Are
Palestinian Offensives Inviting Israeli Reprisals?
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Until
recently, PA Finance Minister Shukri Bishara (left) was one of the few
Palestinian officials always happy to see his Israeli counterpart. That
will likely change.
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In response to Palestinian Authority [PA] President Mahmoud Abbas's
latest diplomatic offensive at the United Nations and the International
Criminal Court [ICC], Israel's security cabinet is to meet this week to
decide on possible measures to take.
Israel has floated a number of possible countermeasures. It seems to
be considering, among other legal actions, lawsuits against Hamas and the
PA for war crimes that they have committed.
The United States, for its part, has threatened to withhold funding
from the PA; and Senator Lindsay Graham (R-SC) threatened
to withhold US funding from the UN if it attempts to impose the terms
of a Palestinian statehood.
Israel's Foreign Ministry Director-General Nissim Ben-Sheetrit stated
on January 4, 2015 that, "Israel is about to switch from defense to
attack mode." He added that Israel had no interest in undermining
security cooperation with the PA or causing it to collapse, or in
launching a wave of settlement construction. He did, however, mention possible
economic actions stronger than freezing Palestinian tax revenues.
In this game of asymmetric diplomatic warfare, the Palestinians can
count on nearly automatic support from the 22 members of the Arab League
and the 57 members of the Organization of the Islamic Conference, as well
as most of the rest of the developing nations, while the Jewish state is
nearly alone.
The balance of power in the United States Congress, however, goes the
other way. Thanks to strong public support for Israel, friends of Israel
constitute a clear bipartisan majority in both the House of
Representatives and the Senate. The Palestinian campaign at the U.N.
could trigger a cutoff of U.S. aid to the PA of $400 million per year.
To counter the Palestinians' recent diplomatic offenses, Israel has at
its disposal, apart from diplomatic or legal measures, an array of
economic responses, should it feel driven to use them. Prime Minister Binyamin
Netanyahu said on April 6, "Unilateral actions from the
Palestinians will be answered with unilateral actions from our
side." That economic impact to the PA could be many times greater
than a U.S. cutoff of aid.
Clearance
Transfers and PA Revenue
To begin with, if it wished, Israel has the ability to withhold
"Clearance Transfers." These consist of more than two-thirds of
PA revenues.
Under the 1994 Paris Protocol, adopted as one of the Oslo Accords,
Israel collects customs taxes on goods shipped to the Palestinian areas,
the Value Added Tax [VAT] for goods and services sold in Israel and
intended for PA consumption, and petroleum excises, as well as small
amounts of income tax from PA residents working in Israel. Under the
agreement, these clearance revenues are transferred monthly directly from
Israel to the PA Finance Ministry, and are the PA's largest source of
funds.
Israeli Clearance Transfers Are 2/3 of PA Revenues
(millions
of shekels)
|
Year
|
Net Revenues
|
Clearance Revenues
|
Israel Transfers % Net Revenue
|
2006
|
1,149
|
770
|
67%
|
2007
|
1,194
|
896
|
75%
|
2008
|
1,486
|
1,067
|
72%
|
2009
|
1,665
|
1,196
|
72%
|
2010
|
1,883
|
1.258
|
67%
|
2011
|
2,046
|
1,424
|
70%
|
2012
|
2,072
|
1,457
|
70%
|
2013
|
2,312
|
1,818
|
79%
|
2014 (proj)
|
2,592
|
1,841
|
71%
|
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In normal times, the government of Israel works to increase these
clearance transfers to stimulate the Palestinian economy, not to reduce
them. On July 31, 2012, Israel
agreed to expanded arrangements regarding taxation and the transfer
of goods between Israel and the PA, for the purpose of increasing the
PA's revenue. Prime Minister Benjamin Netanyahu said, "The
arrangements that have been formulated constitute part of our declared
policy of supporting Palestinian society and strengthening its
economy."
PA Prime Minister Salam Fayyad responded, "I am certain that the
arrangements concluded will help to strengthen the economic base of the
Palestinian Authority... I am pleased to say that these arrangements will
also improve the economic relations between the Palestinian Authority and
Israel. I wish to convey my appreciation and gratitude to Israeli Prime
Minister Netanyahu..."
The PA Prime Minister who uttered those words, however, was dismissed
by PA President Mahmoud Abbas less than a year later, as part of Abbas'
shift to a more confrontational strategy. Today, the PA is on the path to
confrontation, not cooperation.
Israel is not willing to have a one-sided relationship in which it
tries to help the PA while the PA crusades against Israel at the U.N. and
allies with Hamas to harm Israel. While it does not wish to harm the
Palestinian economy, on eight occasions since 1994, Israel has suspended
transfers of clearance revenues in response to Palestinian threats:
- Summer of 1997, in
response to a rise in terrorist activity in the West Bank and Gaza.
- December 2000 to
December 2002, in response to the outbreak of the second intifada in
September 2000.
- March 2006 to July
2007, when Hamas's victory in Palestinian legislative elections gave
it control of the Palestinian Authority.
- 2008, to protest
Palestinian diplomatic efforts to turn European governments against
Israel at the Organization for Economic Co-operation and
Development.
- May 2011, in
response to Palestinian efforts to seek diplomatic recognition at
the U.N.
- December 2012 to
January 2013, in response the PA's successful bid for nonmember
observer status at the U.N.
- April 10, 2014, in
response to PA applications to join U.N. agencies as a state.
- On January 2,
2015, the government of Israel decided
once again to withhold the December 2014 clearance transfer of
$127 million, in response to the PA's hostile activity at the
International Criminal Court.
In recent years, Arab banks have
been less willing to increase their exposure for the purpose of paying
salaries. International bailouts from donor governments have also
become more difficult to obtain.
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In some of the earlier incidents, the impact on the PA was ameliorated
by bridge loans from Arab banks and international donors, as described in
an International
Monetary Fund study of Israeli clearance transfers. In recent years,
however, Arab banks have been less willing to increase their exposure for
the purpose of paying Palestinian salaries. International bailouts from
donor governments have also become more difficult to obtain. Without
bridge loans and emergency aid, the PA has been forced to suspend salary
payments to many of its 150,000 employees, leading some of those workers
to default on their own debt obligations. The PA even had to sell some
government assets to meet payment obligations.
Israel's direct leverage through clearance transfers has grown
considerably in recent years, particularly compared to budget aid
provided to the PA by international donors. Until 2009, donor support
exceeded the Israeli clearance transfers, but in more recent years
Israeli transfers amount to nearly twice the budget support the PA
receives from international donors. In 2014, U.S. direct aid to the PA
was $400 million, and other donors gave another $900 million. But Israel
clearance transfers were $1.8 billion, giving it a greater role than all
other outside parties.
Israeli Clearance Transfers Are Larger than Foreign
Aid to the Palestinian Authority
Millions
of shekels
|
Year
|
Clearance
Aid to PA
|
Foreign Budget
to Foreign Aid
|
Israel Transfers
Compared
|
2006
|
770
|
1,022
|
75%
|
2007
|
896
|
1,012
|
89%
|
2008
|
1,067
|
1,736
|
61%
|
2009
|
1,196
|
1,348
|
89%
|
2010
|
1.258
|
1,145
|
110%
|
2011
|
1,424
|
762
|
187%
|
2012
|
1,457
|
826
|
176%
|
2013
|
1,818
|
1,251
|
145%
|
2014 (proj)
|
1,841
|
1,310
|
141%
|
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Palestinian
Guest Workers in Israel
Another potential pressure point under Israeli control is the number
of citizens of the PA permitted to work in Israel and the settlements. In
normal times, Israel welcomes Palestinian workers. But in periods of
conflict and confrontation, into which Mahmoud Abbas is now headed, the
entry of Palestinian workers may need to be restricted for security
reasons.
Between a fifth and a third of West Bank Palestinian employment is in
Israel. Average wages for Palestinian workers in Israel are double those
in the West Bank and triple those in Gaza, according to the Palestinian
Ministry of Finance. Remittances from these workers back to the PA
economy play a
key role in offsetting the imbalance of external trade in goods and
services. The impact
on the Palestinian economy comprises about 15% of the PA's GDP.
Palestinian workers contribute to the Israeli economy too. But there
are security risks for Israel in admitting large numbers in times of
tension. At the height of the Camp David peace negotiations, the number
of Palestinians working in Israel and the settlements reached a high of
127,000, but during the Second Intifada, which began in late September
2000 and ended around 2005, restrictions cut that number by more than
60%. In June of 2004, as part of then Prime Minister Ariel Sharon's
disengagement plan, the
Israeli government decided "to reduce the number of Palestinian
workers entering Israel, to the point that it ceases completely."
However, since 2005, contrary to that decision, the government of
Israel has permitted the number of Palestinians working in Israel and the
settlements to rise more again more than 100%, back over 100,000.
Remittances of PA Citizens Working in Israel
|
Year
|
Thousands of PA Citizens Employed in Israel and
Settlements
|
Estimated Remittances to PA
|
1999
|
127,000
|
1,740
|
2000
|
116,000
|
1,589
|
2001
|
70,000
|
959
|
2002
|
49,000
|
671
|
2003
|
54,000
|
739
|
2004
|
50,000
|
685
|
2005
|
64,000
|
877
|
2012
|
80,000
|
1,096
|
2013
|
89,000
|
1,219
|
2014
|
109,000
|
1,493
|
Employment figures compiled from various reports by
the Palestinian Central Bureau of Statistics. Remittances in constant
2012 dollars from PA citizens working in Israel projected from State of
Palestine Ministry of Finance, Macro-Fiscal
Unit, 03/03/2013, Fiscal Developments & Macroeconomic Performance:
Fourth Quarter and Fiscal Year 2012, which estimated Palestinian
workers remittances from work in Israel at "about $ 1.1 billion...
for 2012." In 2005, the World Bank estimated that "An
additional 10,000 workers [in Israel and settlements] would add
approximately U.S.$120 million to the Palestinian economy." "The
Palestinian Economy and Prospects for Its Recovery, Economic Monitoring
Report to the Ad Hoc Liaison Committee", No. 1, December 2005,
p. 16.
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Israel can also influence the PA through import and export controls.
In 2013, 87.9% of total PA exports and 63.9% of total imports were to or
from Israel, according to the Palestinian
Ministry of Finance.
Constraints
on Israeli Leverage
Israel's economy, with a 2014 GDP of nearly $300 billion, dwarfs its
Palestinian neighbor, whose GDP is estimated at less than $10 billion.
This enormous asymmetry gives Israel even more leverage in many areas of
Palestinian economic life than the United States and the other
international donors to the PA possess.
But Israel also has a stake in the economic success of the PA, as it
constantly emphasizes in its annual
reports to the Ad Hoc Liaison Committee of foreign donors, boasting
of "Measures Taken by Israel in Support of Development of the
Palestinian Economy." The Israeli security establishment believes
that impeding the Palestinian economy, or undermining the ability of the
PA to maintain public services and keep order, is not in Israel's
interest. Israel's international allies, especially the United States and
the European Union, often urge caution in using Israeli economic pressure
against the frail Palestinian economy and government. Israel's
Coordinator of Government Activity in the Territories [COGAT], an
official of the Ministry of Defense, responsible for maintaining order in
the territories, also act as an internal lobby for support to the PA.
There have even been occasions when the government of Israel chose to
make accelerated clearance transfer advances to the PA to relieve
budgetary distress, in effect lending money to the PA Israel also
tolerates some arrearages in Palestinian payments to the government-owned
Israel
Electric Corporation and the Mekorot
Water Company, although it cannot tolerate payment delays that
stretch over years.
Economic sanctions against the PA risk undermining stability in the
West Bank, and need to be used with great caution. What Israel is trying
to achieve is to apply just enough pressure to change the behavior of the
PA, but not so much as to bring about its collapse or failure.
Abbas's
Threats to Dismantle the PA
PA President Mahmoud Abbas is well aware of Israel's economic
leverage. But he seems to believe that he can block the Israeli
counterattack with the threat of dismantling the PA and leaving Israel to
pick up the pieces. Abbas
told Haaretz in December 2012, "I will take the phone and
call Netanyahu. I'll tell him, 'my dear friend, Mr. Netanyahu, I am
inviting you to the Muqata [the PA presidential headquarters in
Ramallah]. Sit in the chair here instead of me, take the keys, and you
will be responsible for the Palestinian Authority." In April 2014, Maariv
quoted Abbas as threatening to disband the PA. "I don't need
Netanyahu. ... Give me a junior [Israeli] officer or even a lieutenant
and I will deliver the PA keys to him. Here you are, take charge and I
will leave in an hour."
According to a November 2014 report
in the newspaper Al-Quds, "President Mahmoud Abbas told the
German Foreign Minister: 'Let [the Israelis] take the keys and manage the
occupied Palestinian territories'." In response to Israel's January
2015 suspension of clearance transfers, Saeb Erekat, the former chief
Palestinian negotiator in the peace negotiations with Israel, told Haaretz,
"Let Israel worry about paying the salaries and worry about the
daily needs instead of the Palestinian Authority. The time has come for
Israel to take responsibility for the occupation."
PA President Mahmoud Abbas is well
aware of Israel's economic leverage. But he seems to believe that he
can block the Israeli counterattack with the threat of dismantling the
PA and leaving Israel to pick up the pieces.
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But most of the leading thinkers in Israel do not find these threats
to dismantle the PA credible. Collapse of the PA would have drastic
effects on Fatah's own core constituency. According to the International
Monetary Fund, nearly a quarter of all Palestinians in the West Bank
and Gaza are employed in the public sector, including education, health,
police, and other sectors. Total public
employment (PA and local governments) amounted to about 192,000 in
mid-2012. Unemployment in the West Bank is already almost 20%, so half
the workforce would be without salaries. Public safety, education,
sanitation, medical care, and other services would be severely disrupted.
Collapsing the PA would also undermine Abbas' own core objectives. How
could the statehood initiative at the United Nations and the PA's
offensive at the International Criminal Court proceed if
"Palestine" was without a government? Building a state and
removing its government are opposites.
Without a government, how would foreign aid be received? U.S. State
Department spokesman Jen Psaki
said on April 21, 2014, "That type of extreme step would
obviously have grave implications. A great deal of effort has gone into
building Palestinian institutions ... and it would certainly not be in
the interests of the Palestinian people for all of that to be lost. The
United States has put millions of dollars into this effort. It would
obviously have very serious implications for our relationship, including
our assistance going forward."
Rash action by Abbas would also open doors for his political rivals,
who might be very happy to see the PA dismantled. Collapsing the PA would
mean an end
to security cooperation with Israel -- an act that would be suicide
for Fatah. Chaos would open many opportunities for Hamas and other
militant Islamic movements, with the PA's security forces in disarray.
Mohammed Dahlan and other rivals inside Fatah could move to reconstruct
the PA under their leadership.
Restraint by
Both Sides
Collapsing the Palestinian Authority is not a rational choice for the
Palestinian leadership. Nor is it wise for the PA to provoke Israel.
Israel can take measures that will have much more immediate effect than
anything the PA can do at the United Nations.
But Israel, too, faces risks in the game of asymmetric political and
economic warfare. The rational choice for both parties is to end these
tit-for-tat reprisals and return to the pursuit of common interests
through cooperation.
Steven J. Rosen is a Senior Fellow
at the Middle East Forum
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