• Liberalization in isolation - a conversation with  Pete Moore

• Palestinian fate - a conversation with  Samir Hleileh

• Premature - a conversation with  Ahmed Abdel Halim

The role of civil society
by Ron Pundak

Sustainable peace between the peoples and states of the Middle East is dependent upon more than politically negotiated agreements. It will succeed or fail as a consequence of the depth and warmth of cross border human relations. Diplomatic efforts are certainly necessary, providing international legitimacy and a legal basis upon which future relations will be built. Similarly, the issue of security must be seriously addressed. Future conditions must provide stability and liberation, both for the individual from the daily threat of terror, and for the collective from the real threat of war.

However, the true road to peace must follow a more multi-dimensional approach, which considers political agreements and security issues, as well as economic and commercial matters and the relationship between the two populations. Peace must be approached through the grassroots of the populations involved as well as via the political leadership, and will only be achieved when these two sectors--the public and the political--converge in both ideology and practice.

Dr. Ron Pundak is the director general of the Peres Center for Peace in Tel Aviv. He was one of the architects and negotiators of the Oslo Agreement.

BI: Can you start by describing the Jordan-Israel trade zones that exist?

Moore: The Qualified Industrial Zones (QIZs) were a product of the Oslo peace process under the economic component of the bilateral and multilateral agreements. The idea behind it was that if Palestinians, Jordanians and Israelis were in trade together, this would work to deepen the peace process and provide a natural bulwark against radicalism.

Beginning in 1995 or '96, the agreements stipulated that there would be zones located in Palestine, Israel or Jordan, but the point was really to locate them in either Palestine or Jordan. Goods would then be exported from these zones duty-free to the United States. The duty-free status had a requirement, which was that there had to be a certain amount of Jordanian, Palestinian and Israeli input in the product. This was to create incentives for Palestinians, Jordanians and Israelis to work together.

But the QIZs were really only taken up in Jordan; the fast decline in the peace process meant that it was virtually impossible for Palestinian industrialists to get these zones together.

To date, there are 12 of these zones located in Jordan in geographically defined areas that have factories, mostly textile manufacturing. Basically, 11 percent of the goods have to be of Jordanian content. The Israeli component is seven or eight percent. Most of the products are exported out of Haifa [in Israel] and the Israeli value-added is usually added at the port.

BI: Several years on, what is your assessment of their successes and drawbacks?

Moore: The QIZ is meant as a first step for Jordan to realize a free trade agreement with the United States. Jordan is intended to be the fourth recipient of a free-trade agreement after Mexico, Canada and Israel. It is seen as an incubator stage after which all of Jordan would essentially be a QIZ and therefore, Jordan has a lot of stake in these zones.

Typically, US trade representative Robert Zoellick and Jordanian trade representatives have touted the accomplishments of these zones. First, Jordanian exports to the US have jumped several hundred percentage points. There have been some 20,000 to 25,000 jobs created by these zones. Jordanian and Israeli businessmen work together in these zones, [which is considered part of the peace dividend].

But once you scratch the surface, you see that there are some problems. First, despite a jump in Jordanian exports as a direct result of the QIZs, most of these exports are textiles. These are not high-manufacturing jobs or complex manufacturing processes that might have spin-off effects, but mostly textiles, children's clothing, things that are going into Walmart.

Of 55 companies that are actually located in the zones, only seven or eight are actually Jordanian companies. The majority of these companies are East Asian and Chinese South Asian textile manufacturers who have located to Jordan on a temporary basis to export to the United States duty-free. The tariffs that the US has on textile exports from the rest of the world will be going down next year, so many of these Asian manufactures will likely leave the zones. Therefore, there is serious concern about their longevity.

Also, only half of the jobs created have been filled by Jordanians; many of the manufacturers bring in their own workers. Therefore, the impact is only marginal on Jordanian unemployment, which in unofficial estimates runs as high as 20 percent.

BI: What about the cooperation aspect between Jordanians, Palestinians and Israelis?

Moore: It is clear that the QIZs have not had anything to do with the peace process, which is collapsing. The economic arrangements are collapsing with them.

In my research of this, Israeli contributions are typically things like zippers, labels, or packaging at the port in Haifa--sort of "in the spirit" of having some sort of content. But the idea that Israeli and Jordanian businesses are working deeply together is not really factual. In fact, most of the Jordanians involved in the zones are management, so what you have are prominent Jordanian business groups running the zones and charging rent, but they are not really contributing to the economy. All the fabric is imported from Asia and there is no Jordanian import for materials, very little Jordanian contribution for machine tools. Mostly, Jordanians contribute water and power.

BI: How do Palestinians fulfill their part in the zones?

Moore: Most depressingly, the Palestinians have been left out of this. It is almost impossible to get Palestinian input--they might be able to contribute dyes or zippers-- because it is nearly impossible to get things across the border. Therefore, the Palestinians are left out. What it has turned into is profitable for a small number of Jordanian businessmen, and American political leaders and people in the royal court in Amman who can say that this is a way forward for economic liberalization.

BI: Why did Jordan allow the Asian companies to come in and bring their own workers?

Moore: To the Jordanian government's credit, there have been a number of complaints, not only about the lack of Jordanian workers, but also about the working conditions. The government has tried to negotiate to put up new guidelines. But this is all after the fact. The companies really have the Jordanian government over the barrel.

I do think they saw it coming. You didn't have the kind of textile industry in Jordan that existed in Asia and a lot of people knew that the Asian companies would move in. The hope was that this would be a first step, that you would move on to making shoes or higher-end clothing. But none of that happened.

BI: How does this fit into the Bush administration's plan for the Middle East?

Moore: If you listen to Zoellick and you listen to people in the US State Department, Jordan is the poster child for the larger effort, which is simple and very attractive in its logic. They say, "We are going to increase economic liberalization in the Middle East so that these countries will trade more with the United States because this enhances the forces of liberalization in the region."

Logically, it has a degree of attractiveness. But there are two problems with this. Number one, the unspoken part of this is to set aside all the outstanding questions of justice, from Palestine to the treatment of Egyptian opposition members, and focus on making money. It hopes to "bypass" fundamental issues of justice in the Middle East that contribute to radicalism.

The other part of the problem here is that there is lots of evidence around the world that these policies have not always been successful. These zones started in the 1960s in the Dominican Republic, El Salvador, Ireland of all places and Sri Lanka, and the results were mixed. In some places, in South Korea for example, the zones were precursors to higher growth in trade and income.

In other places, these zones did not do that, but concentrated more wealth in fewer hands. Indeed, it may be that economic forces do not make political change, but that you have to have the political change first, before you can realize the benefits of open trade.

The lessons are not that the administration's idea of liberalization is a bad thing, but in isolation it is. Jordan and the QIZs are at the heart of this debate, and there are a lot of problems that are being ignored.-Published 13/5/2004©bitterlemons-international.org

Pete Moore is assistant professor of political science at the University of Miami. His book, Doing Business in the Middle East: Politics and Economic Crisis in Jordan and Kuwait, is forthcoming in August.

BI: How do Palestinians view the industrial zones that have been created for trade between Jordan and Israel?

Hleileh: At the end of the day, everybody had this conviction that ending the [Arab- Israel] conflict would mean not just ending the conflict and bringing peace, but also bringing prosperity. There are more than one Qualified Industrial Zone (QIZ) in Jordan and they have created an export potential to the United States from Jordan in hundreds of millions--somewhere near half a billion dollars.

The question now is, what will happen to these zones if Jordan signs the free trade agreement with the United States? What makes them special is the Israeli input. If there is a free trade agreement between Jordan and the United States, the exports will have to be qualified by a different criterion, one that is more restrictive than exists currently in the QIZs. Jordan has nearly finalized these arrangements and soon a new momentum will be created for trade between Jordan and the United States. It remains to be seen what role Israel will play in this context.

BI: What is the status of Palestinian-Israeli industrial zones proposed after the 1993 Oslo accords?

Hleileh: Palestine--the West Bank and Gaza--has had a duty-free status to the United States since 1996, meaning that goods coming from here will have duty-free status going into the US. However, it was in our basic interest to try to have joint industrial zones with Israel and between Palestine and Israel (either in Karni in Gaza or Turkumiya in Hebron, for example) to create a place where there would be trade and new labor potentials until this conflict was to end after five or ten years.

This was and still is a very controversial issue. In 1995 or 1996 when Abu Ala [Palestinian prime minister Ahmed Qurei'] was minister of industry, he was looking at some ten industrial zones on the border. This was short-listed into one industrial zone in Gaza [Karni industrial zone] and then even this, although it was created, stopped being viewed as a good model by the new government in Israel, which said that the security arrangements for the zone were not good enough.

In the last year, they have started saying that we need to create a new model, possibly Erez [in the northern tip of the Gaza Strip]. Then, after a few incidents around Erez, it was determined [by Israel] that this was not the model after all and that the zone would have to be moved inside Israel. Now we are left without any good model of an arrangement where we can balance investment with security. Now we are back to square one--there is no model, not between us and Israel, and not between us and any other country.

BI: What would you say to those who would criticize this model for manipulating cheap Palestinian labor to enrich Israeli companies?

Hleileh: Nobody is manipulating anyone. This is demand and supply. If Israeli or Palestinian investors pay good money, then the Palestinian workers will come. If they have other options, they will go there. With the high unemployment rate, you will have a cheaper labor force, but you cannot depend on things to stay that way.

At the end of the day, investment moves where it is cheaper. Most of the international companies are moving to China or India. One cannot say that they are manipulating anybody. They are moving where the labor is cheap and the environment is safe.

BI: Why is it more politically sensitive for Jordanians and Egyptians to maintain business relationships with Israelis than it is for Palestinians?

Hleileh: It is not an option for us, it is a fate. We have only one partner forced on us--Israel. We have been forced to look in one direction for three decades, since the 1967 occupation. The other options are theoretical, not specific and full of problems. Of course, Israel is becoming more problematic: security issues, no movement, foreign labor. This is forcing us to other options, but they are not available.

At this point, we are being pushed out of Israel and we are not being brought into any other country. We are squeezed. The whole problem of Israel's disengagement and the wall [that Israel is constructing in the West Bank] is that Israel is withdrawing as it closes up Gaza and the West Bank. The question is not whether we work with Israel or not, the question is: do we have other options?

BI: Let's look at Syria. It is squeezed economically because it does not want to rely entirely on Iraq and Iran, but one of its only other potential trading partners is Israel. Is there the potential in the region for quiet trade with Israel, despite the political situation?

Hleileh: I don’t think there is a trend towards bringing countries in the region to work with Israel. There is a reverse in this trend. In particular in Egypt, and of course, in Jordan and other places, Israel is no longer, after the last four years, seen as a good model of cooperation--politically, economically and socially. Israel's only ally and even its model is becoming the United States--the new United States--and this makes Israel an island in this region, hated in the same way people are hating US policies, presence, points of view and concepts.

Some governments that think that they should be more moderate and speak softly about Israel, but this is not the case in the private sector. One sees the reverse in Morocco, Egypt, Jordan or of course in Syria, Lebanon and the Gulf.-Published 13/5/2004©bitterlemons-international.org

Samir Hleileh is chairman of the board of PalTrade, Palestine Trade Promotions Center, in Ramallah, Palestine.

BI: Why is there so little Egyptian-Israeli cross-border commerce and movement?

Abdel Halim: We believe, in view of current regional circumstances, that all matters of Arab-Israel cross-border commerce, including trade, cultural exchange, etc., are premature from the Egyptian point of view. We link regional cooperation with political settlements and believe that both subjects should go hand in hand. If Israel would abide by its agreements, things would start to flow.

BI: Can you be more specific? Which agreements?

Abdel Halim: I am referring to the agreements with the Palestinians, starting from Oslo through Sharm al Sheikh. Also, starting negotiations with the Syrians from where they stopped during Rabin's time, and preparing for the final peace agreement to end the Arab-Israel conflict. Only then could we start talking about regional cooperation in all spheres.

BI: How do you reply to the Israeli argument that Egypt was never interested in carrying out its dozens of bilateral agreements with Israel, going back to the 1979 signing of a peace treaty, and that it keeps inventing excuses?

Abdel Halim: Egypt always honors its agreements with any party. So far we are completely abiding by all signed agreements. More than that needs a suitable political framework, which we don't have now.

BI: How do you relate to currently planned large scale Egyptian-Israeli cross border projects, and particularly the gas pipeline and the QIZ [Qualified Industrial Zone]? It's very difficult to get Israelis and Egyptians to comment on these projects.

Abdel Halim: What we agreed upon in the peace agreement, we continue to honor. Any additional projects are still premature.

BI: Let's turn to Israeli-Palestinian cooperation projects that exist today despite the conflict. Are these more acceptable in the Egyptian view than Israeli-Egyptian projects?

Abdel Halim: We support any Israeli-Palestinian agreements and cooperation. But these should be complemented by a just and comprehensive peace agreement, not only with the Palestinians, but also with Syria and Lebanon.

BI: Who has to take the initiative?

Abdel Halim: We know that Israel has the upper hand in moving the peace process forward and solving the Israeli-Palestinian conflict and the Arab-Israel conflict at large.-Published 13/5/2004©bitterlemons-international.org

General Ahmed Abdel Halim is a member of the Egyptian Council for Foreign Affairs (ECFA).