Talks between the Israeli and Palestinian finance ministries have been renewed over the last month, predating U.S. Secretary of State John Kerry's revival of a chance at peace negotiations by several weeks.
The economic talks echo the same issues that surfaced two decades ago during the early days of the Oslo Accords, when the two sides signed the Paris Protocol governing economic ties. Back then, like today, the negotiators were talking about cooperation and problem solving, while in the Palestinian street sentiments favored changes that would severe as many links as possible and build a more independent economy for Palestine.
Sources close to the contacts between the two sides say that both Palestinian Authority negotiators and officials at international organization are urging Israel to go beyond the terms of the Paris accords, and give the Palestinians control over customs.
But for now that demand hasn't reached the negotiating table. Israel still prefers to treat the areas over the Green Line as part of the State of Israel, at least until a two-state solution has been formulated, the sources said.
However, against the background of warmer ties between the two sides, the Regional Development Ministry announced yesterday that Japan will invest $200 million in a joint Israel-Palestinian-Jordanian industrial zone in the West Bank city of Jericho.
Efforts to develop a joint industrial zone in the past have been undermined by political complications.
A joint declaration is due to be issued at the end of the week at Jericho's InterContinental Hotel by Regional Development Minister Silvan Shalom, Japanese Foreign Minister Fumio Kishida, Palestinian Authority Planning Minister Mohammed Abu Ramadan, PA Economy Minister Jawad al-Naji, PA chief negotiator Saeb Erekat and a senior Jordanian minister.
Single customs area
The Paris Protocol, signed in 1994, calls for Israel and the PA to function as a single customs area, meaning Israeli customs are in force throughout Palestinian-controlled areas unless Israel agrees otherwise. Practically speaking, it means Israel and the PA are a single market and trade between them is not considered cross-border.
Israeli industrialists are divided over the benefits of this arrangement. More developed industries gain from having a bigger "home" market, but smaller, less sophisticated industries feel the heat of Palestinian competition.
On the Palestinians side, there were already calls in the 1990s for greater economic independence, but Israel opposed it, contending that the Palestinians didn't have the mechanisms for collecting customs or other taxes. Even today, the PA has had trouble collecting taxes and fees for such things as consumers' electricity use.
Israel collects customs and value-added taxes for the PA. But that makes the PA vulnerable in periods of tension, during which Israel has often offset money due the Palestinians to cover unpaid electrical bills due the state-owned Israel Electric Corporation, or medical payments due Israeli hospitals.
About a month ago Finance Minster Yair Lapid and his Palestinian counterpart, Shukri Bishara, met and announced they were renewing economic cooperation. They discussed confidence-building measures and a timetable for advancing an agenda that includes joint investment and trade.
"Economic cooperation will contribute to Israel and to the PA," Lapid said. "We plan to continue strengthening our relations and make progress on economic issues important to the two sides."
At the start of this month, the first working meeting got underway. The two sides have been focusing on the nitty gritty of day-to-day problems such hospitalization fees, debts to the IEC, sewage and charges on travelers at the Allenby crossing with Jordan.