x Abu Dhabi, UAEWednesday 26 July 2017

Abbas seeks to loosen the ties that bind West Bank's economy to Israel

Palestinian Authority asks Israel to consider altering an 18-year-old agreement that regulates the two sides' economic ties.

RAMALLAH // The Palestinian Authority has officially asked Israel to consider altering a key agreement regulating the two sides' economic ties, as protests simmer across the West Bank because of living costs.

Mahmoud Abbas, the PA president, made the request to the Israeli defence ministry yesterday for discussions on amending the Paris Protocol of 1994, said Hussein Al Sheikh, the PA's civil affairs minister.

Appended to the Oslo I Peace Accord signed a year earlier, the agreement defines economic ties between Israel and Palestinians in the Gaza Strip and West Bank on issues of trade relations, fiscal matters, monetary arrangements and labour.

Palestinians resent it because of provisions that favour Israel, and Mr Sheikh, who delivered Mr Abbas's request, said the Palestinian leader wanted "the reopening of the Paris Protocol" because it was "not compatible with the current economic situation".

That was an allusion to the blowback from the PA's budgetary crisis, which has worsened recently because of undelivered aid money from foreign countries and a myriad of obstacles resulting from Israel's 45-year military occupation over the Palestinian territories.

In a spate of rallies across the West Bank, taxi drivers, civil servants and students have protested against the high cost of living and the non-payment of August salaries to the PA's 150,000 employees.

The governor of the West Bank's Tubas governorate was reportedly injured on Saturday night by a barrage of stones thrown by demonstrators who had blocked roads for hours using torched tyres.

Speaking at a press conference in Ramallah on Saturday, Mr Abbas defended his government amid sharpening criticism. PA officials, for their part, have said they are powerless to resolve the economic situation because of Israel's control over their economic policy - a grievance that leads directly back to the Paris Protocol.

PA ministers "follow my orders and I am committed to what their policy development and recommendations", Mr Abbas said.

Changes to the Paris Protocol could substantially improve the Palestinians' economic lot, Palestinian officials and economists say, citing what they decry as its many imbalances that favour Israel. The agreement was supposed to be a temporary solution until Israeli and Palestinian negotiators hammered out a final peace agreement.

But that has not happened and although the protocol has since granted the PA authority over income taxes, industrial policy and public-sector employment, it gives Israel near-total authority over external trade policy.

Israel, which controls all PA border crossings under the agreement, also collects and disburses tax revenues on imported goods to the PA. This allows Tel Aviv to withhold this money as a form of punishment, which it has done on numerous occasions.

Moreover, the agreement pegs Palestinian value-added tax (VAT) levels to Israel's. Partly because of Israel's higher per-capita income, its unilateral increases to this rate have led to painful spikes in prices for Palestinians, such as a recent Israeli hike from 16 to 17 per cent.

All of this had made Palestinians precariously reliant on Tel Aviv's economy and policy whims, said Nasser Abdulkarim, professor of financial economics at the West Bank's Birzeit University.

"The general Palestinian sentiment is that the agreement actually hurts them, makes them even more dependent on Israel's economy, strengthens the occupation and makes people here worse off," he said.

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