May 2005Economic Policy Programme1 ECONOMIC POLICY PROGRAMME TOWARDS AN ECONOMICALLY-VIABLE PALESTINIAN STATE: The Regulation of External Trade Monday May 23, 2005 Grand Park Hotel, Ramallah

May 2005Economic Policy Programme2 From NDTP to Free Trade: Challenges Ahead Professor Thomas Cottier

May 2005Economic Policy Programme3 This document is an output from a project funded by the UK Department for International Development (DFID) for the benefit of developing countries. The views expressed are not necessarily those of DFID.

May 2005Economic Policy Programme4 Overall Interest of Palestine Palestine must be able to conduct a sovereign trade policy in the interest of its national independence, and its economic development and diversification Palestine and Israel have a common interest in co-operating to maximise economic benefits

May 2005Economic Policy Programme5 Future Trade Policy Options NDTP is a sound basis of unilateral trade policy, with a view to join WTO NDTP and MFN low tariff policy should not prevent preferential agreements with Israel Trade relations should offer mutual incentives to enter into specific agreements

May 2005Economic Policy Programme6 NDTP Environment Economic relations with Israel could suffer in key areas without close co- operation in key sectors: –Customs Cooperation –Labour –Security measures –Transit –Water resources

May 2005Economic Policy Programme7 NDTP Risks Application of trade barriers on 96% of Palestinian export trade GDP: –Israel’s WTO-MFN tariffs on Palestinian exports (e.g. 20.6% on agricultural goods) –Israeli’s Non-tariff measures on Palestinian exports Low-tariff NDTP –Neutralises Israel’s incentive to negotiate FTA –Exposes Palestinian industry to import competition Israel could make FTA with Palestine conditional on conclusion of regional FTA Less co-operation = more distrust and increased risk of security measures

May 2005Economic Policy Programme8 Building Blocks from NDTP to FTA Sectoral building blocks for FTA: –Customs co-operation –Mutual recognition –Transit –Labour –Trade in Jerusalem –Trade in water –Dispute settlement

May 2005Economic Policy Programme9 FTA Benefits Preserves main source of national income Maintains preferential access to Israel’s market Avoids an increase in trade transaction costs Establishes permanent basis for co-operation, especially on trade- related security measures

May 2005Economic Policy Programme10 Challenges How to shape NDTP policy with a view to create incentives for further negotiations in a process of dialogue and continuing mutual efforts? Implications for initial tariff structure and non-tariff barriers to trade? Implications vis-à-vis joining WTO (bilateral negotiations in goods and services? )

May 2005Economic Policy Programme11 ECONOMIC POLICY PROGRAMME TOWARDS AN ECONOMICALLY-VIABLE PALESTINIAN STATE: The Regulation of External Trade Monday May 23, 2005 Grand Park Hotel, Ramallah