Is the Customs Envelope Still Relevant?

In a recent cabinet meeting, Prime Minister Ariel Sharon stated: “...We are leaving Gaza and ending our responsibility over it..” (Benn, Ha’aretz, July 13, 2005).

One of the central issues which will determine whether Israel remains responsible for the Gaza Strip in the aftermath of the Disengagement Plan is the economic regime of Gaza, inparticular the Customs Envelope.

This issue puts a question on the relevance of the Customs Envelope around the West Bank as well.

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What is the Issue?

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• Agreements signed during the Interim Period (originally 1994-99) placed political, civil, economic and legal restrictions on the sovereignty of the Palestinian Authority. Therefore, Israel retained extensive responsibilities for the territories of the Gaza Strip and the West Bank, even after the establishment of the PA.

• Throughout the Oslo Process, in the economic sphere, Israel based its policy on several guidelines:

  • No physical boundaries between the West Bank, Gaza and Israel until the signing of a Permanent Status Agreement;

  • Free movement of goods, services, labor and capital;

  • Limits on the attributes of economic sovereignty of the PA, such as on agreements with third parties or currency; and

  • The permanent status of Israeli-Palestinian economic relations will be established in a Permanent Status Agreement (set for 5/99).

• In this light, the Paris Protocol (4/94) provided for a unique economic and trade regime named the Customs Envelope. Accordingly, Israel and the Palestinians would levy identical customs (with limited exceptions) and similar indirect taxes (VAT and other duties) while Israel maintains control of the customs stations, collects revenues and reimburses the Palestinians for their share through the Revenue Clearance Mechanism.

• The Disengagement Plan (6/04) stipulated that the existing economic arrangements between Israel and the Palestinians would remain in force.

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