UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT Trade Facilitation in the Occupied Palestinian Territory: Restrictions and Limitations Mutasim Elagraa, Randa Jamal and Mahmoud Elkhafif UNITED NATIONS New York and Geneva, 2014 Note The views expressed in this publication are those of the authors and do not necessarily reflect the views of the United Nations Secretariat. ________________________________________________________________ The designations employed and the presentation of the material in this publication do not imply the expression of any opinion on the part of the Secretariat of the United Nations concerning the legal status of any country, territory, city or area, or of its authorities, or concerning the delimitation of its frontiers or boundaries. Symbols of United Nations documents are composed of capital letters combined with figures. Mention of such a symbol indicates a reference to a United Nations document. Material in this publication may be freely quoted or reprinted, but acknowledgement is requested. A copy of the publication containing the quotation or reprint should be sent to the UNCTAD secretariat at: Palais des Nations, CH-1211 Geneva 10, Switzerland. This document has been reproduced without formal editing. UNCTAD/GDS/APP/2014/1 * Special thanks go to Raja Khalidi, former Coordinator of UNCTAD Assistance to the Palestinian People Program, for guidance and substantial comments on this study. Thanks are due also to Nur Arafeh for assistance during the preparation of this study. *This study draws on collaborative work done by UNCTAD and the Palestinian Shippers' Council in the context of the UNCTAD project entitled "Capacity Development for Facilitating Palestinian Trade ". Executive Summary Following the Israeli occupation of the West Bank (WB) and the Gaza Strip (GS) in 1967, the economy of the occupied Palestinian territory (OPT) became predominantly dependent on the much larger Israeli economy. The 1994 Paris Protocol, signed between the Palestine Liberation Organization (PLO) and the Government of Israel (GoI), attempted, at least theoretically, to remedy some aspects of the asymmetrical relations between the two economies, and to expand Palestinian external trade. However, the OPT's dependency on Israel further deepened in subsequent years and Israeli ports continued to be the major gateways used by Palestinian shippers (exporters and importers). Two factors explain the OPT's heavy dependency on Israeli ports: a) the limited, or almost no, access of Palestinian trade to regional port facilities in Egypt and Jordan; and b) the easiness of the clearance facilities available to Israeli agents who handle a significant amount of Palestinian imports, since Palestinian clearance agents have no access to Israeli port facilities. Following the second Palestinian Intifada of September 2000, Palestinian shippers were confronted with a myriad of new problems associated with importing and exporting goods. This study identifies the major Israeli procedures and hurdles that face Palestinian shippers at the Israeli ports of Haifa, Ashdod and the King Hussein Bridge (KHB). Many trade impediments are common to the three gateways; including stringent security procedures and physical barriers, unilateral Israeli control over all gateways, movement restrictions imposed on the Palestinian people and goods, the back-to-back system, lack of information and resources, inadequate infrastructure, and limited working hours. The study also highlights the Israeli policies that are specific to each gateway. As a result of Israeli procedures, Palestinian shippers, who are subjected to discriminatory treatment, bear additional direct and indirect costs; leading to higher transaction costs and thus the final cost of production and distribution (World Bank, 2008c). Ultimately, the competiveness of Palestinian exportable and importable goods in the domestic as well as the global marketplace erodes while the cost of imported inputs and consumer goods escalates. Despite the fact that Israeli procedures and trade impediments hamper efforts to create tangible changes on the ground, the study argues that a number of measures, if implemented, could boost Palestinian trade and revitalize the economy in the short term. Hence, this paper also identifies and critically examines some of these measures. One possibility, among many, is to seek and use donor aid to mitigate the constraints of the occupation. For instance, the improvement of trade conditions at KHB, including the need to process containerized shipments, would be a key element in facilitating Palestinian trade. In this regard, the introduction of the gantry scanner that was proposed by the Government of Netherlands (GoN) at KHB could boost Palestinian trade. For Palestinian shippers, the gantry scanner is intended to encourage the efficient movement of goods by eliminating the back-to- back process for moving goods (a costly, tedious process of unloading and reloading pallets for manual inspection), reducing damage to goods, allowing for the effective transportation of refrigerated and perishable items, enabling better packing of shipments in terms of the diversity and quantity of goods, and reducing transportation time and other costs. i Abbreviations ECF Economic Cooperation Foundation GoI Government of Israel GoN Government of the Netherlands IAA Israeli Airport Authority JEC Joint Economic Committee KHB King Hussein (Allenby) Bridge OCHA Office for the Coordination of Humanitarian Affairs OPT occupied Palestinian territories OQR Office of the Quartet Representative PNA Palestinian National Authority PCBS Palestinian Central Bureau of Statistics PLO Palestine Liberation Organization PSC Palestinian Shippers’ Council UNCTAD United Nations Conference on Trade and Development WB West Bank ii Table of Contents Executive Summary .................................................................................................................. i Abbreviations ............................................................................................................................ ii Table of Contents .................................................................................................................... iii I. Introduction ........................................................................................................................ 1 II. Historical overview of Palestinian trade .......................................................................... 3 A. Pre-Oslo Trade regime .................................................................................................... 3 B. Post-Oslo Trade regime: Paris Protocol .......................................................................... 4 C. The Ports of Haifa, Ashdod and the King Hussein Bridge ............................................. 5 III. Constraints on the Movement of Palestinian International Trade ............................... 8 A. Lack of Palestinian control over all gateways ................................................................. 8 B. Movement restrictions on Palestinian people and goods ................................................ 8 C. Trade obstacles specific to the ports of Haifa and Ashdod ........................................... 13 D. Restrictive trade measures specific to the King Hussein Bridge .................................. 15 E. Common restrictive trade measures .............................................................................. 17 IV. Assessment of the direct and indirect costs of Israeli restrictions on Palestinian trade .............................................................................................................. 18 A. Assessment of the direct costs at the ports of Haifa and Ashdod ................................. 18 B. Indirect costs at the ports of Haifa and Ashdod ............................................................ 20 C. Assessment of the costs at the KHB .............................................................................. 20 V. Gantry X-Ray container scanner at the King Hussein Bridge Crossing .................... 23 A. The container scanner and facilitating Palestinian trade at KHB .................................. 23 B. Continued restrictions with the container scanner at the KHB ..................................... 28 VI. Conclusion and Recommendations for Facilitating Palestinian Trade ...................... 30 A. Measures to enhance efficiency and capacity of Palestinian shippers .......................... 30 B. Recommendations related to the KHB crossing and the container scanner ................. 32 C. Recommendations for the Private Sector and the PNA ............................................... 33 References ………….. ............................................................................................................ 35 Annex 1: West Bank Commercial Crossings ........................................................................... 37 Annex 2: Survey conducted by the Palestinian Shippers' Council .......................................... 40 Annex 3: Gantry X-ray container scanner: specifications and terms of reference ................... 42 Tables and Figures Table 1: Direct costs at the Ports of Haifa and Ashdod ........................................................... 18 Table 2: Storage fees at Israeli ports ........................................................................................ 19 Table 3: Costs associated with procedures for palletized products at the