Israel, Palestine: A History of Economic Oppression

By Jamil Salman – Amman, Jordan

Many of last month’s headlines would have you believe that a vibrant, independent Palestinian state had become an inevitable reality. On the back of ‘peace talks’ which offered renewed hope and financial institutions which declared that the “Palestinian economy is growing”, one could be forgiven for presuming that Palestinians had finally turned the corner towards prosperity. Both the International Monetary Fund (IMF) and the World Bank have published impressive first half GDP growth rates that should, theoretically, place both the Gaza Strip and the West Bank amongst the top 10 countries in the world for this category. It is estimated that combined, both Territories will even out at an overall 8% GDP growth rate by the year’s end. This may come as a pleasant surprise to most people who would not have expected such rapid growth in light of the debilitating effects of a combination of factors involving, the Second Intifada, Israeli barriers and the Gaza blockade and occupation. However, these figures should not be taken as a prediction of any future trends in the Palestinian economy, but rather, as an indicator of how much Israel has stifled Palestinian growth.

The spike in figures related to GDP growth can be largely attributed to three factors. The first, and perhaps most significant in monetary terms, is the support of the international community through donor aid, which continues unabated despite the instability throughout the region. The second factor revolves around the tremendous efforts of Prime Minister Salam Fayyad and his state-building programme (despite criticisms that his appointment and by extension, his work, are taking place outside the context of a Palestinian Democracy). Third and most important, is Benjamin Netanyahu’s policy of “economic peace.” Ever since his reappointment as Prime Minister in 2009, Netanyahu has afforded piece meal concessions to the Palestinians by partially relaxing control on imports into the region, as well as the removal of “hundreds” of roadblocks in both the West Bank and Gaza. Such measures have created an economic jump initiated by Palestinians having some semblance of access to their basic rights. Israeli officials will of course use these figures to point out how lax Israeli policies have aided the development and growth of the Palestinian economy. While true to a certain extent, the reality is that “Israel may be nearing the upper ceiling of what it is able to do for the Palestinian economy without a far more radical policy shift.” Despite the publication of these recent figures, the IMF and the World Bank acknowledge that these numbers do not mean Palestinians have escaped their economic doldrums. Compared to the Oslo period (Specifically 1994-1999) the Palestinian economy remains stagnant and is now more than ever dependant on Israel to allow it to develop.

Israel’s policy of economic oppression has been in place for the better part of four decades. Consider that prior to the Israeli occupation in 1967, commentators have generally agreed that the Palestinian state functioned as a prosperous and economically vibrant entity within the region (this is especially the case when one looks at annual growth rates of the Arab sector of the Palestinian Economy and the Household Income figures during the 1940’s. These were comparatively healthy numbers when contrasted with other Arab nations.)

The West Bank belonged to the formidable political and economic bloc under Jordan, while Gaza flourished from its close ties with Egypt, who by extension, allowed them to cooperate and open trade lanes with Eastern Europe.

Unfortunately, the Six-day War led to a major erosion of these relatively successful economic policies and as a result of the major victory recorded by Israel, both the West Bank and Gaza ceded their autonomy to the state of Israel.
The social and political events that occurred in the aftermath of the Six-Day War are well documented and remain a source of controversy to this very day. On the other hand, the economic repercussions as a result of that era remain vastly underrated; it is these actions which would forever restrict the potential of the Territories’ economy. For example, not too many people are aware of the fact that within days of Israel’s victory, numerous military orders were issued by the Israeli Governor regarding their newly acquired possessions. Evidently over 50% of these orders were economic in nature. Unmistakably, the goal was assimilating or "adjusting" the economy of the Territories in a manner that would comply with the interests of Israel’s economic goals. The end result, as is openly admitted by various financial institutions today, is a Palestinian economy which is colossally dependant on Israel to simply stay afloat. The trading links which had proved to be a reliable means of economic livelihood pre-1967 were all but destroyed. Palestine was effectively cut off from the rest of the world.

The World Bank has since referred to Israel’s activities using the inoffensive and ambiguous term, “fiscal compression” (try looking that up on Google!). Israel in essence controlled all aspects of any economic relations between the two sides. The most significant changes however were in the field of trade were Israel exercised complete freedom in defining all aspects of import and export procedures. Most of these definitions were geared towards rendering trade between the Territories and Israel a one-way activity. In fact, Israel gave little to no consideration of Palestinian interests as they set tariff rates according to what they believed would be beneficial to their economy, leaving the Palestinians out in the cold.

Such was the absolute power exercised by Israel over Palestinian outflows and inflows that they found they could impose outright bans on imports to the occupied Territories and such policies would remain unchecked. On top of this, Palestinian imports would by law, have to be regulated by a one-sided customs union run by Israel (pre-Oslo). The consequences of the above resulted in an overwhelming reliance on Israel as Palestine’s main trading partner. This is supported by statistics which show that even up to this very day, 80 – 90% of Palestinian trade somehow involves Israel, a number which has contributed considerably to the ever growing trade deficit faced by Palestine.

On the international front, Palestine has always been at the mercy of Israeli foreign trade relations. Prior to the enactment of Oslo, commentators have noted that the flow of Palestinian industrial/agricultural exports to “other parties” (not including Israel) was both "severely restricted" and "Israeli controlled.” This can be linked back as a direct consequence of the 1967 war; as Palestinian policies were forcefully subsumed into an Israeli controlled Customs Union.

 The early years following the Six-Day War were characterized by Israeli economic and political maneuvering in an attempt to enhance their profile on the world stage. The most subtle may have been how Israeli officials used the General Agreement on Tariffs and Trade (GATT – replaced by the WTO in 1993) to place themselves on a par with other developed countries. Eventually, Israel found that appeasing said countries would lead to both, a healthier economy, as well as a useful foundation for any future political links. Thus, in a period where developing countries demanded principles such as non-reciprocation – a system aimed at affording poorer nations special concessions in the trading arena in return for nothing – the Israeli Government chose to forego this position in favour of tariff reductions. This was a process which involved making tariff bindings and concessions as requested by the more developed countries.

Such intentions signified a bitter blow to the Palestinians who had no choice but to accept Israeli policies as part of the one-sided Customs Union. There is no question that Palestine’s weak, underdeveloped economy could not afford to make concessions and tariff reductions to other members of the international community; yet the choice was not theirs and Israeli economic and political interests trumped any conscious efforts to improve a fragile economy.

Clearly, from a historical perspective, we see early signs of Israeli unwillingness to grant the Palestinians a platform through which they may exercise economic autonomy. This meant that the economy (and in particular, the Palestinian private sector) suffered immensely in instances where Israel made it common practice to reject Palestinian licensing applications for the establishment of productive businesses. Thus traders and suppliers were bound to interact with Israeli establishments in order to achieve some modicum of success. Moreover, those who worked in agriculture, one of Palestine’s most successful commercial exports, were made to suffer through Israel’s land confiscation strategy; a strategy which began following the Six-Day War and has now resulted in the expropriation of more than 60 percent of Palestine’s most fertile grounds.

The economic consequences of the Six-Day War have permeated throughout the troubled history of Israeli-Palestinian commercial relations. Oslo was meant to be the solution but many of the oppressive characteristics that defined the pre-Oslo era remained in place, as Israel refused to grant the Palestinians the freedom required to create an autonomous commercial state. History has determined that Palestine will always be weighed down by the social, political and economic supremacy of Israel. If no “radical shift in policy” is forthcoming, then perhaps Palestinians can take comfort in their impressive GDP growth rate while unemployment and poverty remain at an all time high.                                             

– Jamil Salman is an Advocate in training (Corporate/Commercial) in Amman, Jordan and has obtained his L.L.B and L.L.M from the United Kingdom. He contributed this article to

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