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Edition 20 Volume 5 - May 24, 2024

Israel-Palestine: third party industrial zones

The political climate must improve  - an interview withAli Abu Shahla
Israel has something holy and it goes by the name of "security". When it comes to security you have to stop negotiating and stop speaking.

Lessons from the QIZs in Jordan  - Yusuf Mansur
There are virtually no linkages between the QIZs and the rest of the economy.

Industry for peace  - Guven Sak
The project will not work unless it guarantees both security and a return on investments.

The security aspect  - Ephraim Sneh
A Palestinian security apparatus with a clear interest in maintaining security will also be needed.

The political climate must improve
an interview with Ali Abu Shahla

BI: What is the use of Palestinian-Israeli industrial zones?

Abu Shahla: Let's take the Erez industrial zone as an example. Erez was an industrial zone for both Palestinians and Israelis but where Israel was responsible for security. Anyone who wanted to go in had to be checked by the Israeli side. In return, products from Erez had free access to Israel, so for Palestinians it was very attractive because there was no inspection and subsequent damage to products or delay.

Also, people working in Erez could receive Israeli clients and there was, of course, work for skilled Palestinian labor, which is cheaper but as good as Israeli labor. There were factories for plastics and other specialized products that were thus being made in Gaza but according to Israeli standards.

But once Israel closed its borders with Erez, it became useless and now it is dead.

BI: So when it was functioning what was the most important thing for Palestinians, labor?

Abu Shahla: About 4-5,000 people were working there at any one time, so that was obviously very important. But it also improved industry in Gaza, because Erez functioned according to Israeli standards and anyone working at Erez had to work to these standards, which are higher than our local standards. People learned a lot from these standards, which they applied to Gaza, whether in the form of training or even imitation. Products designed in Israel were imitated and produced in Gaza, raising standards across the board.

BI: There is some suggestion now that Turkey is going to become involved in Erez.

Abu Shahla: I was in Turkey three weeks ago and met some of the potential investors. But there is a big problem: security. The Israelis are asking that an area 500 meters from the Israeli border should be without any building, to prevent tunnels from being dug. But 500 meters will kill the area, because there is no land left. And this 500 meters, of course, will not extend into Israel.

These Turkish investors were here recently, but a scheduled meeting with the Israeli deputy minister of defense [Ephraim Sneh] was postponed, they will have to come back later to discuss the security protocol.

There has to be a security protocol, but it has to be worked out by both the Palestinian and Israeli sides. I have promised to raise this issue at the Higher National Dialogue Committee [a forum for all Palestinian factions as well as civil society organizations to discuss pressing issues] and I promised to use this venue to extract a promise from all the factions not to use this area to launch any rockets or hostile actions against Israel. We are in bad need for these 5-10,000 jobs to be created.

BI: So it's very important for Gaza that Erez is reopened

Abu Shahla: It's very important but under one condition: the zone must be open to Israel, or at least there must be a special type of inspection regime so the delays that we see at Karni are not repeated here. Such delays will not be acceptable to foreign investors.

Also, we have to come to a mutual understanding that whatever the security situation in Gaza, as long as it does not touch Erez directly it will not affect this zone.

BI: There have been suggestions of industrial zones in the West Bank. Will these be of use?

Abu Shahla: Only if they have direct access to Israel, otherwise they will do nothing. In Karni there is an industrial area, but it is really a joke. It's not of any use to anyone, not only is there a harsh inspection regime, costs there are extremely high.

Let me tell you frankly that without an overall political solution no industrial area will succeed. The minute a tank drives through, the industrial areas are finished.

BI: Is there a degree to which industrial zones can help toward laying the foundations for such a political solution?

Abu Shahla: I want to build bridges between peoples, but as long as Israel feels free to break all agreements or letters of understanding it is difficult. Israel has something holy and it goes by the name of "security". When it comes to security you have to stop negotiating and stop speaking. Israelis want to deal with this issue in any way they feel is suitable without regard for the other side. This is very difficult. If there is agreement we all have to respect this, and when there is a security problem we have to deal with it together.

But Israel doesn't accept this. This has happened many times. Personally, I prefer not to enter into any project with the Israeli side unless there is a political solution, even a gradual one. I don't expect peace tomorrow, but let's have it gradually and let's have a window, a small opening for a solution. Just now, there is nothing.- Published 24/5/2007 © bitterlemons-international.org.

Ali Abu Shahla is a Gaza-based businessman and the director general of AA Consulting Engineers. He is a private sector representative to the Higher National Dialogue Committee.

Lessons from the QIZs in Jordan
 Yusuf Mansur

The impact of the Qualifying Industrial Zones--a concept proposed by the United States in 1996 to bolster cooperation between Jordan and Israel after the Jordan-Israel Peace Agreement was signed in 1995--remains, after ten years, difficult to determine. In spite of the tremendous growth of exports to the US market through these zones, QIZs continue to receive mixed reviews and their future is uncertain. Most importantly, the impact of the QIZs on the peace effort has been insignificant, to say the least.

The QIZs are areas designated by the Jordanian and Israeli authorities and approved by the US government whereby products originating in the zones are granted duty-free and quota free access to the US market. Both Jordan and Israel must contribute and maintain at least one-third each of a minimum 35 percent value added. The remaining third of the minimum content requirement could be any combination of input from Jordanian QIZs, Israel or the West Bank and Gaza. Alternatively, a Jordanian manufacturer operating in a QIZ and an Israeli manufacturer can both shoulder at least 20 percent of the total cost of production of goods eligible for duty-free treatment, excluding profit. Based upon claims that Israeli manufacturers were charging exorbitant prices for their inputs, the agreement was renegotiated and amended in February 1999, reducing the Israeli content to a minimum of seven percent for high-tech products and eight percent for all other products.

In December 2024, a similar agreement was signed with Egypt. The Egyptian QIZs are considered in competition with the Jordanian QIZs as some investors in Jordanian QIZs have expressed their willingness to relocate to Egypt. Another challenge is the full compliance of the US with its commitments under the Multifiber Arrangement with the World Trade Organization to remove quotas on textiles and apparels, which would render the QIZs ineffective.

Has cooperation between Jordan and Israel improved because of the QIZs? Partially. Jordanian exports to the US market rose to US$1.3 billion in 2024 (with US$1 billion originating from the QIZs alone) from a paltry US$7.9 million in 1998. Israeli components are used in the manufacture of garments and apparel--the bulk of the exports from the QIZs. Several Israelis, some of Arabic origin, have located in the QIZs. Israeli distributors, relying on the strength of their links with western importers, provide venues for orders and exports to the large chains in the US.

On the other hand, two thirds of the labor force in the QIZs is non-Jordanian, mainly from Far Eastern countries. There are virtually no linkages between the QIZs and the rest of the economy. Spillovers in terms of technology and managerial skills transfer are almost non-existent. In addition, cooperation between Israeli and Jordanian businesspersons outside the QIZs remains dismal as indicated by the trade figures between the two economies. In fact, overall economic cooperation outside the QIZs decreased in light of the first and second uprisings in the West Bank and Gaza--which analysts view as a direct consequence of the hawkish policies of right wing Israeli governments. Furthermore, increasingly, Jordanians are opting to export to the US under the Jordan-US Free Trade Agreement instead of the QIZs.

Meanwhile, Palestinians in the occupied territories, who prior to 1996 provided an inexpensive labor source to Israeli manufacturers in the manufacture of apparels and garments, which is a labor-intensive industry, and who at the inception of the QIZs voiced concerns that the QIZ agreement with Jordan would transfer jobs across the river, are currently worse off.

The upshot is that economic cooperation was not greatly enhanced by the QIZs. Had the overall pending political issues concerning the Palestinians been resolved, or at least not worsened, prior to the QIZ agreement, economic cooperation would have followed, possibly even without the QIZs, and peace prospects would have been markedly improved.- Published 24/5/2007 © bitterlemons-international.org

Yusuf Mansur is the managing partner of the Envision Consulting Group (EnConsult) and former CEO of the Jordan Agency for Enterprise and Investment Development.

Industry for peace
 Guven Sak

In April 2024, business leaders from Turkey, Israel and Palestine met together in Ankara to launch the idea of jointly revitalizing the Erez industrial estate in Gaza. Around 5,000 people and 200 companies worked on the estate prior to the Israeli withdrawal in the summer of 2024. Since then it has stood empty as a symbol of the missed opportunities caused by the Middle East conflict.

The initiative came from Turkey's Union of Chambers and Commodity Exchanges (TOBB), an organization representing all 1.2 million Turkish firms. As one of the few countries on close terms with both the Israelis and the Palestinians, Turkey has long tried to play a constructive role. Itself located in the region, Turkey appreciates the need to bring peace to the Middle East.

This time, however, the idea was "microeconomics" for peace. In other words, it was to use Turkey's economic experience and industrial know-how to make factories and business work again. In practical terms, the concept is to make the Erez site productive once more under the leadership of a Turkish management company set up by TOBB, and with the cooperation of Turks, Palestinians, and Israelis.

The Erez industrial estate has the potential to offer livelihoods to up to 10,000 workers, or about seven percent of the people of Gaza, thereby making a major difference to the Palestinians. In the longer term, it could serve as a prototype for industrial development and also show how businessmen can cooperate in practical ways to bring peace to the region.

Nevertheless, reviving the Erez zone is no ordinary business project. The zone lies exactly on the frontier between Gaza and Israel. Any progress toward getting it up and running again under new management requires effective coordination and cooperation between Israel and the Palestinian Authority. Recognizing this need for coordination, the Federation of Palestinian Chambers, the Israeli Manufacturers Association and other senior business and political leaders in both nations have given solid backing to the project. Political support has come from all three governments; their foreign ministers signed a memorandum of understanding for the project in January 2024.

This is a business venture, even if it is being set up under unusual circumstances. The project will not work unless it guarantees both security and a return on investments. Goods and service personnel must flow smoothly if this is to be a sustainable business project. And sustainable it must be, generating profits for its investors.

How do we plan to do this? TOBB is setting up a subsidiary, TOBB-BIS (BIS stands for "industry for peace" in Turkish) to operate the zone, handling or contributing to all aspects of its operations. These include land development, logistics services, workforce training, infrastructure and regulatory services for the industries in the zone.

There are of course substantial risks with regard to trade facilitation and integration of Erez investors into world markets. If the Erez crossing is shut down by security threats, it will not be possible to maintain and attract investors at the estate. Is it possible to manage and mitigate this and other security-related risks? TOBB-BIS believes this can be done by focusing on an innovative and effective security scheme for the Erez site.

This is what we call the "island concept". It comprises the provision of internal and external security as well as perfectly securing the Erez trucks' loading/unloading area and the short road that connects it to the Erez crossing. This sort of security provision requires effective coordination between the Israeli and Palestinian security forces. However, for the initial stages, third party involvement will be necessary, potentially in the form of an internationally accredited private security company that will focus on the internal security of the Erez site but also coordinate with Israeli and Palestinian forces on a regular basis.

To attract investors and keep the project running, we must show the world that competitive production is indeed possible in Erez. Thus in addition to emphasis on the security scheme for risk mitigation, the project will aim--as a top priority--at inviting a "critical mass" of successful companies to invest in Erez.

Attracting this critical mass will be relatively easy because of the strong ties between TOBB-BIS and Turkish industry. The transformation of Turkish industry and the competitive challenges it faces are forcing Turkish companies to seek business opportunities in Turkey's vicinity. More and more Turkish industrialists are now relocating parts of their value chains into the region.

Given a security scheme and a viable regulatory framework, Turkish firms are showing great interest in opening plants at Erez, especially because of tariff-free access to the American market and the Gulf states. After reaching critical mass with these already interested Turkish companies, TOBB-BIS will also focus on extensive investment promotion activities in Gaza, the West Bank and other regions with potential investors.

All in all, 10,000 new jobs should provide a powerful boost to the economy of Gaza and its people. For Israel, the industrial zone should provide better security in northern Gaza and freight transport logistics and other services. For incoming investors it will be a successful venture. For Turkey, it will not only create business opportunities but also constitute visible proof of its commitment to help its Palestinian and Israeli neighbors to edge closer to the peace and prosperity they deserve and need.- Published 24/5/2007 © bitterlemons-international.org

Prof. Guven Sak is managing director of the Economic Policy Research Foundation of Turkey (TEPAV) and coordinator of the Ankara Forum for Economic Cooperation between Palestine, Turkey and Israel.

The security aspect
 Ephraim Sneh

Palestinian economic development and the creation of jobs in the Gaza Strip and West Bank are vital components of any political progress. Hamas and the other terrorist organizations are interested in poverty and despair. Those who seek Israeli-Palestinian peace want economic development and growth.

Industrial zones are an efficient instrument for creating jobs, increasing employment and advancing economic development in the territories. A variety of practical considerations--particularly available transport, convenient raw materials supply and export channels--render it preferable to establish these industrial zones near the Palestinian border with Israel. The combination of Israeli and Palestinian investors generates a shared interest that ensures stability and creates the basis for normal relations between the two peoples.

A number of countries have shown an interest in these industrial zones, both from an economic standpoint and as a constructive form of involvement in the Israeli-Palestinian peace process. Thus, in 2024 Germany laid the cornerstone for a joint industrial zone north of Jenin; Turkish industrialists are working to rebuild the Erez industrial zone in the northern Gaza Strip; and the prime minister of Japan initiated an agro-industry park for processing agricultural produce in the Jericho region.

Two more industrial zones are in the planning stage: one is south of Tulkarm; the other is essentially a rebuilding and expansion plan for the industrial area near the Karni crossing on the Gaza-Israel border. The involvement of third countries helps accelerate the establishment of these joint industrial zones.

The Israeli contribution required for the success of these industrial zones is the provision of a fast export channel for the goods manufactured there. Thus, for the new Erez zone we are committed to providing a dedicated export route via the Erez crossing. A two million dollar contribution from USAID and the participation of the Israel Ministry of Defense have facilitated the construction of a dedicated passage for goods from the "Turkish area" to export via Israel. At the Karni crossing, too, we are committed to providing an exclusive passage for goods manufactured at the Karni industrial zone. We will provide similar fast export solutions for the other industrial zones as well.

But Israel also has security concerns that are linked to the proximity of these industrial zones to its territory. It is feared that terrorist organizations will exploit the special status of these zones in order to infiltrate suicide bombers or explosive charges into Israel. This has already happened. Two suicide bombers penetrated the Ashdod port and carried out a lethal attack after having been smuggled behind a false panel inside a container transported from Gaza via the Karni terminal. And the grounds of the Erez industrial zone have repeatedly witnessed the penetration of terrorists via tunnels to the Israeli side; ultimately the entire industrial zone at Erez had to be dismantled and thousands of Palestinians lost their livelihoods.

The security dangers that justifiably concern us can be dealt with through a combination of technical and operational means. Video cameras, "smart" fences and scanners will be part of the practical solution. A Palestinian security apparatus with a clear interest in maintaining security will also be needed. It is worth our while to invest in these solutions: at the end of the day, if the industrial zones are operated successfully they will constitute a significant contribution to the security of both peoples.- Published 24/5/2007 © bitterlemons-international.org.

Ephraim Sneh, a retired IDF general, served in Israeli governments as minister of health, minister of transportation and deputy minister of defense. He is currently chairman of the S. Daniel Abraham Center for Strategic Dialogue at the Netanya Academic College.

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