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Analysis: West Bank dogged by high cost of trade

Photo: Erica Silverman/IRIN
Palestinians buying traditional Ramadan sweets in Ramallah before ‘iftar’ (the meal that breaks the daily fast)
RAMALLAH, 1 September 2011 (IRIN) - West Bank trade remains largely isolated from global markets due to restrictions imposed on the movement of goods to, from, and within the occupied Palestinian territory (oPt), according to a July 2011 study by the UN Conference on Trade and Development (UNCTAD).

Constraints on imports and exports inflate prices for Palestinian businesses and consumers, apparent as families struggle to buy gifts during the Eid post-Ramadan holiday.

Constraints facing Palestinian trade to or via Israel include access within the West Bank itself prior even to reaching the border with Israel or Jordan; a time-consuming and expensive back-to-back truck loading system; and severe scrutiny measures imposed at the border crossing to Jordan (Allenby or King Hussein Bridge, the West Bank’s only international crossing point) and the commercial crossings between the West Bank and Gaza and Israel, according to an unpublished World Bank report drafted in February 2011 and seen by IRIN.

The Palestinian Authority (PA) and Palestinian businesses are hoping a 20 September bid for statehood before the UN - and the assertion by UN agencies that Palestinian institutions are prepared for statehood - will open channels to international trade.

“The back-to-back system, internal West Bank checkpoints, and the clearance process at Israeli ports that require Palestinian goods to be searched several times and often held in warehouses for long periods, delay trade,” said PA deputy economic minister Abdel Hafiz Nofal.

Barriers to imports and exports increase the cost of trade transactions by about 40 percent, he said.

The back-to-back truck-loading system, which applies to all West Bank exports, does not allow trucks to cross into Israel. Instead, goods are offloaded from a Palestinian truck and inspected before being moved to an Israeli truck for final delivery within Israel or overseas.

For goods entering the West Bank from Israel, the cargo is transferred in the same manner, but without a security inspection for most goods.

No container scanners

According to the World Bank, the absence of container scanners at borders constrains Palestinian access to external markets, and means all cargo is subject to physical inspections. For goods outgoing from the West Bank to Israel, manual and canine inspection is used where deemed necessary.

“There are six commercial crossing points between the West Bank and Israel, and to date there are no scanners at any of the six points,” said Nofal.

According to Paltrade, the national trade development organization which includes 327 leading Palestinian businesses, PA customs and border officials are prohibited at Allenby Bridge and at crossing points between the West Bank and Israel.

Arafat Asfour, chairman of Paltrade and partner in Nassar Group, the largest Palestinian marble and stone company, says the biggest obstacles facing Nassar are local trade restrictions, including the back-to-back system.

Loading and unloading trucks 3-4 times before they reach their destination is costly, said Asfour.

If Nassar sends one truck from Bethlehem to Ashdod or Haifa port in Israel for sea-shipment, with two containers of stone [16 tons per container], it should cost US$550-650, but Nassar pays double for the extra trucks required.

Nassar is also reducing the amount of material per truck from 20 to 16 tons to allow dogs used by Israeli authorities to manoeuvre inside for security checks. Asfour estimates a 20 percent loss in transportation costs on each truck.

''Scanning entire trucks is more efficient and secure than manual searching with dogs…Sometimes our materials stay 2-3 weeks in Israeli ports, which incur extra storage costs.''
The international standard is 20 tons per container, and under normal trading conditions a truck is scanned as it crosses the border, according to Asfour.

“Scanning entire trucks is more efficient and secure than manual searching with dogs,” says Asfour, and “Sometimes our materials stay 2-3 weeks in Israeli ports, which incur extra storage costs.”

Jordan even more costly

Despite the barriers, most Palestinian traders say it is still quicker and cheaper to export goods via Israel than Jordan.

Palestinian goods moving to or from Jordan must cross Allenby Bridge, where cargo is removed from Palestinian trucks, inspected, and then loaded onto Jordanian trucks. The process takes 4-8 hours or longer, and Allenby’s scanners cannot handle large cargo, reports the World Bank.

Since containers are prohibited from entering Jordan or Israel, Palestinian shippers say they often reconfigure cargo onto smaller pallets for inspection, and there is no cold storage.

If Palestinian shippers had consistent access to outside markets via Allenby Bridge, it could increase trade by as much as 30 percent annually, according to Paltrade.

In 2010, Palestinian trade with/through Israel accounted for 74 percent of total Palestinian trade, according to UNCTAD.

The increased cost of trade has raised the price of goods for Palestinians, including food, beverages and hygiene products, according to the PA economic ministry.

Per capita gross domestic product in the West Bank is about US$1,500, and about US$26,000 in Israel, according to the World Bank. “There is a rich society and a poor society that are being treated on an equal basis,” says Asfour. “This is why one customs union is unfair to the Palestinians.”

Gaza and the West Bank are treated as part of the same customs envelope by Israel, which collects the customs taxes and is supposed to remit them monthly to the PA in Ramallah, according to the Paris Protocol signed in conjunction with the Oslo Accords in 1994.

The Protocol stipulates that the value added tax in oPt can only be 3 percent lower than Israel’s tax, and gives the Israeli Institute for Standards authority over Palestinian imports and exports.


Photo: Erica Silverman/IRIN
A vendor selling carob and other traditional Ramadan juices in Ramallah
Israel is restricting imports according to its own national production to regulate competition in its own market, which does not necessarily apply to the Palestinians, said Nofal.

“Palestinians are forced to import fuel [petrol] via Israel, but if we could import fuel via Jordan or Saudi Arabia it would cut the price in half, which would create opportunities for industry and lower costs for average Palestinians,” he added.

Not all imports come from Israel

Recent evidence published by the Bank of Israel suggests that of the total Palestinian imports from Israel reported by official statistics, only 42 percent are actually goods produced in Israel, says UNCTAD.

“The remaining 58 per cent are produced in a third country, and transit to the OPT via Israel. Factoring out these `indirect’ imports negates the overstated importance of the Israeli economy to that of the OPT. The officially reported share of imports from Israel would be closer to 35 per cent, rather than 75 per cent, of all Palestinian imports. Under normal trade and transit conditions, therefore, Israel would no longer enjoy overwhelming dominance as the leading OPT trading partner. This underscores the failure of Palestinian–Israeli convergence and economic integration under prolonged occupation. And… this arrangement deprives the PA of significant customs revenue that it needs in order to meet essential obligations, lower its structural budget deficit, and reduce aid-dependence,” the UNCTAD report says.

Meanwhile, lack of Palestinian purchasing power is evident this holiday season in the West Bank, where 18 percent of the population lives below the poverty line, according to the Palestinian Central Bureau of Statistics.

“People are looking, but not buying,” said Nidal Mohamed, 41, pushing his cart loaded with clothing by hand to Ramallah’s central market. Nidal said he has taken a second job cleaning a coffee shop to support his family of nine.

Israel says security measures implemented at crossing points are necessary to protect Israeli civilians from attacks.

Israel does not support the potential bid for statehood, asserting that the PA is ill-prepared to secure its borders.

es/cb

Theme(s): Children, Economy, Governance, Health & Nutrition, Human Rights, Conflict, Security, Urban Risk,

[This report does not necessarily reflect the views of the United Nations]