Project Phases

A. Identifying Key Policy Areas

The project is designed in a way that the first stage concentrated on identifying, through research and meetings with private sector, key policy areas of importance to the private sector. There were not any predetermined rules for identifying areas. Topics of interest could be cross-sectoral issues or sectoral specific issues. A reconnaissance survey was conducted through personal contacts and visits to private sector entities and businessmen by Paltrade and the project’s team to gather views and information on major impediments and problems facing the private sector, and on important issues of concern to investment and to business community. This exercise has covered views from thirty people from the West Bank and Gaza. The output agenda of this exercise came out with a list of 25 issues of importance to the private sector for further discussion and future action. Those 25 items can be divided in 4 major categories:

• Issues pertaining to impediments resulting from Israeli policies and measures.

• Issues pertaining to impediments and shortcoming resulting from local government practices and measures.

• Issues pertaining to building certainty, and confidence in the Palestinian economy.

• Issues pertaining to facing the challenges of globalization.

B. The Project Launching Workshops in WB/GS

Paltrade initially gathered a substantial amount of information about the policy issues of critical importance to the Palestinian private sector and shaped this information in a presentable format using the four categories mentioned before. Then, Paltrade took the initiative to hold the launching workshops for the NTDP project both in the West Bank and in the Gaza Strip. The workshops introduced the project formally to the private and public sector, and were attended by ministers, deputy ministers and a large number of prominent Palestinian businessmen. During the launching workshop, the private sector discussed its current economic priorities and voted on a number of urgent issues that were considered to be the present economic priorities for the Palestinian private sector. Paltrade recorded these issues in order to conduct further research on each specific issue.

C. Establishing Paltrade’s Trade Advisory Council (TAC)

Taking advantage of the high attendance profile for the launching workshops in the West Bank and Gaza Strip and the active involvement of the private sector, Paltrade announced the establishment of its Trade Advisory Council (TAC). Furthermore, invitations were sent to 36 prominent Palestinian businessmen, private sector specialists and economists, from which 32 confirmed their acceptance of the task. The Council held its first meeting shortly after the workshop, and as a result of discussing the outcomes of the workshop, came out with eight policy issues to be researched further by Paltrade and then presented in the National Trade Conference. These eight economic priority issues are as follows:

• What should the Palestinian strategy be towards economic relations with Israel and how can the participation of the private sector in the economic final status negotiations be ensured?

• How can effective cooperation between the private and public sectors with regard to the formulation of economic relations, the encouragement of foreign and private investment and the promotion of Palestine internationally be developed?

• What type of economy does Palestine need in the era of globalization and how to improve competitiveness to withstand global market challenges?

• How should the authorities establish and revise the laws, policies and regulations in Palestine ensure the proper application of standards and product specifications in the era of globalization?

• What are the internationally accepted procedures and measures to protect Palestine’s economy from illegal dumping and smuggling practices?

• What can be done to reform and streamline Palestine’s tax regime, customs procedures and duty/VAT refund system to boost private sector competitiveness?

• What strategy should be put forward to promote economic development in East Jerusalem?

• What is needed in Palestine to develop access to trade and capital financing instruments that support private sector competitiveness and promote investment?

D. Research & Workshop for each Policy Issue

After the Trade Advisory Council’s discussion of the priority issues that were set out by the private sector representatives in the launching workshop, the team leader of the project prepared the terms of reference for the issues papers, with the assistance of the MAP advisor. Paltrade started its research and investigation to recruit researchers for the preparation of each of the eight issue papers. This process led to the nomination of a consultant for each issue paper. The researchers were given the terms of reference on the 19^th of October 1999 and started working on the papers immediately after they agreed with Paltrade to perform the task.

After the completion of the draft policy papers, each paper will be discussed in a workshop that will gather a number of businessmen and officials to comment modify or add substance to the content and recommendations of the particular policy paper. Hence after incorporating the private sector input in the policy papers, those papers will be submitted to the attention of the relevant PA institutions through the Ministry of Economy and Trade.

Synopsis of each workshop

Ramallah, December 11^th

Financing Instruments in Palestine

By Dr. Jim Winkler, Development Alternatives Incorporated – DAI & Saleh Majaj, Paltrade

Limited access to long-term finance in Palestine is a central barrier to the development of the local private sector. Mr. Winkler presented an overview of the model of the finance industry in a perfectly competitive environment, and compared and contrasted it with the current situation in Palestine. The presentation, largely based on a study commissioned by DAI and conducted by Massar Associates, examines the roles of banks and other financial intermediaries in developed economies as well as the main characteristics of the current relationship between banks and borrowers. To conclude, Mr. Winkler highlights a few opportunities for the Palestinian Monetary Authority, the finance institutions and businesses to help better the finance environment in Palestine.

Some of the recommendations that were suggested in the presentation specific to companies include the building of awareness of credit availability, and the cost of that credit, as well as training employees on financial audits, the preparation of business plans and cash management. With regards to financial institutions, the opportunities for formulating long-term positioning strategies and for decentralizing the decision-making process are noted. In addition, banks should rely on sectoral and market studies more, and should focus on promoting financial services and educating the private sector in the shorter term. The Palestinian Authority, for its part, should introduce the necessary framework for the implementation of the leasing mechanism, and should encourage greater co-operation between ministries and banks. The PMA should assist in the efficient implementation of the credit rating of bank clients and in enhancing the information exchange with the banks.

Promoting Economic Development in Jerusalem

By Dr. Mohamed N. Nasr, Birzeit University

Excessive taxes, border closures and political uncertainty are some of the central factors hindering economic development in Jerusalem. Dr. Nasr provided a brief overview of the current situation in Jerusalem, outlined the strengths and the weaknesses, and offered a few recommendations for the PNA and for the private sector on how to spur economic growth. There are many opportunities in tourism for the private sector, according to Dr. Nasr, such as the building of hotels, the restoration of houses in the old city, the opening of variety restaurants to suit tourists’ tastes as well as transport and travel agencies. Some opportunities exist for the PNA as well, such as the establishment of more entertainment and cultural events on a regular basis, the promotion of school trips to Jerusalem and co-operating more with the local businesses to ensure that the private sector’s view are incorporated into future planning initiatives. In addition, Dr. Nasr calls upon the PNA to assist in the providing of legal advice for small businesses, as many cannot afford advice, especially regarding tax matters, and suggests the establishment of a fund to help small business owners pay taxes and access needed collateral. Finally, the need for greater incentives for private sector investment in Jerusalem is highlighted, as well as the urgency for bank’s to extend more credit to the business community in Jerusalem.

Nablus, December 23^th

Participation of the Private Sector in Developing Foreign Economic Relations and Marketing the Palestinian Economy Internationally.

By Dr. Hisham Awartani

Foreign investment is vital to the Palestinian economy. The question is how to create an economic environment conducive to foreign investment. It is very crucial that the Private Sector cooperates with the Palestinian Authority in the decision making process. Mechanism must be elaborated in order to render mutual cooperation efficient and beneficial for the whole Palestinian Economy. Dr. Awartani shows the interdependence of private sector and public sector in many economic aspects and he focus on the importance of developing banking sectors to facilitate financial matters in the private sector. In his concluding remarks, Dr. Awartani suggests different means to enhance cooperation between the private sector and the public sector. There is a need to improve the performance of the banking sector and it is very important to activate the other non-public institutions like chamber of commerce and industry associations. Investment opportunities study in the Palestinian economy must be put forward. Palestine has to exploit the comparative advantage of the Palestinian economy, namely the tourist sector, its labor force and it construction sector. There is also clearly a need to improve the economic relations Palestine and Israel to the benefit of the Palestinian economy.

Prospect of Final Status Economic Relations with Israel

By Dr. Samir Abdullah, Paltrade

Palestine faces three options regarding future trade relations with Israel: economic separation, a free trade agreement and a customs union. After considering the current economic relationship with Israel and evaluating the pros and cons of each arrangement, Dr. Samir Abdullah offers some insight into the private sector’s position.

The three primary options regarding future trade relations with Israel are economic separation, a free trade agreement and a customs union. Economic separation would enable Palestine to formulate its own trade policy vis a vis the rest of the world and would be an incentive for Palestine to develop its own imports/exports facilities. However economic separation might render access to the Israeli market very difficult, which can prove to be disastrous for Palestinian export-oriented industries. A Palestine-Israel free trade agreement (FTA) would also enable Palestine to formulate its own trade policy while keeping open the Israeli market. The major problem with a FTA is how to prevent goods from the rest of the world to access Palestine via Israel. Therefore, a strict rule of origin must be enforced within any FTA. A customs union offers the possibility of securing the Israeli market and making labor movement easier between entities. However, a customs union would not allow Palestine to formulate its own trade policy (so Palestine would have to comply with Israeli policies and commitments). Furthermore, a customs union might create an important fiscal leakage problem.

Because Palestine cannot afford to lose access to the Israeli market, and wants the opportunity to strengthen economic relations with the rest of the world and the Arab countries, a Free Trade Area would be in Palestine’s best interest. In addition, Palestine wants to have a “Palestinian made” foreign trade policy, a principle which does not lend itself to a customs union. Above all, a FTA represents a logical first step from which Palestine can move forward regarding economics trade cooperation with Israel.

Hebron, December 28^th

Measures to Combat Illegal Dumping and Smuggling Practices

By Mr.Msyef, Ministry of Finance

The smuggling of cigarettes, fuel and stolen cars, and the dumping of imported foodstuffs, directly and indirectly leads to the injury of fragile markets, potential loss of employment, discouragement of foreign direct investment, and represents a loss of revenue to the PNA. Mr Msyef highlights the rights and obligations of the PNA and other authorities, and offers some short-term steps to curb the effect of smuggling, such as increased deterrence to non-compliant, and the introduction of measures to reduce customs corruption at border crossings. Some of the longer-term solutions offered include the introduction of intelligence-led risk-based controls, the strengthening and enforcing of legislation and regulations for product standards and marking, as well as the increased co-operation with Israeli authorities to identify common interests and agree on working arrangements for agreeing information

Gaza, December 30th

Palestine Needs a Duty/VAT Remission Scheme

By Mr. Mohamad Khader, Lausanne consulting

The import of raw materials used as inputs into Palestinian exports are taxed directly or indirectly by Israel, without a system for returning or suspending these duties. After distinguishing between a drawback and a suspension, Mr. Mohamad Khader submits a few key recommendations for the Palestinian Authority to improve the trade environment. According to Mr. Khader, duty suspension presents high revenue risks for the government, since the importer does not pay taxes, and therefore requires strict control to ensure the products leave as exports. A drawback, on the other hand, transfers into a delay in the tax rebate for the company, but is of lower risk to the customs process. Should the products stay in the local market, there is no revenue lost. Mr Khader argues that the introduction of a duty suspension scheme is in the best interest of the private sector, and recommends the implementation of a few central measures: the authorization of enterprises, a list of goods to be covered under the scheme, and a co-ordinated system between the port and the custom’s office.

Palestine Identification and Characteristics in the Face of Globalization.

By Mr. Salah Abdelshaffi

This issue paper explains the current situation and characteristics of the Palestinian economy. Mr. Abdelshaffi shows that the Palestinian authority do not monitor fully the decision making process in economic spheres. The Palestinian is suffering from many structural distortions: A) low contribution of Palestinian industrial sector to the GDP, B) High dependence of Palestine labor force on external market, C) High dependence for many Palestinian industries on foreign markets for input supply. D) The chronic deficit of Palestine’s balance of trade to Isreal’s benefit. The expansion of public sector and lack of legal framework, which is a pre-condition to sustainable development, also figure as major economic development impediments. Mr Abdelshaffi pointed out that the role of Palestine’s private sector in directing the Palestinian economy should be as follows: A) establishing an economic environment conducive for investment. B) Income redistribution and intervention to remove market failures. C) Securing steady economic growth and stability through its fiscal policy (low unemployment level and economic growth). In his concluding remarks the author calls for a free market economy, with a new economic relations schemes with Israel and with empowered linkages with Arab countries and the rest of the world. The different competitive advantages of the Palestinian economy should be truly exploited and the Gaza strip should become a free trade zone.

Bethlehem, January the 23^rd

Review of Standardization Policy in Palestine

By Dr. Al Ghanim

The paper has addressed the status quo of standardization in Palestine with respect to its impact on product competitiveness in local and foreign markets, parties involved in Palestinian standards, and exciting challenges and problems. The paper also presented short- and long-run term strategies for assisting Palestinian manufacturers to produce goods according to international standards.

Based on the data and information that have become available, interviews and discussions with industry leaders, together with standardization institution in Palestine (PSI), several recommendations have been made. First, the manufacturers themselves must adopt duality as a basic business principle and implementing its tool and techniques. The PSI should be operated as an independent organization with significant degree of financial and administrative flexibility. The PSI should take the lead in establishing mutual recognition agreements (MRA) with equivalent foreign organizations to help product flow to other countries. In particular, the PSI should activate the MRA with Standards Institution of Israel (SII) so that Palestinian products become certified to the SII product standards.

National Trade Conference: High profile Platform for Dialogue

Under this project, Paltrade will host the first Palestinian National Trade Conference (NTC) where the private sector policy discussion papers and recommendations will be presented and discussed in order to establish a private sector agenda. The overall aim of the NTC will be to provide a forum in which representatives of the private and public sectors have the opportunity to exchange information and discuss issues of concern regarding trade and economic growth. In the National Trade Conference to be held at the end of the project (March 2000), the policy papers will be presented together with a summary of the research carried out. The draft private sector agenda will then be open for discussion and endorsement of the private sector. However, this exercise although aiming to reach a private sector action agenda will not be carried in isolation from the public sector. The government will be a major player in the National Trade Conference.

The conference will be a platform for dialogue between the private and public sectors regarding the issues presented and recommendations made by the private sector. This dialogue will lead the private sector to a realistic private sector action agenda that takes into consideration the public sector’s point of views and constraints. This dialogue will assist the public sector in better understanding the private sector’s needs and recommendations. The dialogue will create a shared interest and shared responsibility between the two sectors to serve the economic growth and development of Palestine.