By Jafar Sadaqa
RAMALLAH, Wednesday, September 04, 2019 (WAFA) - Finance Minister Shukri Bishara said today that the Palestinian government has begun international arbitration proceedings on outstanding trade and financial issues with Israel, including the Paris Economic Protocol that governs the economic relationship between Israel and Palestine.
He told reporters in Ramallah that the President has signed the decision to resort to international arbitration since March and the government has taken a decision in its last meeting to mandate the Finance Ministry to take the necessary steps and refer the outstanding files, particularly the Paris Protocol with a goal to change it, and other detailed files to the International Court of Arbitration in The Hague.
He accused Israel of circumventing the implementation of the "Paris Protocol" and imposes unilateral measures, which made the occupation a profitable project for it to a point when in 1994 the size of the Israeli economy was $76 billion, it increased in 2017 to $369 billion. “We believe that at least one third of this growth is the result of the Paris Protocol,” said the finance minister.
Bishara explained that the total amount of what Israel has withheld from the clearance revenues, which are the Palestinian taxes on imports from Israel and abroad collected by Israel on behalf of the Palestinian Authority (PA), has exceeded $3.5 billion in the last five years alone, of which $400 million was taken as 3% commission on the collection and over $3 billion for services, electricity, water, medical transfers and sanitation.
"This gives an idea of how much money Israel has taken from the Palestinian clearance revenues” over 25 years, he said.
"We saw in the current financial crisis that started since last February an opportunity to change the whole system of the Paris Protocol and in March we began to lure Israel to international arbitration. President Mahmoud Abbas signed a decision to do so. A week ago, the cabinet decided to authorize the Ministry of Finance to take the necessary measures" about this.
He added: "Dependence of 60% of the income on a source that is not in our hands (the clearance) is destructive to the Palestinian economy and serves as a permanent knife on our neck."
Bishara stressed that the file to be submitted to the International Court of Arbitration in The Hague will include the Paris Protocol as an umbrella for all other cases, which includes the allowances for the families of Palestinians killed or imprisoned by Israel and which Israel started to deduct amounts to $144 million annually, a mechanism to collect taxes on fuel estimated at more than $700 million annually, the administrative fees that Israel collects on the taxes (3%) and is estimated at $70 million annually, as well as the additional fees imposed by Israel on al- Karama (Allenby/King Hussein) Crossing estimated at $136 million, taxes on establishments in Area C estimated at $246 million, taxes on indirect Palestinian imports through Israeli agents estimated at $34 million per year, lost amounts as a result of the VAT clearance mechanism, which relies on receipts and estimated at $45 million per year, taxes lost as a result of the work of Israeli telecommunications companies in the Palestinian market without paying taxes, which are difficult to estimate, stealing groundwater and reselling part of it, interest on funds held by Israel, in addition to the establishment of a Palestinian customs clearance zone (bonded).
Bishara said: "We saw an opportunity to correct this situation in the relationship with Israel. Hesitation is no longer acceptable with regard to reforming the Paris Protocol regime. It is time for a showdown.”
Concerning the direct transfer of fuel taxes to the Palestinian government, as was the case in the early years of the PA, Bishara said that the PA started negotiating this issue with the Israeli side about six years ago. “No opportunity passed by without demanding it,” he said, adding, “Fuel is the largest commodity we import, and its monthly bill is about $227 million, and taxes on it accounted for about half of the clearing revenues. We buy and distribute fuel, and they do nothing. Yet we pay the full price, including taxes, to the Israeli Finance Ministry, which returns it to us after 50 days. We have been demanding for six years that this mechanism be corrected and that we directly collect taxes on fuel. But they keep stalling on the pretext of the possibility of reducing taxes in the Palestinian market, and therefore the possibility of smuggling fuel from the Palestinian territories to Israel, which is not justified. The amount we purchase is clear and we declare the prices at the beginning of each month."
He continued: “With the current crisis, we felt that it was time to engage the Israeli side in this regard, and demanded to address this issue immediately. Five weeks ago, we (the two finance ministries), agreed to put in place mechanisms for implementation. But since Israel is paralyzed as a result of the elections, there was no finance minister. We are dealing with the director general of the ministry, and there is no parliament. For this reason, the agreement was not ratified and was accepted in principle, but it was not practically implemented because it was not ratified politically.”
He went on to say: “We told them that we have frozen funds (in this item) and we want it. They agreed, but they put a condition at the last minute relating to the payment of $142 million of the debt owed by the Jerusalem Electricity Company, which we refused, but after discussion the amount was reduced to $85 million and we paid $28 million. The rest was paid by the company from a loan obtained from Bank of Palestine guaranteed by the government, which allowed the transfer of $567 million of the clearing revenues, which constitute the proceeds of taxes on hydrocarbons until the end of July, in addition to three more months (until the end of October).”
He said: “This enabled us to prolong the cash plan until the end of October, instead of the end of July, where we were able to pay 60% of the last month’s salary in addition to the remainder of the month of February, and raise the rate of payment for Gaza employees in Gaza from $425 to $566 as in the West Bank. We raised the monthly quota for the expenses of the Gaza Strip from $95 million to $107 million.”
Bishara added: "By the end of July, we were close to the s of the financial system, the banking system and the economy in general, as foreign aid had shrunk by 25 percent in the last seven months."
He continued: “The showdown with Israel began in February, and we reached this critical juncture because of the Israeli decision to deduct $12 million per month from the proceeds of clearing, equivalent to what we spend to the families of martyrs, wounded and prisoners. This is the height of immorality and legal prejudice, and has serious legal consequences as we face many cases before US courts. For this reason, the position of the Palestinian leadership, the government and the public opinion was united in rejecting the Israeli decision and we decided to refuse to receive the clearance if incomplete."
He continued: “We found ourselves obliged to manage our work with only one-third of the revenues. We adopted a cash plan (emergency budget), of spending according to priorities. Accordingly the government decided to continue monthly allocations in accordance with the principle of 1/12 of the 2018 budget, with the suspension of hiring and promotions, the acquisition or rental of real estate, the purchase of cars and any other measures that have a financial impact. We reduced operating expenses by 20%, and reduce petty as travel expenses, and not to adopt any budgets for new development expenses while continuing projects in progress. We worked to find a financing network from the banking system worth $500 million until the end of July.". (Actual borrowing was $284 million as of the end of July).
Bishara stressed that the estimates of the monetary plan "were accurate. We expected decline in domestic revenues due to the contraction of the economy, and indeed it fell by 10% compared to the same period of 2018. We also expected a decline in external budget support, and this has also happened."
He added: “With the available revenues (local revenues and bank loans), we were able to pay 50-60% of salaries, at a minimum of 2000 shekels, which means that about 55% of the employees received full salaries; that is, we spent 72% of the total salary bill.”
He continued: “We expected, based on data and leadership analysis, to emerge from this crisis at the end of July. But this did not happen, and in the arrangement we reached on the fuel taxes, we were able to prolong the monetary plan until the end of the coming October.”
M.K.
