ABSTRACT
Postulating a two-state solution, the Jerusalem Old City Initiative (JOCI) visualizes the creation of a separate regime for the Old City (OC), run by an administration agreed upon by the two states. Under a free trade area (FTA) agreement each state can pursue its own external trade policy, but exempts from it goods produced in the other one. The main economic advantage is that intra-union trade is encouraged since a common external tariff gives it an advantage over imports from the rest of the world. Prior to the Oslo agreement, trade between Israel and the Palestinian Territories (PT) under its control took place under conditions of a unilaterally imposed imperfect customs union (CU). JOCI poses the fewest problems under a CU regime. A non-preferential agreement would require full customs borders at the entries from the OC into the two states. It is generally accepted that trade stimulates economic growth.
