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Chapter two: a positive economic balance - Israel's corporate gains from the occupation.

For the first two decades, the Israeli occupation of the Palestinian territories not only was inexpensive in terms of expenditures on civilian and military administration, it was also profitable to at least some parts of the Israeli business community. Profits were made in two main areas: trade, and the employment of cheap Palestinian labor. In this chapter we will deal with trade, while the next one will be devoted to the employment of Palestinian laborers.

The Palestinian territories do not hold the kinds of treasures that have enticed occupiers throughout history. They do not possess precious spices or gold deposits, like those that drove the Portuguese, the Spanish, the Dutch, the French and the British to conquer and control vast territories in America, Asia and Africa beginning in the last part of the fifteenth century. They have no natural resources like those that enticed the late 19th century "scramble for Africa," nor do they possess oil deposits like those that drove British and US governments and corporations to conquer or control large tracts of the Middle East, from Saudi Arabia and Iran in the past to Iraq in the present. The attraction of the Palestinian territories lay essentially in the territory itself, as a stage for the establishment of a Greater Israel--simultaneously foreclosing the possibility of the rise of an independent and potentially rival Palestinian state.

Still, even without any considerable natural resources, the continued occupation of the Palestinian territories did provide Israel with a significant economic gain: those territories became a captive market for Israeli products, opening up gainful business opportunities for Israeli entrepreneurs. Palestine, forced into the equivalent of a "customs union" with Israel (an arrangement that would become "agreed upon" in the Oslo accords), came to purchase the vast majority of its imports from Israel--and to send to Israel the vast majority of its exports. Due to the huge gap in the level of economic development of the two partners, the Palestinians purchased much more from Israel than Israel purchased from the Palestinians. The balance of trade was in Israel's favor.

To maintain the unequal balance of trade and the preferred status of Israeli manufacturers, Israel did its utmost to constrain local economic development in the Palestinian territories. Brig. Gen. Shlomo Gazit, the first coordinator of Israeli activities in the Palestinian territories, called this "the failure of Israeli non-activity in the territories," and pointed at two pieces of evidence: firstly, Israel refrained from making investments in the Palestinian territories (with the exception of Israeli settlements, of course) and from encouraging others to invest in the development of the local economy (Gazit, 1985: 179). Secondly, Israel made no investments in either services or infrastructure--roads, communication systems, water supply, health services, education, and the like (ibid: 179).

The reason Israel adopted this policy, according to Gazit, is that "it gave absolute preference to the interests of Israeli business sectors" (ibid: 243). He pointed to the example of agriculture, which, before 1967, employed a third of the Palestinian workforce (Kahan, 1987: 3): "From nearly the first day, when the government was faced with a surplus of [Palestinian] agricultural goods at the height of the harvest season, it saw protection of Israeli agricultural prices as its supreme interest. This, above all, is what pushed renewed marketing efforts eastward, toward Jordan [to prevent it from competing with the Israeli agricultural market]. It is also what drew the workforce from the territories to jobs on Israeli farms [in order to strengthen Israeli agriculture]. Agricultural planning in the West Bank and the Gaza Strip was geared toward creating a situation in which agriculture in the Palestinian territories would, to the greatest extent possible, enhance--rather than compete with--Israeli agricultural planning (Gazit, 1985: 251; see also Kahan, 1987: 70).

The same was true for business and industry: "... The policy was to discourage Israeli investors from setting up factories in the Palestinian territories (or from becoming partners in existing ventures). Instead of looking at the wider picture--the chance to lower Israeli production costs by taking advantage of a relatively cheap workforce in the West Bank or Gaza Strip--the policy aimed at blocking incentives to Israeli investors ... The desire to protect the goods produced in Israeli factories was so great that they even tried to prevent the building or renovation of factories that were one-hundred percent Arab-owned, if there was a risk they might compete with Israeli-produced goods" (Gazit, 1985: 251). Notable departures from this policy (apart from the factories built in the the industrial parks adjacent to Israeli settlements) were the industrial parks built on the Green Line (ibid.). Writing in the early 1980s, Meron Benvenisti, probably the best informed Israeli observer at the time, noted that in contrast with conventional world-wide patterns of economic growth, the industrial output of the Palestinian territories diminished rather than grew, with its portion of Palestinian GDP decreasing from 9.0% in 1968 to 6.5% in 1980 (Benvenisti, 1984: 15).

The outcomes of the policy constraining independent growth were also addressed by an official Israeli committee appointed in 1991, on the eve of the Madrid conference, to deal with economic recovery in the Gaza Strip. Its members included the economist Ezra Sadan; the then coordinator of Israeli activities in the Palestinian territories, Brig. Gen. Dan Rothschild; the Prime Minister's economic consultant, Amos Rubin; and other experts. The committee concluded that the economic policy of Israeli governments regarding the residents of the Gaza Strip was limited essentially to opening the door to jobs within the Green Line. On the other hand, "on rare occasions, the government promoted and encouraged the creation of jobs and factories in the [Gaza] Strip itself (for example, in the Erez industrial area). No preference was given to promoting independent initiatives or the business structure of the Gaza Strip. On the contrary, the authorities stood in the way of such initiatives for fear they would compete with Israeli companies in the Israeli market" (Quoted in Arnon and Weinblatt, 2000: 36).

For many years, the only Palestinian businesses to flourish under the occupation were offshoots of the growing Israeli economy: subcontracting, mainly in the clothing manufacture industry, or garages that charged Israeli car owners less money for repairs (Gazit, 1985: 252).

The trade limitations imposed by Israel on the territories, coupled with the policy of blocking local economic development, turned the Palestinian territories into a large market for Israel trade. As we will soon see, significant parts of the Israeli business community were and still are involved in this trade.

Dimensions of Trade

We will start by looking at the Israeli-Palestinian trade figures. It should be said at the outset that such figures as are readily available are not necessarily comprehensive and accurate, for the simple reason that contrary to trade with other countries, where imports and exports go through customs and are thus systematically recorded, much of the trade between Israel and the Palestinian territories was and still is performed through a non-existing border. Israel has consistently opposed--even during the Oslo negotiations--the drawing of a border and the establishment of crossing points. The figures presented in Tables 1 and 2 below are based on the Israel Central Bureau of Statistics data bank, and they are sufficient for observing the overall trends. For an analysis of specific areas of trade, it is recommended to consult several sources: thus, a study made jointly by the Peres Center for Peace and by the Palestine Trade Center (PALTRADE) used a combination of sources including the Israel Central Bureau of Statistics balance of payments data; the Palestine Central Bureau of Statistics trade database; and the Israeli Palestinian VAT-Clearance Database, which has been in existence since 1995 (The Peres Center and Paltrade, 2006). We will resort to the Peres Centre-Paltrade figures when discussing specific areas of trade.

Before 1967, the Palestinian territories formed part of two separate national economies: Jordan--for the West Bank, and Egypt--for the Gaza Strip. In the wake of the 1967 war, with Israel controlling all the exit and entry points, the Palestinian territories were merged into the Israeli economy, obtaining most of their imported goods from Israel or through Israel, and exporting most of their own products to or through Israel: Israel became the Palestinians' main trading partner.

To the Palestinians Israel sold industrial goods, agricultural products, and cement. Moreover, Palestinians became dependent on Israel in several crucial areas of infrastructure: Israeli firms became the main suppliers of electricity, fuel, gas, global communications, and a good part of their water. The same is true for basic commodities such as flour, rice, and sugar (MAS, 2000: 3). Before the outbreak of the first Intifada, Palestinians purchased up to 10% of all Israeli exports and constituted a market second in importance only to the U.S. (The Peres Center and Paltrade, 2006: 27). Ever since, as can be seen in Table 1 below, that market share has been in decline, reaching a low of 3.8% in 2002, at the height of the second Intifada. With the ebbing of the second Intifada Israeli exports to the Palestinian Authority picked up a little, to 4.5% in 2007--but never recovered to the level of the 1980s.

It should be noted that the Intifada and the suicide bombings of the 1990s are not the only reasons for the decline in Palestine's share of Israeli exports. Another is the general growth in Israeli exports, including high priced hi-tech products, for which the Palestinian territories do not constitute a significant market. While total Israeli exports increased in the 20 years between 1988 and 2007 more than five-fold, from US $ 11.3 billion to US $ 58.7 billion, Israeli exports to the Palestinian territories, which were US $ 0.8 billion in 1988, rose in 2007 to only US $ 2.6 billion (see Table 1 below). One additional factor that needs to be taken into account is that the decline in Israeli exports in times of confrontation is, among other things, an indication of the sharp decline in the purchasing power of the Palestinian community at such periods.

At the same time, Israel became the primary destination for Palestinian exports. In the 1990s and first years of the 21st century, approximately 85% to 90% of all Palestinian exports went to Israel (Elmusa & El-Jaafari, 1995: Table 2; PCBS, 2006: 50). However, while the weight of Israeli exports out of all imports to the Palestinian territories is very high, the weight of Palestinian exports, out of all imports to Israel, is very low: as can be seen in Table 2, for most of the period following the first Intifada it has hovered around 1% of total Israeli imports, rising to about 1.65% in the years following the Oslo agreements, and declining to below 1% during the period of the second Intifada. These differences were also expressed in the cash value of the traffic: Israeli exports to Palestinians in 2007, for example, amounted to about US $ 2.6 billion, while Palestinian exports to Israel that year totaled US $ 0.5 billion (ibid).

The figures in Table 1 make it quite clear that a good portion of the Israeli business community enjoys significant gains from the fact that under conditions of military occupation, the Palestinians were disconnected from the Jordanian and Egyptian economies and become appended to the Israeli economy. The gains that Israeli business people derive from exporting to the occupied territories can be divided into two categories. The first and main one has to do with the proximity of the Palestinian market: export to this market requires almost none of the expenses connected with transportation by air or by sea. From this point of view, the Palestinian territories are the equivalent of the annexation of a new, geographically contiguous province. Another type of gain derives from the fact that exports to the Palestinian territories do not involve high investments on the part of Israeli business people: the Palestinian market absorbs in some cases low-tech, low-cost Israeli products that would be difficult to sell to the more affluent Israeli market, or to European markets.

Israeli producers who export their products to the Palestinian Authority are not the only Israeli business people to benefit from the occupation. Another category is that of enterprises that make their gains directly from the act of occupation. The most obvious example is construction firms, which build Israeli settlements, military bases and roads, and which are presently building a wall engulfing the territories of the Palestinian Authority. Another example is manufacturing, commercial and service firms that operate out of industrial parks established in the Israeli settlements.

In the remainder of this chapter we will look first at the most outstanding instances of Israeli exports, and then at the firms that operate in and around the settlements. The review will also serve to concretize the extensive and pervasive nature of dependency that lies behind the innocuous concept "captive market."

Throughout the chapter we will try to assess the extent of compatibility between each of the various business interests and the possibility of an Israeli-Palestinian political settlement that would result in the establishment of an independent Palestinian state, and, as a consequence, the introduction of some kind of separation between the two economies. The two-state solution is the main topic on the diplomatic agenda, and economic separation is the main recommendation of both Palestinian and Israeli economists who deal with a solution to the Israeli-Palestinian conflict (see Arnon and Bamya, 2007; and The Peres Center and Paltrade, 2006).

It can be stated at the outset that, for the most part, the gains Israeli exporters to the Palestinian Authority presently enjoy do not serve as sufficient incentive for them to prevent a political settlement that would end the present economic constellation. That appears to be the case either because for many Israeli exporters, the Palestinian market constitutes only a relatively small portion of the total markets, or because under most conceivable scenarios for a two-state solution, the economic relationships between Israel and Palestine, forged coercively over 40 years of occupation, will not necessarily be replaced by totally different ones. This is especially true in the case of some of the infrastructural supplies, such as electricity and fuel (see, for instance, The Peres Center and Paltrade, 2006; and Arnon and Bamya, 2007). Not only that: under conditions of two separate national entities united by a free trade agreement, Israeli producers stand to gain not only from the continuation of many of the present conditions, but also from the possibility of access via Palestinian intermediation to the much wider markets of the neighboring Arab countries, now united in an Arab Free Trade Area (see The Peres Center and Paltrade, 2006).

The case with the business enterprises operating in what we call the Settler Economy is different.

A. Israeli exports to Palestine

Electricity, fuel and gas constitute approximately 35% of total Israeli exports to the Palestinian Authority. Up to the second Intifada, their weight in Israeli exports was much lower--in 1998-2000, 15%. However, sharp rises in oil prices helped to bring it up to the present proportion (The Peres Center and Paltrade, 2006: 34-35). At the same time, the contraction of economic activity and the growing pauperization of the Palestinian population during the Intifada caused a decline in the importation of consumer goods from Israel (ibid: 35), thus also contributing to the increase in the weight of electricity, fuel and gas out of total Palestinian imports.

In all three items, Palestinians are almost totally dependent on supply by Israeli corporations, as we will presently demonstrate.


The major supplier of electricity in Israel is the government-owned Israel Electric Corporation. In the wake of the 1967 Israeli occupation of the West Bank, the IEC became the main supplier of electricity to the West Bank and the Gaza Strip, providing for some 80% of consumption (Arnon and Bamya, 2007: 164).

In the West Bank, 70% of IEC's supplies go to the Jerusalem District Electricity Company, which distributes them, directly, to East Jerusalem, and in bulk to 165 towns and villages in the West Bank; an additional 30% go directly to 215 towns and villages. The local authorities in the towns and villages are responsible for collection of the fees. The Gaza Strip receives electricity both from the IEC and from the local, privately-owned Gaza Power Plant, which can meet up to two-thirds of local demand (The World Bank, 2007 [May]: 14-15; 3).

In 2006, IEC supplies to the Palestinian Authority and to East Jerusalem amounted to 3,097 KWh--6.7% of the IEC's total supplies (Israel Electric Corporation, 2007: table 31a). This is a very low figure, given that the population of the Palestinian Authority (including East Jerusalem)--in 2006, almost 4 million (Palestine Central Bureau of Statistics, 2006: 15)--amounted to more than 35% of the combined Israeli and Palestinian population. The huge discrepancy between the actual level of consumption of IEC electricity in the Palestinian Authority and the expected level based on size of population is explained by the low level of economic development in the occupied territories: most of the electricity supply goes to the service and household sectors, given the lack of significant industrial activity (The World Bank, 2007 [May]: 2). In addition, a large number of Palestinian localities are not even connected to the electrical grid.

The IEC's revenues from selling electricity to the Palestinian Authority and to East Jerusalem stood, in 2006, at 5.6% of its total income. The discrepancy between the Palestinian share in IEC's production--6.7%--and in IEC's income--5.7%--may be due to the fact that according to IEC figures--Palestinians are charged the lowest rate of all consumer categories (Israel Electric Corporation, 2007: table 50a). Industrial establishments, on the other hand, appear to be charged prices that are 3 times higher than the average price in Israel or Jordan (Arnon and Bamya, 2007: 169).

The figures make it quite clear that the presence of the Palestinian market on the IEC's operational map is marginal. Furthermore, continued Israeli occupation will not make it more significant, especially if it is accompanied by continued suppression of Palestinian economic development. A two-state solution, on the other hand, holds more promise, as it would conceivably bring with it rapid economic development in Palestine, leading to a growing demand for electricity. Though the Palestinians will probably wish to enhance their own production capabilities--for instance, the Gaza Power Plant--and though they might also wish to diversify their sources of supply by hooking up with the Jordanian and Egyptian grids, it seems clear that the IEC will stand to benefit from Palestinian development, at least during the first period of transition. It also stands to gain from joining, through the intermediation of the Palestinians, regional electrical networks--which could benefit Palestine, Israel, Egypt and Jordan, and possibly more countries, from trading electricity, especially in times of crisis or high demand (Arnon and Bamya, 2007: 173-174).

Thus, ironically, a two-state solution may prove to benefit the IEC more than the present state of affairs, where the Palestinian market is only a tiny appendix to the Israeli market. For it is only through the post-1967 occupation that the Israel Electric Corporation came to be the main supplier of electricity to Palestine, and thus potentially an important player in a future Middle East.

For the time being, though, it is important to note that the military occupation is an integral part of the operation of the electricity market monopolized by Israel. The clearest manifestations are, first, the destruction by the I.D.F. of the Gaza Power Plant in June of 2006, as a retaliatory act in the wake of the abduction of the Israeli soldier Gilad Shalit by Palestinian fighters from the Gaza Strip; and second, the Israeli government's decision of late 2007 and early 2008 to reduce the electricity supply to the Gaza Strip, as part of its campaign against the Hamas government there. That decision makes the IEC, willingly or not, part of the Israeli state's panoply of weapons being used in the continuing Israeli-Palestinian confrontation. It is thus not surprising that the Hamas-led Gaza rulers are interested in obtaining more of their electricity from Egypt (as of March 2008, Gaza was obtaining 17 megawatts from Egypt, compared to 124 from Israel). Ironically, Israel may also be interested in this arrangement, as it might lead to the re-attachment of the Gaza Strip to Egypt, decoupling it from the West Bank--and rendering the Palestinian Authority even weaker vis-a-vis Israel than it is now (Issacharoff and Harel, Haaretz, March 20, 2008).

Another manifestation of the inextricable inter-relationship between military might and the economic market concerns the collection of fees by the IEC from its Palestinian customers. As we saw earlier, the IEC sells directly to Palestinian local authorities as well as to the Jerusalem District Electricity Company--which distributes to Jerusalem and to local authorities. Local authorities, in turn, collect the fees from individual customers and pass them on to the IEC. Collection is problematic, though, among other things because of widespread poverty, especially in the refugee camps. Yet the IEC's income is not jeopardized, for the Israeli Ministry of Finance allows the IEC to recover part of its unpaid bills from the taxes collected by the Israeli government on behalf of the Palestinian Authority (The World Bank, 2007 [May]: 3); in 2005, this sum amounted to some $100 million (ibid: 5).

Finally, the IEC's supply policies are heavily affected by the fact that it is first and foremost an Israeli government-owned corporation: priority of service is given to the Israeli customer. That priority might manifest itself in slow response to Palestinian demands to increase supply, or in the low voltage at the end of the transmission lines (Arnon and Bamya, 2007: 166).


The Palestinian Authority is totally dependent on Israel for its fuel supplies. Even the Gaza Power Plant, the major Palestinian-owned supplier of electricity, is dependent on fuel supply from Israel for its operation. Dependency is magnified by the fact that the West Bank and Gaza lack fuel storage facilities, thus necessitating a day-to-day supply from Israeli companies (The World Bank, 2007 [May]: 12).

Up to 1994, fuel to the Palestinians was supplied by Padesco, a company owned jointly by Israel's three largest fuel companies--Paz, Delek and Sonol. In 1994, the newly established Palestinian Authority awarded the supply contract to Dor Alon, then an upstart. Three fuel terminals were established, one in the Gaza Strip and two in the West Bank. The Israeli fuel company conveys its products to those terminals, and from there, the Palestine Petroleum Commission (PPC) distributes them to Palestinian customers (The World Bank, 2007 [May]: 12).

Dor Alon was the sole supplier from 1994 to 2006. Starting in January 2007, the provision was split between Dor Alon, which retained the Gaza Strip (accounting for some 35% of total exports to the PA), and Paz Oil, which received the larger West Bank market. Paz Oil is the largest Israeli fuel company, and the successful bidder for the recently privatized Ashdod oil refinery.

In 2005, Israel exported to the Palestinian Authority petroleum products in the amount of $650-700 million, representing 26% of the value of total Israeli exports to the PA (The Peres Center and Paltrade, 2006: 38-39).

To Dor Alon, the Palestinian business was very important: total sales to the Palestinian Authority amounted, in 2006 (when Dor Alon was still the sole provider), to NIS 2.15 billion (approximately US $ 480 million), representing 35% of Dor Alon's total sales (Dor Alon, 2006: 39). Once Paz Oil took from Dor Alon the largest slice of the Palestinian business, Dor Alon reported significant drops in sales (Dor Alon, 2006: B-4). As for Paz Oil, income from the Palestinian market amounted to 11% of its total income in 2007--a not insignificant amount (Rom, Globes, 10.8.2008)

For Paz Oil, the Palestinian connection is also significant: it has announced its willingness to place up to 30% of the refining capacity at the Ashdod Oil Refinery, recently privatized by the Israeli government and bought by Paz Oil, at the disposal of the Palestinian Authority, if the PA provides the crude oil from Arab countries; such an arrangement would benefit the PA by lowering the price of fuel products (The World Bank, 2007 [May]: 70), but it would also constitute a long-term benefit to Paz Oil as it would connect it indirectly to Arab suppliers of oil.

In the event of a two-state solution, the Palestinian oil market, presently monopolized by Dor Alon and Paz Oil, would probably become more competitive than the electricity market. Even so the present monopoly itself does not appear to create a reason for Israeli fuel companies to maintain the Israeli occupation of the Palestinian territories, as a two-state solution would not necessarily result in a total cessation of the present business connection.


Up to the Oslo accords, Israeli firms had a monopoly over the supply of fixed and mobile phone services, as well as internet services, in the West Bank and Gaza Strip (Luxner, 2000). In 1995, the Palestinian Authority granted Paltel, a Palestinian private company, a license to provide all telecommunications services (Ein-Dor, Goodman and Wolcott, 2000). Paltel was given a 10-year monopoly on fixed-line service, which ran out in 2007, and a 5-year monopoly on mobile-line service, which ran out in 2004 (Luxner, 2000). In 2007, a second license for mobile services was granted to another Palestinian corporation, Wataniya, while Paltel remains the sole provider of fixed-line services (World Bank, 2008: 2-3).

Paltel and Wataniya services extend over areas A, over which the Palestinian Authority has full civil and military responsibility, and over areas B, where the Palestinian Authority has only civil responsibility. In areas C, which include the majority of the Palestinian territory (as well as the majority of the Israeli settlements), telecommunication services are provided by Israeli operators; Palestinian operators are not allowed to set up antennas there. Given that areas C are spread throughout the Palestinian territory, the signals of Israeli operators reach the majority of the Palestinian lands, including the largest Palestinian towns. Thus, Israeli operators become unauthorized competitors with the Palestinian ones. The size of the Israeli companies' share of the Palestinian mobile-line market is estimated at between 20% and 45% (World Bank, 2008: 6). As the vast majority of Palestinians--90%--use mobile phones with pre-paid SIM cards (Ziv, Haaretz, May 13, 2008), all the Israeli operators have to see to is that such cards are available to customers in Palestinian towns and villages.

We could find no figures on the extent of Israeli operators' income from Palestinian customers. However, the fact that most Palestinians do not purchase monthly subscriptions but rather the less income-producing SIM cards, and the fact that their consumption is only about one third that of Israelis (Ziv, Haaretz, May 13, 2008), would suggest that such income cannot be too high. From the Palestinian point of view, though, the loss is quite substantial: for example, the Palestinian Authority loses an estimated US $ 60 million in annual tax incomes, as it cannot tax the Israeli operators (World Bank, 2008: 2). Additional income accrues to Israel due to the fact that international calls to and from Palestine are routed through Israel, and because Israeli infrastructure is used to communicate between the West Bank and the Gaza Strip (World Bank, 2008: 3). Furthermore, Palestinian operators are forced to buy cell phones from an Israeli company, as the I.D.F. does not allow them to import on their own (Ziv, Haaretz, May 13, 2008).


Israel is the main supplier of cement to the Palestinian Authority. Israel's main producer of cement is Nesher, owned by Clal, one of Israel's major holding companies. Nesher meets between 70% and 90% of the Israeli demand (Nesher, 2006: 15); the rest is met by foreign companies. In 1994, Nesher signed an agreement with a Palestinian marketing company that buys the cement and distributes it to the Palestinian market (Tikva, 2005: 7).

The Palestinian market is significant for Nesher: At the height of the second Intifada, it constituted 19% of total Nesher sales. In 2003 and 2004, with the ebbing of the Intifada, those figures rose to 26% and 28%, respectively (Nesher, 2006: 15). In fact, Nesher is conscious of the significance of its Palestinian clients: its periodic report, last published in 2006, states that a change in political circumstances may produce a change in the Palestinian market. It goes on to state that the market will not be lost in the case of a two-state solution, though this may require increased investments in marketing (Nesher, 2006: 15).

Nesher's confidence in the idea that a cessation of Israel's occupation of the Palestinian territories will not result in a total loss of the Palestinian market appears to be well founded, as the production of cement requires large investments and storage facilities. Although producers in Arab countries may compete with Nesher, their transportation costs may contribute to Nesher's continued success in the area.


In the fields of electricity, fuel and cement, Israeli exports to the PA are concentrated in a few hands: the Israel Electric Corporation, the Nesher Cement Company, Dor Alon and Paz Oil. In the case of agriculture, the producers are many.

Until the second Intifada, Israel exported around one quarter of its total agricultural exports to the Palestinian territories. Foremost among agricultural exports is fruit: the Palestinian territories, and in particular the Gaza Strip, are the most important export market for Israeli fruit, taking up some 20% of total Israeli fruit production. Many fruit growers in Israel have adapted their production capacity to accommodate the Gaza market; as a result, whenever export lines to the Palestinian territories are closed, the Israeli market is flooded by huge surpluses accompanied by a sharp price drop. The effect of such closures was dramatized in April of 2008 by the Israeli minister of agriculture, Shalom Simkhon, who in reference to the closure then imposed on the Hamas-led Gaza Strip declared that "Israeli agriculture is based on exports to Gaza" (Grinberg, Haaretz, April 2, 2008). Simkhon, representing Israel's agricultural interests, pressured the government to open the gates to the Gaza Strip, in direct contradiction to the policy of the ministry of defense and of the I.D.F. (ibid). In contrast, only 1% of vegetables produced in Israel are exported to the Palestinian territories (The Peres Center and Paltrade, 2006: 47).

But the interests of Israeli agro-business in the Palestinian territories go beyond sales of agricultural products to the PA. Israel sells the Palestinians agricultural equipment, seeds, plants and fertilizers. In addition, the major Israeli exporter of agricultural goods, AGREXCO, monopolizes exports to Europe of some of the most lucrative Palestinian products, such as Gaza Strip strawberries.

Beyond the interests of this or that Israeli agro-business, the continued occupation of the Palestinian territories allows Israel to manipulate Palestinian agriculture so that "agriculture in the Palestinian territories, to the greatest extent possible, enhances--rather than competes with--Israeli agricultural planning" (Gazit, 1985: 251; see also Kahan, 1987: 70). This means, in effect, the discouraging, on the part of Israeli authorities, of Palestinians growing fruits or vegetables grown by Israeli farmers. In addition, while Israeli products have free access to the Palestinian market, Palestinian exports to the Israeli market are restricted (European Commission-Food and Agriculture Organization of the UN, 2007: 12). In this sense, Israeli agricultural interests stand to lose from a two-state solution, unless the two sides engage in joint planning that will allow for the growth and enhancement of Palestinian agriculture (see Arnon and Bamya, 2007: 47-55). With regard to the Gaza Strip, though, it appears that Israel will continue serving as a supplier even after effective Palestinian independence; growing demand for housing and industry will only decrease the size of cultivable areas (Grinberg, Haaretz, April 2, 2008).

Israel also stands to lose control of water resources, which since 1967 has been exclusively in its hands. Palestinian agriculture accounts for about 60% of total water consumption in the West Bank and the Gaza Strip (European Commission-Food and Agriculture Organization of the UN, 2007: 6). Israel's control played an important and negative role in the development of Palestinian agriculture--while at the same time allowing Israeli agriculture to benefit from a generous supply of water.

Food Industry

Local Palestinian production does not provide sufficient staple food commodities for the local population; thus, imports are very significant (European Commission-Food and Agriculture Organization of the UN, 2007: 2). Israel is a major source of importation of food products. The other side of the coin is that exports to the Palestinian territories were for a long time a significant part of total Israeli food exports. A survey conducted in 2005 found that until the second Intifada, 81% of Israeli food companies had been active in the Palestinian market. Some major food companies noted that the Palestinian market was responsible for between 10% and 30% of their pre-Intifada sales (The Peres Center and Paltrade, 2006: 60). However, food exports have been decreasing since the outbreak of the first Intifada; the second Intifada brought with it the cessation of operations in the PA on the part of some of the companies. Still, with the ebbing of the second Intifada, 69% of Israeli companies that had marketed to the PA in the past, resumed their activities (ibid: 60).

As is the case with agricultural exports, food exports are split among a variety of Israeli producers. Information on exports of individual firms is not available.

For significant parts of the Israeli food industry, exports to the Palestinian territories constitute an important part of their production. Those producers stand to lose from a two-state solution, as it is precisely into such areas that Palestinian producers can be expected to enter, once the two states move from a customs union to a different arrangement, given that those production lines are based on low technologies and on low-wage labor.

B. Israeli Firms Benefitting Directly from the Israeli Occupation

Construction of Housing

Construction firms that build the Israeli settlements in the Palestinian territories would appear to be the foremost example of firms that benefit directly from the continued Israeli occupation. This is because the settlements would never have been built were it not for the fact that Israel took possession of Palestinian land, gave builders a green light, encouraged citizens of Israel to cross the Green Line to settle in the new houses, and employed the I.D.F. to provide military protection for the settlements.

Still, one has to take into account the fact that the settler families would have needed housing even if there was no occupation; the difference is that in that case, construction would have taken place within Israel's pre-1967 borders. In short, much of the building connected with the settlements would have taken place even without Israeli military control over the Palestinian territories.

What makes the economic analysis relevant, nevertheless, is the fact that housing construction in the settlements was, and still is, determined not only by purely economic considerations of supply and demand, but also by the political agenda of different political parties controlling the state apparatus. Thus, during the 1990s, the right-wing governments of Yitzhak Shamir (actually, his housing minister, Ariel Sharon) and Benjamin Netanyahu pushed for expansion of the settlements, while the centrist government of Yitzhak Rabin sought to limit it. The table below shows the trends quite clearly: in 1991 and 1992, during Shamir's term of office, housing construction in Israeli settlements constituted 9.1% and 13.4% of total housing construction in Israel. During Rabin's term, the figure declined to 3.0%. Then, under Netanyahu's command, in 1998 there was an increase in settlement construction, to 9.9%. When Ehud Barak came to power, replacing Netanyahu, things did not change, even though Barak came from the same party as Rabin--Labor. In fact, the number of new houses built in 2000 under Barak was the highest since Shamir's time.

Over the years, many Israeli construction corporations have been involved over the years in the construction of settlements. There is no available information, corporation by corporation, on the number of houses built, total investments, revenues and profits. It is also difficult to make a distinction between mainstream Israeli construction firms for whom building in the settlements is just part of their total operation, and small firms for whom building in the settlements represents a particular business opportunity.

At the end of 2007, one of the largest housing projects was constructed in a suburb of Modiin Elit. The suburb, Matityahu Mizrach, was built on the Palestinian side of the Green Line, on lands belonging to the Palestinian village Bil'in. The project, which never received proper approval from the Israel planning authorities, has drawn wide-spread public attention, as it has become the scene of continuous confrontations between the Palestinian villagers and their Israeli supporters on the one hand, and I.D.F. forces on the other. The major contractors for the Matityahu Mizrach project are Danya Cebus and Heftsiba.

Danya Cebus is engaged in building Matityahu Mizrach's "Green Park" project. It is owned jointly by Lev Levaiev and Shaya Boimelgreen and is a subsidiary of Africa-Israel Investments, owned by Lev Levaiev. Danya Cebus builds in Israel, Russia and Canada. Lev Levaiev is one of Israel richest business people: he is the founder and owner of Africa-Israel, a corporation involved in a variety of projects worldwide, from diamond trade in Africa to real estate projects in Eastern Europe. Among other things, Africa-Israel is a major partner in Derech Eretz, the company building the Cross-Israel highway that runs from north to south. Levaiev was considered at one point Israel's richest person (, 5.5.2007).

Heftsiba, which is engaged in building the "Nahalat Heftsiba" project, is owned by the Jerusalem Yona family and was listed in 2006 in Dun and Bradstreet's "Duns100." The father, Mordechai Yona, who serves as chairman of the board, is the honorary president of the Israel Association of Contractors and Builders. Heftsiba builds beyond the Green Line not only in Matityahu Mizrach but also in Maale Adumim; in addition, it built in Har Homa, on Palestinian territory annexed to Jerusalem. Heftsiba recently gained notoriety, after the company collapsed and its CEO, Boaz Yona, fled Israel, leaving hundreds of Israeli families stranded without the apartments they had paid for.

It should be noted that both large and small construction companies gain from the fact that the actual manual work was and is still being done mostly by Palestinian workers, who are not only paid less than Israeli workers but usually also less than Palestinians working in Israel.

Road Construction

Road construction can be viewed as an adjunct of housing construction. When we say road construction we refer to roads linking the Israeli settlements to each other and to Israel. The general area of the West Bank is small and hilly, with few major roads, and the settlements are widely dispersed. Up to the start of the first Intifada, Israeli settlers mainly used existing roads built by British Mandatory authorities and Jordan to serve the Palestinian population. The Israeli military governor invested little in the improvement or expansion of that road network. Following the outbreak of the first Intifada, when Palestinians began attacking Israeli vehicles, the settlers pushed for the construction of roads that would bypass Palestinian towns and villages. The signing of the Oslo accords split the West Bank into three jurisdictional areas. Areas A were under the full responsibility of the Palestinian Authority, areas C were under full Israeli responsibility. and areas B were under joint responsibility. This only increased the construction of bypass roads, as the Israeli government rushed to build a new set of roads that would eschew areas under Palestinian responsibility (Eldar and Zertal, 2004: 398-399). Thus in 1995, the first full year after the signing of the Oslo accords, road construction in the occupied territories amounted to a 102 kilometer-road constituting 21.3% of total kilometer-road construction started that year throughout Israel (Swirski, Konur-Attias and Shurtz, 2006: 58). In 2002, at the height of the second Intifada, road construction in the settlers' areas reaches 18% of total road construction as the Israeli government attempted to provide the settlers with secure roads (ibid). Many of the new roads were, and still are, for the exclusive use of settlers.

The Separation Wall

Since 2002, the single largest construction project in the occupied Palestinian territories has been the Separation Wall. In fact, the wall is the single largest infrastructure project in Israel. The total cost of the project has been estimated at approximately NIS 13 billion (US $ 3.3 billion) (Brodet, 2007: 15). The project, approved by the Israeli government in June 2002, at the height of the second Intifada, was designed to stop the relatively free access from Palestine to Israel, and in this way to stop or at least decrease considerably the passage of Palestinian suicide bombers. The Wall has aroused a great deal of controversy. A major point of contention is the placement of the Wall: the only placement that would have been internationally acceptable is the Green Line. Had the Wall been constructed along that line, it would have been 313 kilometers long. However, the line of the Wall has been drawn in such a way as to place a good many of the Israeli settlements on the Israeli side, involving a de facto annexation to Israel--in the case of a two-state solution--of large tracts of Palestinian land, including their Palestinian residents. This move will make the Wall more than twice as long--790 kilometers, thus making the project much larger and costlier (Ariely and Sfard, 2008: 129).

The construction, operation and maintenance of the Wall is influenced by considerable corporate interest. According to the official site of the project, the Wall consists of a concrete wall, patrol roads on both sides, wire fences, a ditch on the Palestinian side, observation towers and electronic surveillance equipment. The project involved (as of January 2007) 700 different sub-contractors: around 60 planning offices, 53 major construction firms, 5 wire-fence firms, 11 civilian security firms and about 34 producers of surveillance and communications firms. Many of the contractors are mentioned in Wall's website (

The two companies in charge of the surveillance equipment are Elbit Systems (in cooperation with the U.S. firm Detection), and Magal. Elbit is one of Israel's largest private defense electronics firms; Magal describes itself as the leading manufacturer in the field of outdoor perimeter protection worldwide (

Most of the work on the Separation Wall is a one-time thing, of course. But the involvement of some of the corporations will most probably continue, as the Wall and the electronic equipment attached to it will need constant operation and maintenance. An added source of future corporate income is the manning of the Wall's gates, through which traffic will pass between Israel and Palestine.

Security: road-blocks, settlements, gates and crossing points

Another branch of business that benefits from the continued occupation of the Palestinian territories is security and guard services. Until quite recently, the manning of the road-blocks within the Palestinian territories and of the passage points between Palestine and Israel was wholly in the hands of the I.D.F. and the Israeli police. Over the past year, a slow process of privatization of those functions has been taking place.

In 2008, forty-eight road-blocks or passages were being transferred from the I.D.F. to five private companies--Mikud, Ari Havtakha, S.B. Havtakha, Modiin Ezrahi and Sheleg Lavan. Privatization was being carried out by a special unit at the Israeli Minstry of Defense, set up in 2005 to build the passages, equip them with electronic devices and privatize them (Maoz, 2008).

Industrial Parks in Settlements

One aspect of the occupation that is relatively unknown to both the Israeli public and the international community is the activity of Israeli businesses in the industrial parks erected in Israeli settlements in the Palestinian territories (for a list of such enterprises see

As of the beginning of 2003, there were 17 such industrial parks (Tzaban, 2003: 27). Most of them were established during the 1990s with the assistance of the Israel Ministry of Industry, Commerce and Employment. According to B'Tselem, initial government investment in each park stood at about NIS 20 million (B'Tselem, 2002: 63). Tzaban has calculated that during the five years between 1997 and 2001, the 17 industrial parks were allocated a quarter of a billion NIS--22% of total Israeli government allocations for industrial parks (Tzaban, 2003: 27).

Most of the industrial parks are small, but some of them are large enough to employ thousands of workers. The two largest ones are the Barkan industrial park, located near the Barkan settlement to the west of the Palestinian town of Nablus near the large urban Israeli settlement of Ariel, and Adumim, located near Maale Adumim, one of the largest urban settlements in the East Bank to the east of Jerusalem. The Barkan industrial park as well as and the smaller and adjacent Ariel industrial park are enclosed by several Israeli settlements in an area of Palestine many believe will be given over to Israel in exchange for Israeli land elsewhere once a two-state solution is implemented.

A glimpse into the economic activity taking place in the industrial parks is provided by the 2006 Annual Report of the Israel Internal Revenue Service. This report included, for the first time, information on all Israeli corporations by administrative district. The purpose of the analysis was to help assess the impact of the July 2006 Second Lebanon War on economic activity in the Northern district of Israel, which borders with Lebanon. Fortunately for our purposes, one of the districts covered by the report is Judea and Samaria, that is, the West Bank (not including the Gaza Strip). The data presented reflects the period 1999-2003. Even though the data also measure the economic activity of Israeli firms that are not situated in industrial parks, it can be safely assumed that the parks account for most of the activity.

According to the figures presented by the Israel Internal Revenue Service, in 2003 there were 1,414 Israeli firms operating in the West Bank. That number constituted 1.3% of all the Israeli corporations registered with the IIRS (IIRS, 2006: 174). This, at a time when Israelis living in the West Bank settlements constituted 3.3% of Israel's population (ibid). In 1999 the number of corporations had stood at 1,170, which means that between 1999 and 2003 there was a 21% increase in the number of Israeli corporations in the West Bank (IIRS, 2006: 177). This represented a rate of growth higher than that reported for Israel as a whole--14% (ibid).

When the number of corporations is weighted by the size of the working age population, the number of Israeli corporations in the West Bank represents the lowest corporate density of all Israel's administrative districts (ibid). This apparent discrepancy is explained by the fact that many of the settlers depend for their livelihood on jobs within Israel, and not in the settlements themselves.

Looking at the fields of activity of those corporations, the IIRS figures show that in the West Bank, the proportion of industrial, commercial and construction firms was larger than the Israeli average, while the proportion of firms in the financial and business services was lower than the Israeli average (ibid: 184).

Looking specifically at industrial firms (in 2003, 220 out of 1,414 corporations), the IIRS figures show that in the West Bank, the proportion of firms in the High Technology and in the Medium-High Technology categories (17%) was lower than the average for Israel as a whole (25%), while the proportion of firms in the Medium-Low Technology and in the Low Technology categories (83%) was higher than the average for Israel (75%). The proportion of High-Tech firms--8%--was the lowest of all of Israel's districts, with the exception of the Southern district (ibid: 185).

Israeli corporations that operate in the West Bank are not particularly profitable: looking at corporations that reported profits (before pay to executives), it turns out that both in terms of median and average profit, West Bank Israeli corporations reported profits that were the lowest of all major Israeli districts (that is, North, Haifa, Center, Tel Aviv and South; IIRS, 2006: 195, 197, 198). Furthermore, executive pay, both median and average, was lower in the West Bank than in any other major Israeli district (ibid: 202).

The Advantages of the Settler Economy

The Israeli businesses operating out of industrial parks in the West Bank are clear-cut beneficiaries of the Israeli occupation. Not only that, they stand to lose significantly from a termination of the occupation; some of them would probably lose everything. The occupation provides them with two advantages that businesses within the Green Line do not enjoy: first, they employ Palestinian labor under conditions of extreme exploitation; second, for many years they hardly paid any taxes to the Israeli tax authorities.

This is due mainly to the fact that the settlement project in general and the settler economy in particular have been operating in what can best be described as a legal Wild West. This is due partially to the fact that there are various systems of law operating simultaneously in the occupied Palestinian territories. On the one hand, Israel allowed Palestinians to make use of Israel's courts, including the Supreme Court of Justice, in cases involving actions committed by the military governor, such as confiscation of lands or entry permits for Palestinians wanting to reunite with their families in the occupied territories. This fact was much touted by Israel as a show of generosity that went beyond the requirements of international law. Critics of the act have pointed out, though, that it represented a de facto legal annexation by Israel of the Palestinian territories, turning the entire area between the Jordan river and the Mediterranean into one jurisdiction. To the Palestinians, it should be noted that the benefits of this legal annexation are dubious, as the vast majority of their appeals were rejected (Eldar and Zertal, 2004: 451-452).

The legal regime in the occupied territories is split with respect to criminal and civil justice. Palestinians are subject to local courts that rule according to Jordanian law (and in the Gaza Strip, up to 2005, to Egyptian law) and to I.D.F. military courts, which rule according to the laws and edicts promulgated by the military governor. Thus, Palestinian workers employed by Israeli settlers do not have the benefit of protection by Israel's well developed labor legislation. As for the Israeli settlers, they are subject, in principle, to Israeli law as well as to I.D.F. military law; in practice, though, they are always tried in Israeli courts according to Israeli laws (Eldar and Zertal, 2004: 481-482. See also B'Tselem, 2002: 55; Israel High Court of Justice, 5666/03, October 10, 2007; Rubinstein and Medina, 1996: 1181).

To return to a discussion of the status of Palestinian workers in the settler economy: Figures for the number of Palestinian workers employed in the various industrial parks vary. The numbers are affected by sporadic, violent confrontations in the area, by the ups and downs of the businesses themselves, and by the alternatives open to Palestinian workers--which include working inside Israel's Green Line. According to Lieutenant Colonel Baruch Persky of the Israel Ministry of Defense, close to 20,000 Palestinians were employed in 2007 in Israeli settlements in the West Bank. They were employed as assembly-line workers in the industrial parks as well as in construction (Knesset, July 3, 2007). This figure applies, apparently, to workers who registered with the I.D.F.'s Civil Administration. (Many more were probably employed without registration, especially in the farms of Israeli settlers in the Jordan valley.)

Israel has a relatively well developed body of labor-protection legislation. The major weakness of that legislation is poor enforcement, due among other things to the weakening of the Histadrut, the once all-powerful Israel federation of labor unions. Yet, even when the Histadrut was at the height of its power, it failed to extend its protection to Palestinians working within the Green Line.

The status of Palestinians working in the settlements is even weaker. What is their legal status? Should they, for instance, be protected by the Israel Minimum Wage Law? According to Kav LaOved, an Israeli workers' rights organization that monitors violations of workers' rights within the Green Line as well as in the settlements, the Israeli Military Governor did issue in 1982 an order extending the Israeli minimum wage to the occupied territories. Yet, at a Knesset hearing as late as July 2007, a representative of the Israel Ministry of Defense declared that up to then, the directive had applied only to the areas of Israeli settlements until then; given that Palestinians are employed by Israelis not only inside the settlements but also outside of them, such as in quarries or gas stations, the representative declared that the military governor would soon extent the directive and apply it to all Palestinians employed by Israelis in the occupied territories (Israel Knesset, July 3, 2007: 6).

It is only on October 10, 2007--that is, four full decades after the Israeli conquest of the West Bank--that the Israel High Court of Justice ruled that Palestinian workers employed by Israelis in the occupied territories are entitled to the Israel minimum wage and social benefits (Israel High Court of Justice, 5666/03). The ruling of the High Court of Justice is certainly an important step forward, yet implementation continues to be a major problem. At the abovementioned Knesset hearing it transpired that in industrial parks within the settlements, Israeli employers neglected to note that the law stipulates not only a minimum monthly wage but also a minimum hourly wage: thus, many workers were apparently paid the minimum monthly wage due for 186 hours of work even though they worked 200 hours or more. The representative of the Israel Ministry of Defense acknowledged that he was not aware of the details of the law (Israel Knesset, July 3, 2007: 15). Many Palestinian workers are not only paid below the minimum wage, but are also not given sickness allowances, vacations and other standard workers' rights (Rapoport, Haaretz, 14.5.2007). Moreover, they are not covered by accident insurance (Sinai, Haaretz, July 3, 2007). When Palestinian workers at a quarry in the Maale Adumim industrial park organized the first- ever strike by Palestinian workers in Israeli settlements and demanded back pay and social rights, the employer of the aforementioned Yona family that builds in several settlements confiscated their work permits. This act would prevent them from passing through I.D.F. roadblocks and thus in effect prevent them from coming to the quarry to demand their rights (Rapoport, Haaretz, April 21, 2008).

In additional to businesses, the municipal authorities of the settlements also find ways to circumvent Israeli labor laws by alternatively relying on Israeli or Jordanian law, depending on what best fits their interests. A case in point is a court decision handed down on December 13, 2007 against the Ariel municipality: Ariel authorities had demanded, through the court, that the Israel Internal Revenue Service return to them amounts paid as payroll taxes on behalf of Palestinian workers employed by the Ariel municipality between 1994 and 1998. Ariel claimed that it had paid that tax mistakenly, arguing that Israel's income tax laws apply only to income made, produced or received in Israel. The court rejected the plea (Ariel Local Council vs. Petach Tikva Office of the Israel Internal Revenue Service). It is important to note, though, that as late as 1999, the IIRS had indeed exempted employers of Palestinians from the payment of payroll taxes (ibid). Which means at the very least that for most of the years of the occupation, Palestinians working for Israelis in the occupied territories were indeed not extended the protection of Israeli labor laws.

The second great advantage enjoyed by Israeli businesses operating in the Palestinian territories stems from corporate tax exemptions.

For a long period following the beginning of Israeli settlement in Palestinian territories, Israeli businesses there paid no taxes whatsoever. The Israel State Comptroller's report for fiscal year 1985 noted that up to 1983, the Military Governor's taxation officer did not even approach Israeli businesses operating in the occupied territories. Beginning in 1983, only 18 out of the 180 companies then operating in the area submitted financial reports to the taxation officer at the Israel Civil Administration of the occupied territories. Most of the businesses neither maintained account books nor reported to the Israeli tax authorities. For most of the years since 1967, Israel's income tax laws applied to income made, produced or received in Israel. However, a 1978 law allowed Israeli tax authorities to tax Israeli individuals or corporations living or operating in the occupied territories (deducting from the taxes due the amounts already paid to the Military Governor's taxation officer). In other words, it appears that both the tax officer of the military governor and the Israeli tax authorities turned a blind eye to the earnings of Israeli corporations in the occupied territories (Israel State Comptroller, 1990: 857).

It was only in 2002 that the Israel Income Tax Order made it clear that the income of an Israeli citizen made in the occupied territories is taxable as if it were made in Israel itself (Israel Income Tax Order, Amendment 132, 2002). The amendment was part of a larger reform of the Israel income tax system, one of whose aims was to cover the activities of Israeli business people abroad.

Between 1982 and 1985, total corporate tax collection from Israeli businesses in the occupied territories amounted to the negligible sum of NIS 6 million. The tax officer took no steps to punish businesses that failed to submit financial reports or pay taxes (Israel State Comptroller, 1985: 1222-1235). Five years later, tax collection had not improved much: a State Comptroller's report for that year found that out of 386 Israeli businesses operating in the Palestinian territories in 1990, only 25 had submitted financial reports for 1987, and only 5 had done so for fiscal years 1987 and 1989 (Israel State Comptroller, 1990: 857).

During the 1990's, with the establishment by the Israeli government of state-subsidized industrial parks and the extension by the Knesset and Military Governor of the Israeli legal apparatus to the personal and territorial Israeli enclaves in the occupied territories, the economic "Wild West" was tamed. A 2003 report by the Israel Internal Revenue Service lists, as we saw, some 1,400 Israeli businesses operating in the West Bank.

Still, the tax bill is lower than that of businesses operating within the Green Line. For many years now, the Israeli government has been enacting preferential treatment of certain areas and certain localities throughout the country. The list of "Areas of National Priority" has changed over the years, with Labor governments listing mainly kibbutzim and moshavim, and Likud governments giving more weight to settlements; but most settlements have been included in the list regardless of the party in power. Inclusion in the list gives the locality a variety of perks, such as reduced local and national tax rates. Thus, the mayor of the urban settlement Ariel has bragged about the low municipal taxes paid by shops and factories operating out of the Ariel Industrial Park: while they pay NIS 41 per square meter, businesses in Rosh HaAin, only 10 minutes drive away--but within the Green Line--pay NIS 87 (Goldstein, Ynet, December 24).

The 2006 Annual Report of the Israel Internal Revenue Service provides overall information on the collection of corporate taxes in the Israeli enclaves in the West Bank. While those corporations constituted 1.3% of all Israeli corporations, their contribution to total revenue of corporate tax revenue was 0.4% (IIRS, 2006: 204; and personal communication from the IIRS, December 27, 2007). As the IIRS explains, this is due to the fact that Israeli West Bank corporations, much like many corporations in peripheral areas of Israel within the Green Line, benefit from tax exemptions (IIRS, 2006: 176). In 2003, average tax liability of Israeli West Bank firms stood at NIS 46 thousand--only 21% of average tax liability of firms in the Tel Aviv district (IIRS, 2006: 204).

The Future of the Settler Economy

Does the economy that has grown around the Israeli settlements in the occupied Palestinian territories constitute an obstacle to peace?

The full extent of that economy is not known. The Israeli Central Bureau of Statistics does not publish GDP statistics broken down by regions, so we do not know the size of the settler economy. Still, on the basis of the figures published by the IIRS, it can be safely said that it is not large. Contrary to most colonial enterprises, the Israeli settlements in the Palestinian territories have not prospered around some unique local natural treasure, flora or fauna. The economic sustenance of the settlements lies in Israel, that is, in the Israeli labor market. More than one third of male workers who lived in the settlements in 2006 worked inside the Green Line, commuting daily from their homes in the settlements to the large urban centers in Jerusalem and the coastal area; this proportion of commuters was higher than in all other Israeli districts, with the sole exception of the Tel Aviv district, many of whose residents work in the contiguous Central district (ICBS, Labor Force Survey 2006: Table 2:38). Contrary to the Gaza Strip settlements (unilaterally withdrawn in 2005), which developed a relatively significant local farming industry based mostly on green-house products, most of the West Bank settlements have not developed a local economy. The only exception is the Jordan valley, where a few scattered settlements have developed a specialized agricultural production. Most of the industrial parks established in the settlements are relatively small, and most of the industrial and commercial businesses operating out of them are small too. Most of the workers employed there are Palestinians, not Israelis.

Thus, the settler economy does not appear to present a huge economic obstacle to an Israeli-Palestinian accord to terminate the conflict. The most successful of the businesses operating out of the industrial parks have branches within the Green Line, a fact that enables them to export products made in the settlements abroad without running the risks of international boycott or higher taxation. As was the case in the Gaza Strip, within the settlers' industrial parks the victims of an Israeli evacuation will include Palestinian workers--as we saw, some 20,000 of them. But they might also benefit, at least indirectly, if the infrastructure of the industrial parks were to be handed over to the Palestinian Authority, was was done with the greenhouses in the Gaza Strip.

The Future of the Israeli-Palestinian Economic Connection

Our survey of the various Israeli actors involved in the Palestine trade has shown that Israeli economic hegemony is pervasive. With the possible exception of high tech industries and services, almost all other branches of the Israeli economy are involved in the Palestine trade.

For the Israeli economy as a whole, this involvement is relatively modest and far from crucial or indispensible. Furthermore, the relative importance of the Palestinian market has been on the decline ever since the outbreak of the first Intifada. Since 2000, exports to the Palestinian Authority have constituted no more than 3%-4% of Israel's total exports.

The growth of high tech industries and services has made the leading branches of the Israeli economy much less dependent on the Palestine trade. While total Israeli exports increased in the 20 years between 1988 and 2007 more than five-fold, from US $ 11.3 billion to US $ 58.7 billion, Israeli exports to the Palestinian territories, which were US $ 0.8 billion in 1988, rose in 2007 to only US $ 2.6 billion (see Table 1 above).

From the Israeli point of view, the Palestinian territories are nothing more than the equivalent of a poor, underdeveloped province. Like similar provinces in other countries, the economic mainstreaming of the Palestinian territories would necessitate massive investments. For such investments to materialize, however, political sovereignty and independent economic decision making are essential. Roughly forty years of Israeli occupation have been characterized by underdevelopment, or indeed, to use Sara Roy's term, de-development (Roy, 1987) in the territories. According to the World Bank, in 1968, the average Israeli citizen was 10 times wealthier than the average Palestinian; in 2007, Israeli per capita GDP was 20 times that of Palestinian per capita GDP (World Bank, 2007b: 7).

Separation is a prerequisite for Palestinian economic development because the lack of development is not due, in the main, to the opposition of the Israeli business community, wary of competition (with the notable exception of Israeli farmers, a powerful group indeed), but rather to the determination of the Israeli state to prevent the formation of a political entity that might jeopardize Israel's strategic position as the sole arbiter of the territory lying between the Mediterranean and the Jordan river. (1) Without separation, economic considerations will remain secondary to political ones.

Furthermore, without separation, the Israeli business community, which might have gained from Palestinian development much more than it does from Palestinian under-development, will remain, willingly or not, part of Israel's politico-military control apparatus: electricity and fuel suppliers will continue cutting supplies at the request of the Israeli government, Palestinian goods will continue to be held hostage at Israeli air and sea ports, and so on.

In order for the Palestinian territories to develop economically, decisions have to be made by Palestinians and investments have to be controlled by Palestinians. This is the main recommendation of both Palestinian and Israel economists (see The Peres Center-Paltrade, 2006; Arnon and Bamya, 2007). At the same time, it is important to remember that political sovereignty and independent economic decision making do not necessarily mean a decoupling of the two economies. As we have established, it is quite conceivable that many of the economic relations established under conditions of military coercion will continue even when a two state solution is implemented. The reasons are many, foremost among them the high cost of constructing separate infrastructures. But without independent decision making, the chances for improved infrastructures, for development of new economic enterprises, for upgrading the skills of the work force and for improving the education of the younger generation are slim.

Israel has little to fear economically from independent Palestinian economic development. Indeed, it has much to gain from it, because development will have the effect of diversification and amplification of trade. Furthermore, the more developed both countries are, the more attractive and lucrative will be the common area for entrepreneurs and as well as for workers.

(1) This policy should be seen in the context of the century-long Zionist-Palestinian conflict. Prior to 1948, the Zionist movement placed great importance on the building of an autonomous Zionist economy, as a foundation for future political sovereignty. After 1948, the new Israeli state implemented a conscious policy of non-investment in the Palestinian villages that came under Israeli control, in "order to prevent the formation of an independent Arab economy that might strengthen Arab autonomy in Israel" (quoted in Bauml, 207: 149; see also Lustick, 1980: 184). It should be noted that the apparatus of Military Government, which controlled the lives of Palestinians within Israel until 1966, was transferred to the Palestinian territories occupied in 1967, and with it many of the practices that it had developed vis-a-vis Palestinians within the Green Line.
Table 1: Israeli Exports of Goods and Services to Palestine, 1988-2007

In $US millions

 Israeli Exports Israeli Exports
 of Goods and of Goods and Services
 Total Israeli Services to the to Palestine as
 Exports of Goods Palestinian a % of its
Year and Services * Authority Total Exports

1988 11,318 808 7.14%
1989 11,867 728 6.13%
1990 13,013 946 7.27%
1991 13,071 1,209 9.25%
1992 15,047 1,398 9.29%
1993 16,501 1,209 7.33%
1994 18,453 1,053 5.71%
1995 21,110 1,664 7.88%
1996 22,647 1,846 8.15%
1997 24,946 1,954 7.83%
1998 26,856 1,993 7.42%
1999 30,072 2,068 6.88%
2000 37,809 1,974 5.22%
2001 33,680 1,402 4.16%
2002 31,483 1,200 3.81%
2003 34,352 1,594 4.64%
2004 41,609 2,030 4.88%
2005 45,236 2,334 5.16%
2006 51,477 2,251 4.37%
2007 58,698 2,646 4.51%

* Excluding ships, aircraft and diamonds.

Source: Adva Center analysis of Israel Central Bureau of
Statistics Time Series Data Bank.

Table 2. Israeli Imports of Goods and Services from Palestine,

In $US millions

 Israeli Imports of
 Goods and Services
Year Total Israeli Israeli Imports from Palestine as
 Imports of Goods of Goods and Services a % of its
 and Services * from Palestine Total Imports

1988 13,344 161 1.21%
1989 13,047 118 0.90%
1990 15,445 190 1.23%
1991 17,825 199 1.12%
1992 18,964 258 1.36%
1993 21,534 187 0.88%
1994 24,248 214 0.88%
1995 28,218 355 1.26%
1996 30,079 408 1.36%
1997 29,500 487 1.65%
1998 29,859 491 1.65%
1999 32,231 467 1.45%
2000 36,230 466 1.28%
2001 34,397 339 0.99%
2002 32,578 281 0.86%
2003 33,168 296 0.89%
2004 38,752 411 1.06%
2005 41,217 414 1.00%
2006 45,448 375 0.83%
2007 54,122 544 1.01%

* Excluding ships, aircraft and diamonds.

Source: Adva Center analysis of Israel Central Bureau of
Statistics Time Series Data Bank.

Table 3: Housing Construction Begun Inside Israel and in the
Israeli Settlements, Public and Private Construction 1990-2006

 Housing construction
 construction Housing starts in
Year starts in Israel construction settlements as a
 and in the starts in Israel % of total
 Israeli settlements construction
 settlements starts

1990 42,380 1,870 4.4%
1991 85,510 7,750 9.1%
1992 46,030 6,180 13.4%
1993 35,800 2,240 6.3%
1994 43,620 1,320 3.0%
1995 68,900 2,520 3.7%
1996 55,940 1,680 3.0%
1997 52,030 2,280 4.4%
1998 43,911 4,350 9.9%
1999 38,950 3,147 8.1%
2000 45,809 4,754 10.4%
2001 32,034 1,691 5.3%
2002 33,290 1,560 4.7%
2003 31,531 2,056 6.5%
2004 29,784 2,016 6.8%
2005 31,346 1,891 6.0%
2006 30,229 1,520 5.0%

Source: Israel Central Bureau of Statistics, Construction in
Israel, various years.
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Title Annotation:Part One: Occupation at a Bargain: 1967-1987
Author:Swirski, Shlomo
Publication:Budget Reports
Article Type:Report
Geographic Code:7ISRA
Date:Nov 1, 2008
Previous Article:Chapter one: low cost of administration, low cost of defense.
Next Article:Chapter three: a positive economic balance - cheap Palestinian labor and other perks.

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The Cost of Occupation.
Palestine: Regaining the Initiative.
Not every day is Purim.
Chapter one: low cost of administration, low cost of defense.
Chapter five: Israelis who paid a price.
Chapter seven: the military cost: the rise in military expenditures.
Chapter nine: the economic cost.
Chapter twelve: summary.

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