higher cost of borrowing on the credit facility to the bank.

Indirect Credit Facilities

Indirect credit facilities are financial transactions that do not require direct cash but are essentially documents against cash. Banks normally cover up to 20 - 35% of the value of the import through indirect credit facilities and often either grant direct credit facilities or request from the client to cover the remaining part of the value of the imported goods. Indirect credit facilities financing trade mainly comprise letters of credit (L/C) and bank guarantees. Although letters of credit, particularly irrevocable, are the safest means of payment for both the exporter as well as banks, it is not compulsory to open a letter of credit unless the traders negotiate to open one.

Letter of Credit

A letter of credit is an agreement between the importer and a bank, whereby the issuing bank acts on behalf of the client and authorizes another bank (the confirming bank) to make payment to the exporter. Such payment is only authorized after receipt of shipping documents and verification that the imported goods comply with the terms and conditions specified in the shipping order.

Bank Guarantee

A bank guarantee is an assurance given by a domestic bank in favor of a client (importer or investor) oversees and requires that the client has a certain percentage of the total amount of the guarantee in a bank account.

Requirements, Procedures & Cost of Direct/Indirect Credit Facilities

Requirements and Procedures

The Client is required to provide the bank with the following documents:

Personal identification papers and commercial registration certificate;
Ownership certificate of business and property;
Financial statements of business (balance sheet and income statement);
A business plan, if the credit facility to be used is large.

After receiving the required documentation, the credit application undergoes the following procedures:

Credit risk assessment to examine the credit worthiness of the client through exploring information about the client�s accounts and credit status.
Credit analysis to evaluate the viability of the business.
Character assessment to examine the seriousness and credibility of the applicant.

Should the client meet the above mentioned procedures, the client is required to provide the bank with collateral; such as a cash deposit, third party guarantee and/or mortgage depending on the amount and terms of the credit facility.

In the case of a letter of credit, the client is also required to provide the bank with a pro-forma invoice and the sales contract.

The time cycle required to process the credit facility varies according to the credit amount and the bank-client relationship.

Cost of Borrowing

The cost of borrowing comprises the interest rate (direct credit facility), commission fees and sometimes other related administrative fees. The cost of borrowing varies according to bank, client and currency. Due to the absence of a national currency, financial transactions normally take place in US dollars, Jordanian Dinars (JD) and/or the New Israeli Shekel (NIS).

With respect to exports, the bank charges only a confirmation fee on the payment received by the Palestinian exporter.

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Foreign Trade

Exploring the Trade Environment in the West Bank and Gaza Strip (WBGS)

The West Bank and Gaza Strip is a united political entity, geographically comprised of two territories. The West Bank has an area of about 5,800 sq. km, while the Gaza Strip extends on an area of about 360 sq. km. The West Bank is bounded by Jordan on the East and by Israel on the three remaining sides. The Gaza Strip is bounded by the Mediterranean Sea on the West, Egypt on the South and Israel on the remaining sides. The total population of the WBGS is about 2.9 million, 46.5% of which is under 15 years of age.

The main international points of entry and exit for import and export purposes are the following:

Gaza International Airport (GazaStrip)

Ben Gurion International Airport (Israel)

Haifa Seaport (Israel)

Ashdod Seaport (Israel)

Rafah border crossing with Egypt (Gaza Strip)

Karameh (Allenby) Bridge border crossing with Jordan (West Bank)

Adam (Damia) Bridge border crossing with Jordan (West Bank)

The main crossing points between the Gaza Strip and Israel are the following:

Al Muntar (Karni), Beit Hanoun (Erez), and Qarara (Sofa)

Policies & Laws Regulating Foreign Trade

There are several prerequisites that must be considered in order to trade. These requirements apply to both local and foreign entities engaged in import-export activities and will be explained in the following sections.

Corporate Registration

Foreign traders as well as local firms are required to operate through registered business entities. The corporate registration can be acquired from the Company Registrar at the Palestinian Ministry of Economy and Trade, and it is a prerequisite for acquiring a Foreign Trade Dealing registration.

Foreign Trade Dealing Registration

The Foreign Trade Dealing registration is a one-time authorization to trade, applicable for both import and export across international borders. The application is submitted to the Palestinian Ministry of Economy and Trade following application for the corporate registration. The Ministry provides both the Palestinian and Israeli authorizations. The latter is a 'number password', which will be registered in the Israeli computer system. No fees are charged on applying for the registration at the Ministry of Economy and Trade and the time cycle to complete the procedures ranges between one and three weeks.

Registration of the Local Palestinian Agent/Distributor in the Palestinian Territories

Palestinian agents and distributors (individuals or companies) must be registered at the Commercial Agents Registrar - the Ministry of Economy and Trade. Moreover, the local agency agreement has to be registered in order to get full protection of the law against the sale of goods by non-registered agents. Agents trading special categories of goods (including cigarettes, electrical appliances, pharmaceuticals and cars) must provide evidence of meeting technical requirements from relevant Ministries, when applying for registration. It is advisable for foreign companies willing to export to the WBGS to appoint exclusively a local Palestinian entity (if one is not yet operating) in order to receive the maximum protection for the company�s products.

When importing goods, the local agent/distributor should ensure that its name and the juridical status (agent or distributor) are printed in Arabic on the imported goods, in order to be compliant with the Palestinian labeling requirements.

Trade between Palestinian and Israeli Agents

Any Israeli commercial entity that imports internationally originated goods and wants to sell them to a Palestinian commercial entity should clearly state in the Customs Declaration Form the quantity of the imported goods destined for the WBGS. The same rule applies to Palestinian importers willing to sell internationally originated goods to Israel.

Incentives to Import and Export Activities: Industrial & Free Zones & the Law on the Encouragement of Investment

Industrial Estates and Free Zones (IE/FZs)

The industrial estates in the WBGS are currently being developed by the private sector and offer infrastructure and specialized business services to both foreign and local companies. The free zones have extra-territorial customs and duty status. The latter were created to attract local and foreign export-oriented investment activities.

The Gaza Industrial Estate (GIE)

The Gaza Industrial Estate is a free zone located in the Gaza Strip. It started operating in December 1998, offering industrial infrastructure services and the �one-stop-shopping�. The �one-stop-shopping� is a series of facilities offered by the Palestinian Industrial Estates and Free Zone Authority (PIEFZA) to companies planning to operate in the Gaza free zone. Through this mechanism, all necessary documents for investors to start and run their businesses (such as official registration, permits, licenses and related documentation) are all available in one location.

The following incentives and exemptions are offered by the Palestinian National Authority to all IE and FZs, including the Gaza Industrial Estate.

Incentives and Exemptions

All investment incentives offered to businesses located in the Palestinian IE and FZs are incorporated in the �Law for Industrial Estates and Free Zones� and the �Law on the Encouragement of Investment�. All incentives, exemptions and privileges are offered to investors regardless of nationality or citizenship.

Income Tax Exemptions

The �Law on the Encouragement of Investment� fully exempts investors from the income tax according to the amount and the length of the investment, for a variable number of years. Moreover, the law allows free transfers of foreign currency and repatriation of income generated in the WBGS (see �Law on the Encouragement of Investment�, available at the Ministry of Economy and Trade � General Directorate for International Relations).

Fixed Asset Exemptions

Goods, materials, ingredients, machines and foreign vehicles imported into the IE/FZs or for the consumption and use of staff working there, are exempt from customs duty, related fees and import licenses. In particular, equipment and heavy machinery and their imported spare parts are exempted.

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