PALTRADE - USAID

PALTRADE PALESTINE TRADE CENTER

Export Trends West Bank

Movement Trends of West Bank Exports January, 2000 - December, 2005

Agreement No. 294-A-00-04-00214-00

USAID FROM THE AFlEUCAN Eo?LE

Report Prepared by: Palestine Trade Center - PalTrade

September 20, 2006

Head Quarter Office Gaza Office Amman Office P . 0 Box 883 P.0 Box 51 80 P .0 Box 144057 Ramallah, Palestine Gaza, Palestine Al-Bayader, Jordan Tel. +970 2 240 8383 Tel. +970 8 283 3539 Tel. +962 6 581 Fax. +970 2 240 8370 Fax. +970 8 283 3549 996314 [email protected]

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Table of Contents

STUDY SCOPE & METHODOLOGY 2

COMMERCIAL MOVEMENT - WEST BANK 3

BACKGROUND 4

THE CLOSURE SYSTEM THE WEST BAKK CLOSURE SYSTEM

Phys ica l O b s t a c l e s :

Road Barriers T u n n e l s and Bridges THE WALL THE SEPARA'I'ION OF ISRAELI AND PALESIINIAN TR4FFIC

HORIZONTAL TRISECTION OF THE WEST BANK: THE JORD4U VALLEY

Movement res t r ic t ions in the Jordan V a l l e y

W o r k e r s :

ACCESS TO MARKETS:

M ~ L I T A R Y ORDERS AND REGIME ON IYTERYAL MOVEMENT IN THE WEST BANK LACK OF A TERRITORIAL LINK

PRODUCTIVE SECTORS' EXPORT TRENDS -WEST BANK 9

TEXTILE AND GARMENTS: MAJOR TRENDS PRODUCTS .4ND SERVICES:

OUTPU I AKD EXPORTS

INDUSTRY STRllCl l iRE AND CAPACITY: IMPACT OF CRISIS (CLRRCNT INDICATOR)

STONE & OTHER BUILDING PRODUCTS: MAJOR TRENDS PRODUCTS OUTPLlT AND EXPORTS

1NDtiSTRY STRI:CTI!RE AND CAPACITY

EXPORT TRENDS (2000 ,2001 ,2002 2 0 0 3 , 2 0 0 5 ) EXPORT DEMAND & GROWTCI OPPORTINITIES

IMPACT OF CRISIS (CURRENT INDICATOR)

AGRICULTURE: MAJOR TRESDS PRODrJCTS & SERVICES OUTPUT AND EXPORTS INDUSTRY STRUCTURE AND CAPACITY EXPORT TREKDS ( 2 0 0 0 , 2 0 0 1.2002 2003,2005) EXPORT DEMAND & GROW,lII OPPORTUNITIES IMPACT OF CRISIS (CI!RREXT NDICATOR)

Export T r e n d s - West B a n k Repor t ; Palestine T r a d e Center -PalTrade page1 o f 1 7

The trends presented in this report illustrate export values and volumes of the main exporting sectors in the West Bank (Agriculture, garment and stone and marble), and incorporates analytical presentation for the export trend over the past 5 years as obtained through the Value Added Tax Invoices provided by the Ministry of Finance.

The study methodology was based on data collection and analysis of VAT invoices submitted to the Ministry of Finance over the last five years. The study timeframe was focused on the period from January 2000 to December 2005, and methodology included:

Attaining VAT data from the Palestinian Ministry of Finance, data covered the period from January 2000 to December, 2005, Agricultural Trade and productivity data provided for by the Ministry of Agriculture for the period from January 2000- December 2005, and Data obtained from the Palest~n~an Central Bureau of Statistics on local productive sectors.

It is important to note that most of the trade data is relevant to Palestinian Exports to Israel, while data on exports to other markets was mainly obtained through the PCBs.

Time line of the study has addressed the following years:

Based on the above process, an Information gathering workshop was conducted to present, discuss and verify developed statistics. The workshop was successful in refining the statistics trend line and included private sector representatives, productive sector representatives and related stakeholders

Export trend statistics of agriculture, textile and garment, and stone and marble sectors were developed accordingly, and presented in this report.

Export Trends -West Bank Report; Palestine Trade Center -PalTrade page 2 of 17

- B',, p a r - A

Commercial Movement -West Bank I

The Gaza disengagement implemented by Israel in September, 2005 and all its ramifications have proven to be detrimental to Palestinian industrial capacity, trade and economic activity. Israel's continued control of Palestinian border crossings to Jordan and Egypt, as well as the unpredictable and poorly managed crossings between Israel and the Palestinian territory (initially in the Gaza Strip and more currently being applied to the West Bank as a result of the Separation Wall) have proven to be detrimental to the competitive capacity of the Palestinian economy, as a whole, and to Palestinian industry, specifically. This has materialized in the tremendous increase in transaction costs both in obtaining production inputs, as well as, in movement of products out of the factory and into targeted markets.

The forced separation between the West Bank and the Gaza markets, as well as, the chaotic state of West Bank movement have steadily reduced the Palestinian market size and minimized the competitive edge of Palestinian products in the local market. Thus, the only outlet for Palestinian industry became external markets. These, however were also constrained due to the lack of Palestinian access to alternative trade routes independent of Israel. For instance, the closure of the Karni commercial border crossing between Gaza and Israel for nearly 60% of the first quarter of 2006, served to severely curtail the potential of exporting goods out of the Gaza Strip to European Markets via Israeli ports and airport.

It is quite evident the extent to which opening the Rafah border crossing with Egypt and the Alenby and Damiah Bridges to Jordan are critical. In so doing, the needed alternative trade routes to the outside world would be afforded to Palestinian industries. However, such efforts should not detract from the parallel importance of eliminating internal closures with the West Bank and opening the West Bank and Gaza Strip to each other.

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The last few years, and especially the year 2005 has seen some serious changes in the terms of trade arrangements and Palestinian channels of trade. After the success of Kadima in the recent Israeli elections, the spirit of unilateralism, which was the main reason for the changes that took place in 2005, will continue. Thus, unilateral disengagement will be transferred to the West Bank. Coupled with the separation wall and the existing closure regime within the West Bank, this will ultimately lead to further deterioration in the potential for any type of economic recovery.

The 2004 World Bank Report to the AHLC, the Roadmap and all international parties and observers without exception have been calling on lsrael to ease and eliminate the countless restrictions on internal Palestinian movement, which not only make the banalities of everyday life a challenging experience but also make economic recovery an impossible task, adding prohibitive transaction costs to all but the most localized economic activities. Israel, in turn has consistently not reduced but increased these obstacles.

Palestinian industries have suffered the most as a result of these restrictions on movement. The negative effect of the current situation is seen in three layers: (1) impact on attaining the required production inputs (2) inability of workers to get to their workplaces and (3) the difficulties arising from the current situation, which negatively affect the distribution and marketing of products both in the internal and export markets. The following is a description of the movement restrictions, which had dire effects on the Palestinian industrial sector:

The Closum System

The closure system is a primary cause of poverty and the humanitarian crisis in the West Bank and the Gaza Strip1 and restricts Palestinian access to health and education services, employment, markets and social and religious networks. The types of obstacles include permanent and partially manned checkpoints, roadblocks (consisting of rows of 1-meter concrete blocks), metal gates, earth mounds, earth walls (a long series of earth mounds), trenches, road barriers and permit restrictions.'

The West Bank closure systed

The Closure system in the West Bank comprises 471 physical obstacles placed by the Israeli Occupation Forces on roads to control and restrict Palestinian vehicle traffic, compared to 376 physical obstacles, in August 2005 -an increase of 95 closure obstacles or a 25% increase.

The number of manned checkpoints reached 50 permanently-manned and eight partially- manned checkpoints around the West Bank. The increase has occurred in unmanned physical obstacles.

Physical Obstacles:

The addition of physical obstacles was most noticeable in Hebron governorate4 where there was an increase by 55, and in the northern West Bank around Nablus governorate (an increase by 16), Salfit governorate (an increase by 11) and Tulkarm governorate (an increase by ten).

1 West Bank Closure Count and Analysis. OCHA, February 2006 2 The Agreement on Movement and Access reached behveen the Government of lsrael and the

Palestinian Authority on 15 November 2005 states that: "Consistent with Israers securrty needs. to faalitate the movement of people and goods within the West Bank and to minimize disruption to Palestinian lives. the ongoing work between lsrael and the US. lo establish an agreed list of obstacles to movement and develop a plan to reduce them to the maximum extent possible will be accelerated so lnat me &OM can De wmpeled oy Deoernoer 31

3 West Ban* C os-re Co.nt an0 Analys s OCnA Fecr..ary 20U6 4 Tn s n-rnnfn an 17 a n 4 7006

Expon Trenas - W e s ~ Ban& Repon Palest ne Traae Center -Pa Traae paqe4of 17

The number of physical obstacles in the central region have remained stable. However, the Internationally illegal separation wall is increasingly causing access problems around Ramallah governorate and East Jerusalem. Approximately 299 km (45% of the Barrier's total length)5 has been constructed. Of this. 53 km have been constructed slnce October 2005. A further 124 km is under constructlon (19% of the Barrier's total length).

There has been an increase in road barriers - consisting of long stretches of fencing or concrete barriers along road verges - on main West Bank roads. Some obstacles that were imposed immediately prior to Israeli disengagement have remained in place and are hampering Palestinian access.

Prior to disengagement, north-south traffic was able to bypass Nablus city because the Shave Shomeron checkpoint was removed. However, during disengagement (from 15 August 2005) this section of road was completely blocked and it remains closed until today.6 The result is that the northern West Bank is closed off from the central and southern regions and travelers need to pass through Nablus.

Two gates originally installed to secure the evacuation of two settlements remain in place and now hamper movement for Palestinians between Jenin and Tulkarm governorates, specifically on Road 585.

The IDF7 states the reason for the rise in the number of physical obstacles is an increase in Palestinian violence. At the same time, they acknowledge that some of the physical obstacles and restrictions are unrelated to security needs.8

Road Barriers

Road Barriers are a more common feature within the West Bank. The IDF states that they have two functions: to protect lsraeli settlers traveling in roads bordered by Palestinian communities and road safety. Nevertheless, these obstacles block access for Palestinian communities onto and across main West Bank roads and cause problems for residents to access emergency and other services, markets and jobs. Palestinians are required to travel longer distances to reach openings in the road barrier, where movement is often controlled by an IDF gate or flying checkpoint.

Tunnels and Bridges

As of January 2006, there were 27 tunnels and bridges constructed and 19 planned or under construction9 These tunnels link Palestinian Areas A and B to each other, most commonly under roads that are limited for lsraeli use that run through Area C and the Barrier. The trend is that Palestinian traffic is funneled onto fewer roads that lead to and from the tunnels. These roads may not have the capacity to absorb a greater traffic load".

The network of tunnels together with the roads leading to and from them which remain separate from lsraeli restricted roads makes it difficult to envision any possible return to the situation pre-2000 as laid out in the Road map. The Roadmap requlres that: "Israel withdraws from Palestinian areas occupied from September 28. 2000 and the two sIdes restore the status quo that existed at that time, as security performance and cooperat~on progress."

This increase in obstacles, coupled with the election of a Hamas dominated Palestinian Legislative Council and therefore government has not only eliminated any potential for Palestinian - lsraeli official contacts, but has also minimized the potential for donor assistance in the process of the badly needed economic recovery. Currently. Palestinian unemployment has increased dramatically, and donor assistance to cover the Palestinian Authority's salary

5 OCHA. March 2006 6 West Bank Closure Count and Analysis. OCHA. February. 2006 7 A pseudonym for the Israeli Occupation Army 8 lrtewiew with OCHA. May 2006 9 West Bank Closure Count and Anavsk, OCHA. February, 2006 10 Due to the Banlets meandering route, once wmpkted, residents of Biddu enclave in Ramallah

governorate, using a series of bridges and tunneb, mil be required to pass through the BaMer four times lah

Export Trends - West Bank Report, Palestine Trade Center -PalTrade page 5 of 17

bill, which formulated an important component in maintaining the running wheels of the economy, has stopped. lsraeli transfers of VAT and Import taxes has also stopped, thereby closing any potential for operations of the Palestinian Authority.

The starting point in creating the makings for economic recovery, is to recognize that economic recovery can only start with increasing potential for Palestinian trade, both internally and externally1 1 ., Hence, dealing with structural unemployment, poverty and economic degeneration is dependent on the creation of a systemized, efficient and secure border regime which would be conducive to trade and movement of goods. According to the World Bank, "It has been widely acknowledged that the future economic viability of the Palestinian economy depends on the creation of a trade logistics system which permits the safe, reliable and competitively-priced movement of people and cargo"l2

As a result of the closure system, which includes, but is not limited to blocks, checkpoints. permits, restricted roads and the Barrier, the following trends have been observed:

1 Interregional movement in hampered by the east - west lines, which split the West Bank. The effect of these is a trisection of the area.

2) The West Bank has been narrowed due to tight access restrictions on movement:

3) On the east side, to the Jordan Valley;

4) On the west Side due to "closed areas' between the Green Line and the Wall, including East Jerusalem.

Israel has stated that the closure system is a security measure to protect lsraeli citizens from Palestinian attacks. This justification does not always appear consistent with developments on the ground. For example, the new road barriers on Roads 317 and 60 in southern Hebron governorate are explained by the Israelis as a traffic safety measure instituted by the civilian (rather than military) authorities.5 In the Jordan Valley, which has witnessed the recent tightening of access restrictions, the reason remains unclear given the absence of Palest~nian attacks emanating from the area in the past several years.

The Wall

The West Bank Wall, fast moving towards completion, is the most obstructive hindrance to this movement. The Wall, built mainly not on the Green Line but right through the West Bank, cuts Palestinian life, and Palestinian economic activity, into bits and pieces. Once the Wall is completed and operational, a viable and territorially contiguous Palestinian economy, and thereby a viable Palestinian state, will be impossible.

The wall is not only a major impediment to any economic recovery; it is also an insuperable obstacle to the perspective of a Palestinian state. An estimated 8.9% of the population has been separated from their cultivated lands by the wall. A total of 9.5% of the WB had been trapped between the green line and the wall, all of which is either inaccessible or restricted and faces the direct threat of annexation.

The separation of lsraeli and Palestinian traffic

Palestinian traffic is being separated from West Bank roads that are limited for lsraeli use through a combination of physical obstacles, movement permits and road barriers. Palestinian traffic is channeled onto a reduced number of alternative roads where movement is regulated by an obstacle that can be opened or closed by the IDF, such as a flying or permanently manned checkpoint or gate. A series of tunnels and bridges allows Palestinians using these alternative roads to traverse Area C and lsraeli restricted roads. while keeping separate from them. Many tunnels have a gate inside them or a flying checkpoint is positioned at their entrance - in this way they can act as a barrier as much as a passage for access

11 The Wodd Bank Group, lsraeli Disengagement and Palestinian Emnomic Prospects, Deoember, 2005. 1 2 d 70047 . .

Expon Trenas - Wesr Bank Report Pa.esr ne Traae Center -Pa Traae paqe 6 of 17

Horizontal trisectwn of the West Bank:

A picture is emerging of the West Bank divided into three distinct areas -north, central and south. Movement is easier inside these areas but travel between them is hampered by a combination of checkpoints and other physical obstacles and permits which act as bottlenecks to interregional movement within the West Bank.

The Jordan Valley

In October 2005, it became necessary to obtain a permit to pass through the four checkpoints channeling traffic into the area and frequent, longer delays are experienced at checkpoints.10 The IDF imposed new ID requirements on access to the Jordan Valley. A trench between Tammoun, Tubas and the Jordan Valley has been lengthened.

The planned "eastern wall", which has already been implemented in reality through strategically placed checkpoints and road blocks within the Jordan valley has already important consequences. Jordan valley farmers face restrictions on access to their land.

Movement restrictions in the Jordan Valley

There are 21 physical obstacles in the Jordon Valley, including a series of checkpoints, earth mounds, road gates, earth trenches and road blocks restricting movement into and within the area.

i. Residence restrictions Since May 2005, only Palestinians with an address on their identification card from the north of the Jordan Valley are allowed to reside there. This has affected many people who have lived in the Jordan Valley for many years, but may not have that address on their identification card. Women who have married into a family from the Jordon valley for example, or others who were born in other areas of the West Bank but now live there are most affected. Residents of the Jordon Valley without the corrected address on their identification card fear traveling to other areas of the West Bank in case they are prohibited from returning to their homes.

ii. Permits to Access work and land Non-resident landowners: Palestinians who own land or property in the Jordan Valley, but live in the Tubas areas of the West Bank can no longer access their property without a permit. The permits issued to landowners are not for overnight stays, and people are obliged to travel back and forth daily. They frequently face delays at either Tayasir or Hamra checkpoints that connect the Jordan Valley with the rest of the West Bank.

iii. Military zones Israeli-declared conservation areas and Israeli settlements Palestinian non-residents of the Jordan Vallev even with permits are prohibited to travel on Road 90 (the main highway running through ihe Jordan valley) north'of AI 'Auja partial checkpoint. Access to water sources and grazing areas is also increasingly limited because of the presence of extensive Israeli-declared conservation areas and military zones, particularly in the northern areas of the Jordon Valley.

Workers:

Workers who want to work in the Jordan Valley are required to have a permit. Permits for workers in the agricultural areas of the Jordan valley are issued by the Israeli District Coordination Office (DCO) or by settlements on which farm hands work. The permits are valid only for a limited period of time, and are subject to security restrictions.

The example of Al Jiftlik village dearly illustrates these difficulties. Straddled on all sides by settlements, militaw closed areas and military bases, villagers have dicutties leaving their village to graze their animals or even market their crops within the West ~ank. compounding this problem is the restriction on workers from Tammoun and Tubas to travel to this area. preventing optimal work on the land and reducing income even - . - further.

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Access to markets:

Having lost access to Israeli markets, farmers rely increasingly on local West Bank markets, which include getting the products to producers of processed foods, which depend on receiving these products fresh. These alternative markets and buyers are more difficult to reach.

N t h the imposition of Israeli closure measures in September 2000, followed by the completion of the Barrier in the northern West Bank in 2004. residents lost vital goods and labor markets in lsrael. Residents turned to Ramallah for malkets and work but the closure of Shave Shomeron and new restrictions at Zaatara checkpoint meant this was no longer possible. Two gates on Road 585 make it more difficult to access the market in neighboring Tulkarm governorate.

The Barrier and asscciated regime around East Je~sa lem undermines the city's role as a centre for commerce, education, health and other services. It also means that travel between the nomlern and southern parts of the West Bank involves a timeconsuming and costly detour around East Jerusalem.

In the south of Hebron governorate, rural livelihoods are based on shepherding and the sale of meat and dairy products in Yatta and the Old Suq of Hebron. However, they can no longer access these markets because they are prevented from crossing Roads 317 and 60. Overall, the connection between rural producers and malkets is deteriorating.

Jordan Valley areas designated as being under "settlement jurisdiction" and thus not accessible to Palestinians represent 28 % of the area of the WE.

The wall has increased transportation and transaction costs. The Wall regime separates Palestinians from Palestinians, coming between people and their productive assets, rich agricultural land, water resources, jobs, customers and local markets.

All trade in the Jenin area, for example, must be processed through Jalameh gate which has been designated as a back-to-back crossing point into lsrael and en route to the GS, whereby in the past goods and customers passed relatively unrestricted in and out of the Jenin area, as agreed upon in the Oslo agreement and particularly the Paris protocol. The Jalameh model has been transferred to other parts of the WB such as Beitounya and Qalandia (Ramallah). Taybeh (Tulkarem) also known as She'ar Ephraym. Khillet Al Nu'mar (Bethlehem-Beit Sahour area). Tarqoumia (Hebron area). In line with the advisory Opinion of the International Court of Justice, all border crossings (including terminal arrangements) must fully respect the 1967 Green line as the border between WBG and Israel. This is clearly not the case and this problem must be addressed immediately, lsrael is proposing five border crossings; of the five. however, three are situated on the alignment of the separation barrier where it deviates east from the Green line. All five crossing terminals must be located on the Green line.

The wall coupled with the checkpoints and movement barrier regime when put together create six fully enclosed "Bantustans" within the WB which are separated by gates and "settler-only" roads and which can be physically closed from each other anytime the occupation chooses. The West Bank, with the completion of the wall, slated for the end of 2006, will be deprived from any potential for economic development. These Bantustans are not only economically unviable; they will also lead to political instability and transform the actions of the international community into humanitarian actions rather than a development process. The private sector in its message to Mr. Wolfensohn stated that "the current regime of internal closures throughout the West Bank, including East Jerusalem, and the wall, cripple the Palestinian economy. These physical and systematic barriers to Palestinian movement and development, which include some 500 checkpoints and other obstacles, severely impact the business environment by dramatically increasing transaction and production costs, impeding access to productive assets and markets and ultimately threatening prospects for peace and security."


These measures prevent Palestinians from building a viable economy based on one open national market.

Military aden and regime on internal movement in the West Bank

A normalized Palestinian economy will, first and foremost, have to rely on normalized internal economic conditions. Checkpoints, roadblocks, barriers and earth mounds are not part of a normal internal trade infrastructure, nor are walls within a continuous economic territory. Palestinian internal trade - movement of goods, sewice providers, business people and workers - will have to be free of physical or administrative encumbrances. This includes full and free access to, and use of, all roads and other infrastructure as well as natural resources within the Palestinian Territory. It also includes the removal of, or pending that: the free passage of economic traffic (goods, people) through, the West Bank wall with the pre-1967 armistice lines.

At the very same moment when the abolishment of the immensely costly and trade-disrupting back-to-back system is under negotiation, lsrael is almost daily creating more of the same. In late August 2005 lsrael. by military order, not only established six exclusive crossing points for Palestinian goods trade (against 31 for settlement goods trade) between the West Bank and lsrael; it also imposed back-to-back operations at this crossing points. This not only means that now all Palestinian goods have to go through the procedure, a marked step backwards from previous practice (where at least Israeli trucks could move directly from the West Bank to lsrael); it also means that internal Palestinian trade between parts of the West Bank separated by the Wall now are subject to the same

The 2004 WB Report, in line with the 2004 Advisory Opinion of the International Court of Justice, demands that all border terminals must be located on the 1949 Armistice Line ("Green Line"). lsrael has consistently ignored this. Instead it has - notably at the very same time when intensive negotiations on border crossings were under way (August 2005) - established a system of six exclusive crossing points between the West Bank and lsrael, out of which three (Abu GhneimlHar Homa, Beitunia and Jalameh) are not located on the Green Line. Not only are they therefore illegal and unacceptable as border crossings, but they also hinder internal movement within the West Bank.

bck of a Territorial Link

The Agreement on Movement and Access (AMA) clearly spells out phases for the establishment of a convoy system which would facilitate the movement of both people and goods from the West Bank to the Gaza Strip and vice versa. These phases will start with the movement of people, to be followed soon by the movement of goods under an Israeli military convoy system which would escort the vehicles carrying Palestinians and Palestinian goods between the West Bank and the Gaza Strip. This part of the agreement, as in all other areas was never implemented. The lack of free flow of goods between the West Bank and the Gaza Strip is a major issue which affects Palestinian Industry by making the movement of goods from one part of the Palestinian economy to the other practically untenable.

Textile and Gannents Major Trends

Products and s e ~ c e s :

The main products are categorized into two main areas, Apparel: Various tricot apparel (including underwear and basics), shirts, jeans, casual trousers, and socks. Home textile: bed linens, hospital linens, toweling.


The quality is high as is attested to by the presence of some of the world's best-known brand names on products currently exported under license to lsraeli agents, including Macy's, Calvin Klein, Jones New York, Esprit, Casual Corner and Marks & Spencer.

Output and exports

This sector is an important contributor to the Palestinian economy; estimated output exceeds $1 00 million.

Palestinian firms produce primarily for lsraeli buyers, either for consumption in the lsraeli market or export, as well as for the local market. Small but growing quantities are exported directly to overseas buyers, in the USA, Canada and EU

Industry Structure and Capacity:

The textile and garment industry is in the process of redefining itself under international competitive pressures and revitalizing its trade relations with lsraeli clothing companies who represent its primary market base.

There are an estimated 40,000 garment and textile workers in the West Bank and Gaza, mostly in garments.

The sector is made up primarily of small-medium Sewing houses that receive cut goods and perform sewing, trimming, and finishing with the flexibility and capacity to accommodate various order sizes according to customer specifications and needs.

The sector also includes several larger firms with higher capacities that can deliver complete orders to customer specification sheets and certifications to international quality standards such as IS0 9000.

Export trends (2000,2001,2002 2003, 2005)

These figures reflect a trend of recovery in Palestinian exports to Israel, which started in 2000, and then it declined sharply and continuously until the year of 2003. The slight abatement in the intensity of the conflict, since the second half of the 2003, has been reflected in steady upward trend, and the 2004 - 2005 share of the West Bank Exports to Israel rose to 6% - 6.5%.

Export demand & growth opportunities

West Bank Exports to Israel (Textile and garments) VAT Dntn Analyslsis

50

40

30

20 E l

10

0

2000 2001 2002 2003 2004 2005

Palestinian sewing-plants are vital for hundreds of small and medium-size lsraeli garment producers, such as:

Producers of high-end fashion products. These firms produce by small series, and need highly-qualified sewing houses that work under their close, almost daily supervision.


Producers in the "Proto Moda" sub-sector. This business is characterized by extremely short response-time to market changing requests, which dictates production of relatively small series, and quick design & production cycles.

Small businesses that do not have the financial, logistic, or professional capabilities for initiating and sustaining production abroad.

Moreover, many of the large producers that have established vast global production systems. need "local" supplementary production facilities (mainly for small series; urgent, un-planned requests of customers, etc.).

Thus, we found, in our depth-interviews with lsraeli garment-industry players, substantial "suppressed" demand for Palestinian sewing services, indicating to a great potential.

From the lsraeli point of view, one should note, in this regard, that in most relevant cases, sewing accounts to no more than 15% of the total value of a finished garment.

Thus, per each piece sewed in the PA, the lsraeli value added (design, cutting, locally- produced inputs, marketing, various services, etc.) is double or triple the Palestinian value added

Thus, since the alternative to this kind of lsraeli - Palestinian cooperation in garment- production is usually transfer of the whole production process to far-away countries, there is a strong lsraeli - Palestinian converging interest in preserving and developing this kind of business cooperation.

Impact of crisis (current indicator)

Due to the deteriorating political 8 security conditions, The position of Palestinian sewing- plants weakened over the 2000. Moreover, the openness & globalization of lsraeli garment- industry have enabled many lsraeli garment 8 textile producers to move their production operation to other low-labor-cost countries (China, Turkey, etc.).

Total pre-Intifada Palestinian exports of sewing services to Israel (1988 - 2000 average) are estimated at US $ 80 - 100 million, in addition to US $ 25 - 40 million exports of finished garments & other textile products. After the year 2000 the export of sewjng services to Israel estimates are 20% - 25% lower.

Stone C% Other Building Pducts: Major Tlends P d u c t s

Palestinian dimension stone is characterized by its product varieties, colors and finishes. The country has a rich stock of good quality stone - both soft stone and hard limestone ("marble") Dimension stone is also one of the few natural resources available to the Palestinian economy.

There are various types of stone and marble produced in Palestine. The type of stone is known by its location and its quality is defined by its source. Main products of the industry are slabs, building stone, Decorative products, and tiles

Output and Exports

Total output production capability of the sector is estimated by USM at 30 million square meter. . Prior to the Intifada, the total value of annual sales of the Palestinian stone and

marble stood at $450 million while current estimates are closer to $200 million. . The lsraeli market remains the major consumer. In 2000, the lsraeli market accounted for 71% of total sales, the West Bank for 23%, Gaza for 2% and export markets for only 4%. Palestinian stone producers have been exporting to regional markets such as Jordan, Kuwait, Saudi Arabia, and UAE for several years.

Export Trends -West Bank Report: Palestine Trade Center -PalTrade page 11 of 17

Europe also presents an interesting challenge for this sector. With exports to Europe already underway, although in very limited volumes especially in comparison to demand, some European market segments present an excellent potential.

Industry Structure and Capacity

More than one thousand establishments contribute to the output of the Palestinian stone and marble industry.

The establishments of the sector are spread all over Palestine. More than half of the establishments are located in the southern region of the West Bank in Hebron and Bethlehem. The middle region of the West Bank is more of a consumer than a producer. Gaza is the least consuming region of the sector's products on population basis. According to the USM, this sector provides jobs to more than 15,000 workers and employees, while official statistics place the figure at just over 10,000 (which do not include informal workers). The sector is highly fragmented. Most companies are small to medium enterprises operating only in the local market with only a small minority having export capabilities


Export trends (2000,2001,2002 2003,2005)

Construction & infrastructure contraction, and engineering, were the most important Palestinian service- export sectors, accounting, cumulatively, to around two-thirds of service- exports to Israel, but due to the deteriorating political & security conditions after the year 2000, The export- volume of this sector decreased and lost about one half of their export volume to Israel, between2000and 2005.

West Bank Exports to Israel (Stone & Other Building Products) V A T D ~ ~ ~ ~ n a l y s i s

10

8

6

4 E l 2

0

2000 2001 2002 2003 2004 2005


The multi-facet nature of Israeli - Palestinian cooperation in relation to the construction sector has produced many, diversified other converging interests. The most outstanding issues are: Entry of Palestinian construction-workers into Israel. The shortage of seasoned workers (especially in "wet" construction-work) has become a major impediment for Israeli construction sector. Cooperation in the stone industry - for the Israeli market, and for export.


Agriculture: Major Tremls

Products & Sem-ces

The major cash crops produced by Palestinian farmers today include tomatoes, cucumbers, eggplants, beans and peas, in addition to olive oil in the West Bank.13 In the Gaza Strip the major cash crops are citrus, strawberry, cut flowers, and cherry tomatoes Organically produced crops are an additional niche market, and are an emerging and growing market in Europe. Traditional Palestinian production methods are basically organic production methods The climate in Palestine creates a seasonal advantage whereby farmers are able to begin cultivation of a number of crops weeks or months in advance of their season in Europe and other regions.

Output and exports

The total output of the agricultural sector was estimated at US$ 856 million in 2003 with a value added of US$415 million.


Over 55% of agricultural output was from plant production (fruit trees, vegetables, field crops, and cut flowers). over half of which is accounted for by vegetable production intended primarily for consumption in the local and Israeli markets. The growth in certain crops is related to export demand rather than local consumption. Specifically, strawberries, cherry tomatoes, and carnations are largely driven by export potential to Israel and the EU. Gaza depends heavily on EU exports, with nearly 40% of its exports composed of primarily strawberries and carnations to EU markets. Cucumbers and tomatoes are notable exports, but are mostly exported to the Israeli market from the West Bank with some cherry tomato exports to the EU countries from the Gaza Strip.

Industry Structure and Capacity

The total cultivated area of Palestine is estimated at over 1.8 million dunurns and has remained more or less stable over the past decade without showing any growth trends. ~ ~

Tne proport on of total cdt,varea areas to tne Iota area .n the West Bank ana Gaza a esimated at 31% ,3096 in tne West Banrc ano 46% n Gaza) Agricultural assets other than land and wells include greenhouses, irrigation systems. pumps, machinery and vehicles. The most prevalent equipment are tractors and trailers, cultivators, ploughs, and water tanks The agricultural sector employs an estimated 62,000 workers and is an important source of employment and income for women, with over 30% of employed women working in agriculture. The number of enterprises estimated to be operating in the agricultural sector is 6,992, although this is likely a conservative figure. The sector is composed primarily of small enterprises with distribution channels through local wholesalers and distributors. Export channels include direct export by farmers as well as through the Israeli export management company Agrexco.


Export trends (2000,2001,2002 2003,2005)

The Agriculture sector plays a main role in the lsraeli market. The year 2005, reflects 40% increase in West Bank exports to Israel, compared to the low point of 2002.

West Bank Exports to Israel (Agriculture) VAT Data Analysis

0.7

0.6

0.5

0.4

0.3 El 0.2

0.1

0

2000 2001 2002 2003 2004 2005


The very close geographical proximity of lsrael and the PA creates a common basic interest to cooperate in addressing agriculture-related risks: monitoring vegetation and veterinary diseases, monitoring food risks, risks to water-resources, waste-water management etc.

These is a common interest in sharing information and know-how regarding these issues; promoting the professional level of Palestinian experts in these fields; initiating regional, internationally financed, technical-support programs etc.

On the agro-business level, there is a common interest in creating a stable, friendly regulatory and administrative environment that will encourage coordinated agro- business and PPP (Public-Private Partnership) activity, export-oriented joint ventures, etc, over the shared agricultural space.

In light of the shortage of water in their shared space, lsrael and the PA have a vital common interest in the development of water resources for agriculture. Two major fields of action stand out in this regard.

Waste water treatment. This source, if treated appropriately, can be used for irrigation of certain agricultural crops. lsrael has developed an extensive network of treated water, which has already become a major source of irrigation water for the lsraeli agriculture. lsraeli - Palestinian cooperation in this area can generate new, large resources of irrigation-water for certain Palestinian agricultural branches as well.

sea-water distillation, which may probably be the major means to supply drinking water for growing lsraeli and Palestinian populations, and consequently enable lsrael and the PA retain enough irrigation water for agriculture.


lsraeli farmers are afraid of Palestinian competition. Vegetable producers fear competition of cheap Palestinian produce in the lsraeli internal market, as well as Palestinian competition in "traditional" lsraeli export markets, while fruit producers are


afraid of losing "traditional" vital markets in Gaza to Palestinian competitors from the West Bank.

lsraeli imports of vegetables, though gradually dropping in the last couple of years. are still considerable. In 1988 - 2000. vegetable imports from the PA were estimated at close to 150.000 tons per year (including 30%-40% unreported imports). In this period it constituted some 10% of total supply to the lsraeli fresh-vegetable local market. The respective estimate for 2004 is around 5%.

Since The lsraeli fresh-vegetable market is saturated, it is highly sensitive to entry of substantial quantities of imports from the PA, and would be immediately reflected in price-decline, and substantial costs to lsraeli producers.


PALTRADE - USAID

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