Economic Prison Zones - Middle East Report

http://www.merip.org/mero/mero111910.html

Sam Bahour

November 19, 2010

(Sam Bahour is a Palestinian business management consultant living in Ramallah. This essay was made possible with partial support from the Rosa Luxemburg Foundation.)

When a project mixes the feel-good words of jobs, economic development and Israeli-Palestinian cooperation, how can anyone complain? These things are some of what the international community has been promising to deliver through the construction of industrial free trade zones in the Occupied Palestinian Territories. The free trade zone model has been promoted locally and globally by powerful third parties like the United States, France, Germany, Turkey and Japan for two decades, but none has much to show for the enormous efforts and amounts of money spent to bring these zones to life. Nonetheless, the project’s proponents expect the zones to constitute the economic foundation for a future Palestinian state. They hope that, by bolstering Palestine’s economy, the zones will make Palestinians less prone to social upheaval, less insistent on their national rights and more amenable to the status quo. The idea is that a peace agreement with Israel will ensue.

While this expectation is unlikely to be realized -- at least not in the way that the projects’ advocates anticipate -- these mega-employment projects present a serious challenge to those who strive to build an independent and viable economic foundation for a future Palestinian state.  Because the zones will depend on Israeli cooperation to function, and because they will exist within an Israeli-designed economic system that ensures Palestinian dependence on Israel, they cannot form the basis of a sovereign economy. Relying on them will perpetuate the status quo of dependency.

Precedents

The industrial zones currently under construction in the West Bank are: the al-Jalama zone, in the north near Jenin, led by Germany with the support of Turkey;  the Bethlehem zone led by France and the Jericho Agricultural Park (the so-called Valley of Peace) in the Jordan Valley, led by Japan; the Tarqoumiyya Industrial Estate, in the south near Hebron, spearheaded by the World Bank and Turkey. In Gaza, the Erez Industrial Zone along the Gaza-Israel border was abandoned by Israel and is no longer operational. The Gaza Industrial Estate (which Israel calls the Karni Industrial Zone), a Palestinian-developed zone southeast of Gaza City, came to a standstill in 2007, when Israel heavily restricted the passageways into and out of Gaza. South Korea and India are also entertaining the idea of sponsoring a techno-park,[1] which may house more high-tech business, but this notion is the least developed of them all.

The longest-operating border zone is the Erez Industrial Zone located at the northern tip of the Gaza Strip. It was estimated by the Israeli Ministry of Foreign Affairs to employ 20,000 Palestinians, but it never came close to employing a quarter of that number and in 2004, the Israeli minister of defense made a decision to withdraw Israeli firms located in the zone for security reasons. The area became a no-man’s land. The Jerusalem Post reported on January 2, 2006 that Turkish Foreign Minister Abdullah Gül visited Israel to sign agreements with Israel and the Palestinian Authority (PA) governing Turkey’s role in reviving the Erez industrial area. One Israeli official described the project as “the baby” of Turkish Prime Minister Recep Tayyip Erdoan. But following Hamas’ takeover of Gaza in 2007, Turkey froze the project and the zone remains empty.

There is also a long-standing industrial area in the West Bank called Atarot, north of Jerusalem along the main road to Ramallah that, today, is split down the middle by Israel’s separation wall. The Atarot Industrial Area is fully operated by Israel and mostly hosts Israeli companies. Atarot sits on the western side of the separation wall, which makes it accessible to Palestinians from the West Bank only by way of a permit from the Israeli military.

At best, most of these industrial zones promise menial labor-intensive jobs to Palestinians who are extremely reliant on donor funds to maintain their livelihoods. The industrial zone project constitutes a shift from the current internationally funded welfare-like system, characterized by an inflated public sector and heavy subsistence handouts, to a system that is similarly based on foreign funding, but instead requires Palestinians to sell their labor for the benefit of those commercial entities established in the industrial zones, which will depend on Israeli good will to succeed. A closer look at how the zones are being developed, who is expected to profit from them and how they are connected to the global economy is telling.

Development for Peace

France is behind the creation of the Bethlehem Multidisciplinary Industrial Park, for which the PA issued title to 500 dunams (125 acres) of public property. French President Nicolas Sarkozy handpicked Valerie Hoffenberg, Paris director of the American Jewish Committee (a group that advocates for Israel), to be his “special envoy to the Middle East” for this purpose. It has been her job to oversee the project’s rollout.

In a report published in the Israeli daily Ha’aretz on May 27, 2010, in which Hoffenberg was interviewed at length, she told the story of how the industrial free zone project was born at a dinner she attended with Sarkozy and Israeli President Shimon Peres in 2008. According to Hoffenberg, the project was informed by a belief, shared by Peres and Sarkozy, that a viable Palestinian economy would encourage the peace process. Hoffenberg, who works out of the French Foreign Ministry building, describes her work as “a new form of diplomacy.” Before the industrial park’s inauguration, Hoffenberg arranged a meeting between French and Israeli businessmen in an effort to bring them into the project. “I recruited 36 companies, including CEOs of the most important companies, such as France Telecom, Schneider Electric, Publicis, Renault, Sephora, JCDecaux -- the whole ‘A-Team,’” Hoffenberg boasted.

Another nascent enterprise is the German-Turkish industrial zone in al-Jalama, outside the Palestinian city of Jenin, a traditional agricultural area. The project is run by the PA, Israel and the Shamal Company. Bisan for Research and Development, a Palestinian NGO which has organized extensively around the industrial zone phenomenon, notes that the project has faced opposition from farmers in the Jezreel Valley, one of the most fertile areas in Jenin, and may fall apart as a result. The farmers have been refusing to sell their land, partly because it is unclear what kinds of factories will be built and partly because agricultural land has already been confiscated by Israel for construction of its separation wall.

The al-Jalama project has received scant media attention, but nevertheless, it is the one, along with the Bethlehem project, that is proceeding the fastest. The planning process for the zone started long before the intifada that began in the fall of 2000. Germany’s leading development bank, KfW Entwicklungsbank, was commissioned to conduct a rather expensive feasibility study and, as a result, Germany committed 10 million euros to fund the infrastructure of the zone. But when Israel launched a major military redeployment in all Palestinian cities in 2000, the project was put on hold and Jenin’s infrastructure was destroyed. When the project was revisited in 2005, KfW was commissioned to update the feasibility study and Turkey was recruited to take part in the project. Supposedly, the Turkish side will acquire 75 percent and the Palestinian side 25 percent of the joint venture. It is unclear, however, if and how the diplomatic crisis between Israel and Turkey following Israel’s assault on the Mavi Marmara aid ship will affect the project.

The US has mobilized to support all of these efforts through various means, most visible among them being support for reforms within the PA in Ramallah. This support is most apparent in PA Prime Minister Salam Fayyad’s second-year program of the thirteenth government titled, “Homestretch to Freedom: Palestine: Ending the Occupation, Establishing the State.” The program, which includes measures for reform in various aspects of government and economics, calls for, among other things, the development of industrial infrastructure by completing infrastructure works at industrial estates in Jenin, Bethlehem and Jericho and establishing three specialized industrial compounds, including for information technology, precious metals, renewable energy and leather industries. This program has received rave reviews from the US government and serves as a framework for the continued injection of donor funds.

Despite international enthusiasm at what is ostensibly a novel solution to the Israeli-Palestinian conflict, the notion that bringing economic development to the Palestinians will promote peace has its roots in Israeli policy from the beginning of the occupation. After Israel took control of the West Bank and Gaza from Jordan and Egypt in 1967, living standards in the Occupied Territories soared. While this growth was largely attributable to remittances from Palestinian workers in the Gulf and across the Green Line, which divides Israel from the West Bank and Gaza, Israel invested in vocational training and agricultural development on a scale that had not been seen under Jordanian and Egyptian suzerainty.[2] Despite these efforts, and because of continued Israeli military rule and the repression of Palestinian national aspirations, a grassroots uprising spread throughout the Occupied Territories in 1987, and continued up until the signing of the Oslo accords in 1993. Thus it was a political solution, and not an economic one, that ultimately brought peace.

The notion that business links will foster peace because the economic returns of cooperation will outweigh the benefits of resistance can only hold if both sides stand to benefit equally from collaboration. For the Palestinians, the benefit is hoped to be economic. For the Israelis, the project is expected to promote a more quiescent opponent; but should the endeavor fail, it is unlikely to exact a heavy economic toll upon Israel. If the industrial zones are to form the basis of the Palestinian economy, the Palestinians, on the other hand, will feel economic pressure to bend to Israel’s will. The project therefore assumes that the Palestinians are the spoilers of the peace process, and that if they can be persuaded to cooperate, a peace deal will be forthcoming. It does not leave room for the possibility that the status quo -- separation -- is indeed a viable option for Israel. Thus, rather than promoting a final settlement, this industrial zones project risks further entrenching Israel’s occupation.

Legal Status

Under the leadership of the late President Yasser Arafat, the PA enacted Law 10 of 1998 regarding industrial estates and industrial free zones. This law established a Palestinian Industrial Estate and Free Zone Authority (PIEFZA), which was to be the “one-stop shop for investors.” The PIEFZA board of directors consists of 11 members: seven PA ministers, two representatives of commercial developers and two representatives of chambers of commerce and industry and industrial federations. The industrial estates law states that PIEFZA shall be responsible for implementing policies pertinent to establishing and developing industrial estates and free zones in Palestine and issuing certificates to investors. Article 39 states that: “Local goods and products supplied to the industrial free zone from any Palestinian territories shall not be subject to any established procedures, taxes or duties.” This exclusion has become a major concern for the local community given the rumor that Palestinian labor laws will not apply to workers who are employed in these zones. Likewise, Article 40 of the law stipulates: “All goods and products manufactured in the industrial free zones and exported abroad shall not be subject to the rules and legal procedures established for export, export taxes and any other taxes.”

A detailed search of the PIEFZA website reveals no information regarding the policies for establishing and developing zones. A written request for more information submitted to PIEFZA’s director general went unanswered. In addition, and puzzlingly, the investor’s application listed on PIEFZA’s website directs applicants to fax completed applications to a Gaza office, which presumably is now staffed by someone from Hamas’ government. That the process is so lacking in transparency is a poor reflection on the status of Palestinian institutional reforms. What good is investment in public institution building if these mega-employment centers are excluded from the systems being established?

Legal acrobatics aside, questions like who is importing materials into these zones and who is receiving the exports must be analyzed in much greater detail. Following the money trail will most likely lead to the same few Palestinians who have financially benefited from the Oslo process. One clear indication is the rush by specific economic entities and persons buying land in the vicinity of these planned zones. With the majority of Palestinian lands not formally registered with the Palestinian Land Authority, it would be impossible to understand who actually holds ownership of these lands.

Who Profits?

The working assumption is that these zones will be open for business to any Palestinian or international company wanting to establish a factory within them. Although the sectorial theme of each zone is unclear, if existing zones (such as the maquiladoras in Mexico or those in Jamaica) are any indication, the zones in Palestine will host “dirty” businesses -- those that are pollution-prone and sweatshop-oriented. Jordan’s Qualified Industrial Zones (QIZs) provide a regional example. The Jordanian QIZs were envisaged as forming the basis of regional economic cooperation after Jordan and Israel’s 1994 peace treaty. To provide incentives for cooperation, products produced in the QIZs fall under the US-Israel Free Trade Agreement as long as they have a minimum 8 percent contribution from Israel. A similar setup can be expected for Palestinian zones, especially given the US desire to promote a Middle East Free Trade Area. While the Jordanian QIZs have generated 36,000 jobs, 75 percent of these have gone to foreign, mostly Asian, workers. [3] Given that the objective of the Palestinian zones is job creation, it can be expected that these zones would indeed employ Palestinian workers, but their special status raises questions about the working conditions that might dominate within them. The Jordanian QIZs, like many others around the world, are notorious for their exploitative labor practices.

According to two consultants to the Israeli government, the West Bank zones are expected to employ 150,000-200,000 Palestinians, nearly the same number that used to travel daily to Israel for work before the second intifada. [4] Studies from the Peres Peace Center project even higher numbers, estimating that 500,000 Palestinian workers will be employed in joint industrial zones by 2025. Israeli expectations do not stop there. The consultants also predicted that 30 percent of Palestinian businesses outside the zones will refocus their businesses to serve those enterprises located inside the zones.

In a nutshell, one can see a continuation of Israel’s scheme to reengineer the Palestinian economy away from its agricultural and tourism bases toward an economy that is dependent on Israeli public services and good will. This process has been unfolding since the start of Israel’s occupation in 1967. When the Israeli military took control of the West Bank and Gaza, it altered Palestinian agriculture by controlling the types of crops that could be planted to prevent competition with Israeli produce, seizing land to reduce the agricultural sector and taxing Palestinian exports while allowing Israeli products to enter the territories duty-free. The requirement that all industries obtain an Israeli license limited industrial development, as did higher taxes on Palestinian industries than on their Israeli counterparts. As a result, industries that developed tended to be those that provided Israeli industry with labor-intensive, low-cost products. Palestinian industry, agriculture and labor were therefore developed to suit the needs of Israel’s economy. [5] After the second intifada, when Palestinian workers were barred from traveling to Israel, many returned to the theretofore neglected agricultural sector for work. [6] Today, this economic reengineering effort in the West Bank can be viewed as an attempt to relocate the scores of Israeli settlement enterprises, which depend on Palestinian cheap labor, to these newly created “Palestinian” zones, thus “legalizing” their existence.

The project fits well with Israel’s policy of separation -- a policy that enables Israel to box in the Palestinians while maintaining control of their movements and economic viability. Separation has been implemented gradually since the 1993 Oslo accords, after which Israel tightened its border with the West Bank and Gaza but continued to employ Palestinians in menial jobs within Israel. Closures were used as a form of collective punishment to cut off Palestinians from their jobs across the Green Line. After the second intifada broke out, Israel further tightened its border with the Occupied Territories. Later, Israel built the separation wall physically to divide Palestinian and Israeli populations, but Palestinian governing institutions, industry and freedom of movement continue to depend on Israel, which controls the borders surrounding the Occupied Territories and collects taxes for the PA. Foreigners replaced the Palestinian laborers who previously worked menial jobs in Israel. Foreign workers, however, have proved to be an unsatisfactory solution for Israel, given its overriding prerogative to maintain the Jewish character of the state, as these non-Jewish workers are now attempting to settle permanently. [7] The QIZ scheme would reduce Israel’s dependence on foreign workers by bringing the factories to Palestinian workers now that they are prohibited from traveling to the factories.

Movement and Access

As long as Israel controls access and resources in the West Bank, the zones’ operation will remain precarious, perpetually at the mercy of positive relations between Israel and Palestine. Given the existing infrastructure of the West Bank, the water and electricity capacity of these zones will be totally controlled by Israel. Most importantly, Israel will maintain full control of the movement of goods and people between the zones and the outside world. By incorporating Israel’s infrastructure of control within the plans, these projects serve to normalize an illegal occupation and undermine Palestinian political aspirations.

When former Secretary of State Condoleezza Rice flew from Washington to Tel Aviv in 2005 to strike a deal with Israel on Palestinian movement and access, it was clear that the US understood that without freedom of movement the Palestinian economy does not stand a chance, even if the economic framework being promoted has nothing to do with Palestinian economic independence. Although it signed the agreement, Israel refused to implement its terms, and the US failure to confront Israel means that the conditions necessary for Palestinian economic sustainability have not been met.

The World Bank acknowledges as much when it states repeatedly in its reports that, even while proclaiming 8 percent economic growth, the “critical private sector investment needed to drive sustainable growth remains hampered by restrictions on movement of people and goods.” It is clear that economic growth is not necessarily equivalent to economic development, especially in a politically charged, donor-driven environment like the Occupied Territories under the quasi-rule of the PA.

The privileged status of the zones also raises ethical concerns. While Israeli restrictions will be eased in order to ensure smooth functioning for foreign investors, indigenous industries will continue to face the same hurdles that have hindered Palestinian industry for decades. Thus, existing businesses will be placed at a comparative disadvantage.

What Needs to Happen?

Donor funds and Palestinian efforts would be better placed if such investments targeted Palestine’s natural economic comparative advantages, for example, tourism and agriculture, without trying to confine their activities to closed zones that will, over time, empty large tracts of land of their productive capacity, not to mention create structural dependency on Israeli good will to allow these closed zones to function properly. In a land that is home to the Church of the Nativity, Church of the Holy Sepulcher, Dome of the Rock and dozens or other historic attractions, it makes sense to preserve and develop these existing assets, which have the potential to serve as a pillar of a future state economy.

Converting the industries in the Atarot industrial zone into something more complementary to the historic city of Jerusalem, for example, could serve to underpin Palestine’s tourism sector as well as preserve the sanctity of the greater Jerusalem vicinity. Rather than building new industrial zones, Palestinian interests would be better served if the Atarot zone were returned to Palestinian control. Adjacent to the Atarot complex is the idle Qalandiya airport. The airport, which operated prior to Israel’s occupation in 1967, would be a crucial component in efforts to build Palestine’s tourism sector.

Similarly, confiscating agricultural land to make way for large industrial projects not only strips farmers of their livelihoods, but structurally adjusts a key segment of the labor force that, over time, will lose its skills. Agricultural development in Palestine is not in need of a “zone,” but rather requires Israel to comply with international law, to release Palestinian water resources and remove the myriad of access and movement restrictions that do not allow people or products to travel freely within Palestine and abroad. Trying to concentrate agricultural growth in a limited “zone” merely opens the door for farmers outside of the zone to become economically disenfranchised by public policy, instead of being equally supported regardless of their physical location.

Singing the song of massive job creation in industrial zones without analyzing all of the ramifications could be detrimental to Palestine’s economic and political future. Placing such zones of economic activity closer to population centers and rehabilitating existing near-city industrial areas makes more sense today given the volatile political situation and the need to upgrade existing in-city and near-city zones, many of which pose health and environmental risks to their surrounding communities. Building high-tech zones in the vicinity of university campuses would be a strategic starting point. Better yet, bringing such investments into the universities themselves, which are in dire need of modernization and sustainable development, would have a more lasting impact and be  a better deterrent of political turmoil.

While they might benefit a certain elite, the planned economic zones cannot benefit Palestinian strategic interests. The notion that political differences can be solved through job creation is fundamentally flawed and will not change the reality: 60 percent of Palestinians are internally displaced or dwell in refugee camps just hours from their homes and properties; 1.5 million Palestinians in Gaza survive under siege conditions; hundreds of thousands have been illegally detained by Israel; and the economy is micro-managed by a foreign military. The development projects proposed by the international community only normalize the illegal occupation, by working in partnership with Israel to fine-tune its mechanisms of control.

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Endnotes

[1] Ma‘an News Agency, February 2, 2010.

[2] Neve Gordon, Israel’s Occupation (Berkeley, CA: University of California Press, 2008), pp. 62-69.

[3] EconomyWatch.com, April 19, 2010.

[4] Leila Farsakh, “Palestinian Labor Flows to the Israeli Economy: A Finished Story?” Journal of Palestine Studies 32/1 (Autumn 2002).

[5] Neve Gordon, Israel’s Occupation, (Berkeley, CA: University of California Press, 2008), pp.72-5

[6] Anne Meneley, “Time in a Bottle: The Uneasy Circulation of Palestinian Olive Oil,” Middle East Report 248 (Fall 2008).

[7] Ynet, November 8, 2010.