The Paris Protocol and the Palestinian economy
972 Mag | 22 September 2012
In April 1994, Israeli and Palestinian negotiation teams met in Paris to sign one of the most important annexes to the Oslo Accords – the Paris Protocol, the agreement which regulates the economic relationship between Israel and the Palestinian Authority.
Today, 18 years after the protocol was signed, demonstrations against the agreement have spread across the West Bank. A Palestinian from the Gaza Strip set himself on fire and two Palestinians in the West Bank tried to do the same in protest against the economic situation. Palestinian Prime Minister Salam Fayyad was reported to be considering resignation and Palestinian Authority Minister of Civilian Affairs Hussein a-Sheikh submitted an official request to Israel to review the Paris Protocol. In view of the heated debate, here we provide some general background on the agreement and its implications.
The Paris Protocol?
The protocol defines the economic relationship between Israel and the Palestinian Authority. It was signed for an interim period of five years and was to be implemented gradually. A senior official in the Israeli Ministry of Industry, Trade and Labor told Gisha that the fact that the agreement was due to remain in effect for only five years helped encourage Palestinian negotiators to sign it: “They understood that in order to make progress, they had to agree to some very practical things. It was a five-year agreement so they said ‘let’s take the first step.’”
According to the same official: “At that point in time, it was the optimal agreement and the Palestinians entered it wholeheartedly. By the way, there are still people today who think it’s a good agreement. Albeit with limitations… as long as people are thinking about what is and isn’t good, you know you have some kind of balance.”
How is the protocol connected to the protests in the West Bank?
According to the Paris Protocol, the Palestinian Authority must peg its gasoline prices and value added tax (VAT) rate to Israel’s. Therefore when VAT in Israel was recently raised by one percent, the Palestinian Authority also raised its own VAT from 14.5 percent to 15.5 percent. A senior Palestinian official told Israeli news website Walla! (Hebrew): “There is no denying that we are a part of Israel’s economy. If Israel raises the price of cigarettes, our cigarette prices go up. If the price of gas goes up, so does ours. If things are expensive in Israel, they are expensive here too.” The official also believed that the Palestinian VAT increase would “not cause a stir” among the Palestinian public. He was wrong.
In response to the demonstrations, the Palestinian Authority announced (Hebrew) that it would cut fuel and cooking gas prices, reduce the VAT to 15 percent and pay Palestinian Authority employees NIS 2,000 from their August salaries, which have yet to be paid. It is unclear whether the Palestinian Authority has reached a new agreement with Israel on fuel prices and the VAT rate, but statements made by Israeli Prime Minister Benjamin Netanyahu seem to indicate that the agreement was in fact changed (Hebrew): “We have made some changes to the tax agreements. We are advancing certain transfers. We have also helped with Palestinian workers and a number of other measures to assist them.”