Israel’s Redeployment and Economic Relations with Its Arab Neighbors

Vol. 3, No. 17    February 19, 2004

• If Israel comes to the inevitable conclusion that the Palestinian Authority is not ready, prepared, or willing to make the necessary efforts to implement the road map through an agreement, then we will take unilateral steps in this direction.

• The purpose will be to reduce the number of Palestinians with whom we are in direct contact on a daily basis to the minimum, and to shape a line of disengagement.

• This will be congruent to the basic principles of the road map. It is not a contradiction of the road map. It is a unilateral implementation of the basic principles of the road map, adjusted to changing circumstances.

• Is this a surrender to terror? I do not believe the terror will end and I do not think that we will stop our war against terror. We are going to continue to fight against terror, comprehensively, without any limitations, without any constraints.

• A 1997 agreement between Israel and Jordan led to the establishment of qualified industrial zones (QIZ), in which 50 manufacturing plants created 45,000 new jobs. Jordanian exports to the U.S. have increased significantly, while Israeli inputs into production exported to America through the QIZs totals $65 million.

• The success of the QIZs that Israel has created with Jordan can serve as a very good precedent to what ultimately can be established with the Palestinians, although this will require a degree of cooperation that does not exist today.

Israel’s Relocation from Gaza

The statement by Prime Minister Sharon on relocation from Gaza is entirely congruent with former statements on Israeli government policy. We are interested in and are dedicated to the implementation of a framework for an agreement in the Middle East, a policy called the “road map” which has been approved by the Israeli government. The government had some reservations about certain aspects of the road map, but we continue to support it. This is what we want to achieve, preferably through an agreement with the Palestinian Authority, but not exclusively.

In other words, if we come to the inevitable conclusion that the Palestinian Authority is not ready, prepared, or willing to make the necessary efforts to implement the road map through an agreement, then we will take unilateral steps in this direction. Israel is not interested in protecting the status quo indefinitely. It has to change in order to avoid unnecessary conflicts and violent confrontations with the Palestinian civilian population.

We wanted to come to an understanding with the Palestinian Authority at the time of former Prime Minister Abu Mazen, but it didn’t work out. The present prime minister, Ahmed Qurei, doesn’t seem to have the necessary desire to overcome the obstacles created within the Palestinian Authority in order to move forward. So the question becomes: How long will we wait? How much more shall we suffer and pay the political price and the human price, before we make the necessary changes in the status quo. The prime minister and I, and the majority of the Israeli public, are determined not to wait much longer.

The strategy is not restricted necessarily only to the Gaza district. The strategy is comprehensive and it will relate to all of the territories. Disengagement will have to take place equally in the West Bank.

The purpose will be to reduce the number of Palestinians with whom we are in direct contact on a daily basis to the minimum, and to shape a line of disengagement. We have to pull out from areas which are densely populated by Palestinians. That does not necessarily prejudge what may be the outcome of negotiations between us and the Palestinians. But as long as we talk about unilateral moves, I think the basic parameter has to be minimum Arabs under the jurisdiction and administration of the State of Israel, and maximum Jews.

This will be congruent to the basic principles of the road map. It is not a contradiction of the road map. It is a unilateral implementation of the basic principles of the road map, adjusted to changing circumstances. Once this line of disengagement is created, Israel will be ready at any time to carry on negotiations with any Palestinian government that will be ready to do so within the basic principles of the road map. This is not in any manner the end of any chances in the future – near or far – of negotiations between Israel and the Palestinian Authority.

A unilateral implementation naturally allows greater flexibility about the definition of all the different aspects of the road map. Israel is not going to withdraw any time in the future to the 1967 lines or divide Jerusalem. The Temple Mount and the Old City and major parts of the city of Jerusalem will remain continuously, indefinitely, under the full sovereignty of the State of Israel. And there will be other areas that will not be evacuated by Israel.

Is this a surrender to terror? I do not believe the terror will end and I do not think that we will stop our war against terror. Israel can reach out against those using rockets whether we are five kilometers or 15 kilometers from the center of Gaza. We are going to continue to fight against terror, comprehensively, without any limitations, without any constraints.

The Conflict and the Economy

Israel’s economy has been greatly affected by political events, security events, and terror that have taken place in our region. For instance, the volume of Israel’s relations with the Palestinian economy was very significant in the years before the intifada started. Israeli exports to the Palestinian Authority were in excess of $2.7 billion annually, and Israeli imports from the territories were in excess of $800 million a year. This has now fallen to $1.3 billion in exports from Israel to the PA and less than $200 million in imports from the territories, as a result of the political and security situation.

Israeli-Jordanian Industrial Zones Flourish

One country with which economic relations have not been greatly affected is Jordan. Israel tried to establish economic cooperation with both Jordan and the Palestinian Authority in the mid-1990s when we signed a peace agreement with Jordan. In 1997, Israel and Jordan reached an agreement on economic and industrial cooperation that was recognized by the United States to be part of the free trade agreement between Israel and America. This dramatic program has had an enormous impact to the benefit of both countries, and has helped to increase Jordanian exports to the U.S. in a very significant way. The 1997 agreement led to the establishment of qualified industrial zones (QIZ) between Israel and Jordan, in which 50 manufacturing plants created 45,000 new jobs.

The exports from these industrial zones have increased from about $13 million in 1997 to over $500 million in 2002. Exports from Jordan to the U.S., partly as a result of these new dynamics, increased to over $150 million. Israeli inputs into production exported to America through the QIZs totals $65 million. Both Jordan and Israel consider this to be one of the major fruits of peace between our two countries, and we have a keen interest in continuing these relations and expanding them.

Israel will begin negotiations with the EU, together with Jordan, to expand exports from the QIZs to Europe as well. While the EU was previously unreceptive to these ideas, I believe the disagreements will be resolved and exports from the qualified industrial zones in Jordan into the European Union will be allowed, something that will contribute to the economy of both Israel and Jordan.

Economic relations between Israel and Jordan are expanding in a very positive way, and differences we naturally have with Jordan about the political situation do not reflect on economic cooperation.

However, the level of economic cooperation with other Arab countries is not what it was destined to be. Economic relations between Israel and Egypt are not as intense as we originally hoped, and the tensions of the political situation are reflected in economic and business performance. Recently, Israel renewed contacts with the Egyptians to try and establish an agreement similar to the one with Jordan, for qualified industrial zones within the framework of free trade agreements with America.

In 1997, trade between Israel and Egypt totaled $55 million in Israeli exports and $30 million in Israeli imports. In 2003, Israeli exports had fallen to $19.5 million and imports to $17.5 million, as a result of the impact of the political situation.

Economic Relations with the Palestinians After Separation

The emergence of Israel’s new strategy of unilateral moves will not encourage economic cooperation with the Palestinian Authority. If there was room for economic cooperation based on coordination, contracts, negotiations, meetings between leaders on both sides, then there could also be room for political negotiations. But the reality is that it is very hard to establish these kinds of contacts with the Palestinians these days.

As a strategy, I don’t believe that all patterns of cooperation are useful. Having Palestinians working within the State of Israel is not helpful in the long run, neither to them nor to us. The dependence of Israeli industry and services on Palestinian labor was also problematic.

The government has been discussing extending the pattern of the Erez industrial zone in the Gaza district, with industrial zones along the separation line. This will enable Palestinians to go to work without being forced to go through checkpoints, and to go home at the end of the day, with no risk to Israel. The success of the QIZs that Israel has created with Jordan can serve as a very good precedent to what ultimately can be established with the Palestinians, although this will require a degree of cooperation that does not exist today.

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Deputy Prime Minister Ehud Olmert serves as Minister of Industry, Trade, Labor and Communications. This Jerusalem Issue Brief is based on his presentation at the Institute for Contemporary Affairs in Jerusalem on February 3, 2004.