Mouin Rabbani Profile picture
Dec 31, 2023 65 tweets 9 min read Read on X
THREAD: The Israeli correspondent Barak Ravid had an interesting article in Axios on 29 December. The article in question, about a recent phone call between Biden and Netanyahu,
deals in part with US efforts to persuade Israel to transfer the Palestinian tax receipts it owes to the Palestinian Authority (PA). First, a little background:
From the outset of the occupation in 1967 Israel enforced a common market and customs union between Israel and the occupied territories. This meant trade and monetary policy, and matters such as customs duties, taxation, and currency, were unilaterally determined by Israel
and imposed on the West Bank (including East Jerusalem) and the Gaza Strip - foreign territory whose Palestinians are not Israeli citizens.
Palestinians paid the same tariffs and same sales tax as Israelis. Foreign trade was fully controlled by Israel. If, for example, Palestinians wanted to export oranges from the Gaza Strip or olive oil from the West Bank to Europe, they could not do so directly.
Rather, they had to sell their produce to Israel’s Agricultural Export Company AGREXCO, which would then export them to Europe as Israeli products. AGREXCO was also the main exporter of illegal Israeli settlement products to Europe.
The Europeans, who like to sanctimoniously pontificate to the rest of the world about human rights and the rule of law, didn’t give a damn about such practices and formed AGREXCO’s largest market. Thankfully, the company went bankrupt in 2011.
The crucial point about the enforced common market is that Israel formulated economic policy based on what was best for the Israeli economy, and then imposed these policies wholesale upon the Palestinian economy.
Given the growing disparity between the two economies over time, it created a situation where Palestinians earned like Jordanians but were taxed like Israelis, but unlike either Jordanians or Israelis couldn’t trade freely with the rest of the world.
One of Israel’s main priorities in the 1993 Oslo Accords was to ensure that the Palestinians would not become economically independent. Which meant Israel was determined to prevent the PA from having the authority to develop trade and monetary policies of its own.
The 1994 Israeli-Palestinian Protocol on Economic Relations, also known as the Paris Protocol and incorporated into the Oslo Accords, achieved this.
Pursuant to its terms the common market and customs union continued unabated. The New Israeli Shekel (NIS) – introduced in the 1980s after the Israeli Lira (IL) became worthless on account of rampant inflation in the wake of the 1982 invasion of Lebanon – remained legal tender
within territory where the PA had jurisdiction. The PA was prohibited from issuing a currency of its own. VAT was determined by Israel, and the PA was obliged to adjust its own VAT (sales tax) rate commensurate with whatever Israel decided.
The same applied to customs (import) duties and related tariffs. What the Palestinians could (and could not) import and export was also determined by Israel.
Egypt and Jordan, which both had peace treaties with Israel, could not freely export their products to PA territories or import from them, since such matters were regulated by the Paris Protocol.
If I remember correctly there was a schedule indicating which items Jordanian companies were permitted to export to the PA, and in which quantities.
The key instrument in Israel’s hands to enforce such arrangements was its continued control over borders, between the West Bank and Jordan, and until the 2005 disengagement between the Gaza Strip and Egypt.
The PA presence at these borders during the 1990s never entailed control. A Palestinian returning to Nablus from Beijing or London via the Allenby Bridge that connects Jordan to the West Bank, for example,
would give his passport to a PA border official, who would then give it to the Israeli soldier sitting in a booth behind him concealed by a two-way mirror. If the Palestinian was wanted for questioning, harassment, or arrest by the Israelis, he would be delivered to them.
This cosmetic arrangement was abolished during the Second Intifada when Israel once again took full and direct control.
Pursuant to the Paris Protocol Israel also has full control over the clearance of imports and the collection of customs. This means that Israel has the right to inspect and approve/reject any imports destined for Palestinians in the West Bank and Gaza Strip.
It also means that Israel collects, on the PA’s behalf, all import duties and related tariffs on goods and services destined for these territories.
As specified in the Paris Protocol, Israel shall at the end of each month transfer to the PA the various taxes and duties it has collected on its behalf, less a three percent processing fee. The same arrangement applies taxes paid by Palestinians who work in Israel,
from which Israel deducts twenty-five per cent. (Somewhat more, since the three percent processing fee is applied to the sum total of the entire monthly payment).
Although Israel since 2005 no longer has control over the border between the Gaza Strip and Egypt, these arrangements still apply to goods and services imported to Gaza from Israel,
which account for the majority of imports in view of Egypt’s collaboration and enforcement of the Israeli blockade.
The Palestinians should of course never have accepted such an iniquitous arrangement, and should have immediately recognised the potential – in my view the absolute certainty – that Israel would use and abuse these arrangements for political gain.
But the Palestinian leadership was excessively eager to get the ball rolling once the Oslo Accords were signed, and acted on the assumption that the Paris Protocol, like Oslo, consisted of interim arrangements that would expire within five years
– i.e. by 1999, and be superseded by a different treaty. The monthly payments, it needs to be emphasised, consisted exclusively of Palestinian funds that Israel insisted on collecting on the PA’s behalf.
In exchange Israel accepted a legal/treaty obligation to transfer these funds to the PA on a monthly basis. These transfer also accounted for over two-thirds of the PA budget.
In other words, it didn’t take Israel long to realise that its ability to withhold the transfers constituted a powerful instrument that could be exploited for political leverage.
Starting already in the late 1990s Israel – during Netanyahu’s first term of office – would periodically withhold monthly payments under various pretexts in order to weaken the PA or pressure it to accept various Israeli demands.
Over time, Israel also began unilaterally deducting sums from these transfer payments to settle the debts of Palestinian companies and individuals – not debts of the PA itself – owed to Israel companies.
At other times Israel has refused to transfer the full amount of the monthly payment, claiming objection to the intended destination of that portion of the transfers it is withholding
(e.g. social security payments to families of Palestinians languishing in Israeli prisons or killed by Israel’s soldiers and settlers). In other words, Israel has claimed the right to determine how the PA spends its budget.
On previous occasions, the PA has refused to accept partial payments. This has produced a budgetary crisis, meaning that the PA cannot pay the salaries of its security forces, whose main role is to enforce the occupation on Israel’s behalf.
Pressure on the Israeli government from the Israeli security establishment, Washington, and Brussels, equally committed to keeping the occupation running smoothly until the end of time, has tended to resolve the issue.
Although Hamas seized power in the Gaza Strip in 2007, part of the PA’s budget is still destined for the enclave. Initially these were limited to for example pension payments to retired PA employees,
or salary payments to those who obeyed orders from Ramallah to go on strike against Hamas rule. More recently, agreements were reached between the PA and Hamas whereby the PA would use that portion of the monthly transfer Israel had collected from Gaza,
to pay the salaries of civil servants in the Gaza Strip, and to cover the costs of its medicine imports, of electricity imported from Israel, and the like. This amounts to some thirty per cent of the monthly transfer.
After the 7 October Hamas attacks Israel’s finance minister, the far-right messianic Zionist Bezalel Smotrich, who advocates – for starters – dismantling the PA and the immediate and total annexation of the West Bank,
proclaimed that he would halt the monthly transfers on the spurious pretext that the PA supported the attacks and bore responsibility for them. After public condemnation from the Israeli security establishment,
which feared the impact the measure would have on Palestinian security forces in the West Bank at a time the Israeli military was pre-occupied with its genocide in the Gaza Strip, Smotrich partially relented. He agreed to transfer the monthly payment to the PA,
but insisted on withholding the thirty per cent the PA would normally disburse in or on behalf of the Gaza Strip.
Once again demonstrating unyielding principle when it comes to money, Abbas refused to accept a partial payment. Netanyahu, recognising an opportunity to further weaken the PA, probably agrees with Smotrich.
More importantly, he needs the flamethrowing extremist onside to keep his governing coalition intact.
Which brings us back to Ravid, Biden, and Netanyahu. According to Ravid’s narration, Biden has been seeking to persuade Netanyahu to transfer the fund to the PA so that its security forces receive their salaries and won’t produce another crisis for Israel in the West Bank.
Biden also believes the PA can be sufficiently strengthened to rule what’s left of the Gaza Strip after the genocide runs its course. Netanyahu by contrast has repeatedly and publicly opposed any role for the PA in the Gaza Strip.
His preference is that there will be no one left in the territory to govern, and failing that he would like to see local notables subservient to Israel administer different sectors of the enclave.
But Netanyahu also understands that Israel’s genocide is entirely dependent upon Biden’s unconditional military and diplomatic support, and therefore has to pretend he’s taking US concerns seriously.
To this end, Netanyahu had during a previous call with Biden proposed sending the withheld portion of the payment to Norway, which would retain it until arrangements are found to satisfy Israel that none of the funds would go to Hamas (which they weren’t in the first place).
Presented with this option by the Americans, Abbas agreed. It seems Israel was banking on a PA rejection, and faced with its acceptance began to backtrack.
During their most recent phone call, Netanyahu indicated to Biden that he was having second thoughts because he doesn’t trust the Norwegians, and that Biden should instead be pressuring Abbas to accept a partial payment.
According to Ravid, Biden was sufficiently upset with Netanyahu that he abruptly ended the call.
Ravid then quotes US officials variously describing Biden as frustrated because he “is going out on a limb for Bibi every day and when Bibi needs to give something back and take some political risk he is unwilling to do it”;
as satisfied because Netanyahu indicated Israel hasn’t rejected the Norwegian option and is “still working through things on their end"; and as having had a “good and productive” conversation with Netanyahu.
In other words Biden, who wants to see the PA empowered and installed in the Gaza Strip, never thought to insist that Israel simply fulfil its treaty obligations towards the PA. He instead spent the phone call trying to convince Netanyahu to accept Netanyahu’s own proposal.
When this failed, he also didn’t simply insist that Israel implement its own initiative and be done with it. As I’ve previously noted in response to reports that Biden and his advisors destest Netanyahu, the latter must be thinking: With enemies like these, who needs friends?
Netanyahu’s problem is that unless Smotrich concedes, Netanyahu can’t accept his own proposal without entering into conflict with Smotrich. That is a conflict that could see Israel’s governing coalition implode.
Seen in broader perspective this is essentially an argument between Biden, Netanyahu, and Smotrich about which of them has the right to choose who rules the Gaza Strip. Biden wants the PA, Netanyahu wants hand-picked cronies answerable to Israel,
and Smotrich wants to re-establish Israel’s settlements in the territory. The idea that this issue should be determined by Palestinians is equally rejected by all of them.
As Khalid Turani deftly summarised this Israeli government infighting amidst Israeli-US policy differences:
a gang of bankrobbers start fighting about how to divide the loot before leaving the premises, then get in a fight with the driver of their getaway car about which escape route to take.
Given the state of Israel’s efforts in the Gaza Strip, soon to enters its fourth month, he might also have added that the brawl is taking place the night before the robbery, and that the gangsters have yet to figure out how to crack the safe.
END. Here's a link to the Barak Ravid article:…

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