ABSTRACT
Our assessment of the Palestinian state formation process depends critically on the economic arrangements with Israel that underpinned the economic and political freedoms of the emerging state. In this chapter, we examine the formal economic arrangements that underpinned the Oslo period. This analysis underlines our analysis of the contradictory moves towards integration and containment that characterized Israeli policy in this first phase of Palestinian state formation. The broad framework that defined the economic constraints facing the Palestinian quasi-state were enshrined in the provisions and limitations set out in the so-called Paris Economic Protocol (PEP)1 signed shortly after the Oslo Accords. The Paris Economic Protocol circumscribed the financial viability of the PNA and was openended enough to allow Israel to interpret its provisions in particularly damaging ways from the perspective of the Palestinians. It allowed Israel to develop aspects of both integration and containment, with features of containment having particularly adverse effects on Palestinian economic development and political viability, as discussed in Chapter 2 by Hilal and Khan. In particular, tax collection and restrictions on trade were used in ways that gave the Israelis asymmetric power over the PNA, and these powers were rapidly used to exert containment when the need arose. Second, the creation of the PNA had huge and negative implications for Palestinian employment in Israel and in Israeli-controlled areas. Once again, Israel used the creation of the Palestinian quasi-state to erect controls over labour movements with immediate effect. In the sphere of labour movements, Israeli strategies attempted to combine integration with containment, by ensuring that labour movements were only allowed after systems had been set up to allow day to day monitoring and control. This not only inflicted huge costs on the Palestinian economy, it also increased its political dependence since closures were increasingly used as a political weapon. Finally, we look at what the Paris Protocol and the interim agreements did not allow. In particular, a Palestinian currency was ruled out. Although a Palestinian currency may not have been economically viable in the interim period, its absence had serious implications for the future as far as the management of the Palestinian economy was concerned and its
economic and political sovereignty. In addition to this, the Palestinian quasi-state was prevented from negotiating its own trade and customs treaties with other countries beyond the limited provisions laid out in the Protocol. These provisions helped Israel to develop its containment strategy. We will see in other chapters, particularly Chapter 2 by Hilal and Khan and Chapter 5 by Nasr, that the types of governance institutions that developed under the PNA were often second-best arrangements that developed to deal with unreasonably harsh economic constraints. Moreover, an evaluation of the political and economic viability of the PNA route to state formation has to distinguish between problems due to its own internal governance institutions and those due to external constraints. These issues are further discussed in Chapter 2 by Hilal and Khan.
