Israelis, Palestinians Face Competition, not Battles

Agreement gives Palestinians freedom to set their own economic policy

WHEN Israeli Prime Minister Yitzhak Rabin and Palestinian leader Yasser Arafat sign their agreement on Palestinian autonomy May 4, they will also be ushering in a unique economic relationship between their two peoples.

What autonomy will mean in the economic sphere is spelled out in an accord reached April 29 in Paris after hundreds of hours of negotiations. Although it falls short of some Palestinian hopes, it offers the new Palestinian authority unprecedented freedom to set economic policy.

``What we hope for is a Palestinian state with totally independent economic decisionmaking,'' says Amin Haddad, one of the Palestinian negotiators. ``The agreement we signed with the Israelis represents a first step toward achieving that main goal.''

Remarkably, the agreement was heralded equally warmly by economists on both sides as a recipe for economic health. ``The mood and spirit of this agreement is about cooperation,'' says Avraham Shochat, the Israeli finance minister.

``We will have competition, instead of war,'' comments Efraim Reiner, former chairman of Bank Hapoalim, Israel's largest bank. ``This has to be better.''

The Palestinians may not have won the right to issue their own currency, but they will be setting up the Palestinian Monetary Authority with all the regulatory functions and powers of a central bank. The question of a Palestinian currency remains on the agenda, while the Israeli shekel and Jordanian dinar will be legal tender in the autonomous areas.

Nor did the Palestinians win a commitment from the Israelis to open their borders to Palestinian laborers, whose income from jobs in Israel brings in nearly 30 percent of Palestinian gross national product. Security considerations overrode economic ones here, but the Israelis have pledged to ``attempt to maintain normality of movement.''

Most critically for the Palestinians, the agreement gives them the right to set their own import duties and customs regulations for a wide range of basic goods and machinery needed for reconstruction.With Palestinian per capita gross domestic product only $1,000 a year, 13 times lower than the Israeli level, ``we can't use Israeli import procedures, because our people can't afford them,'' Mr. Haddad explains.

he Palestinian autonomous entity will also be entitled to import basic goods from Arab and Islamic countries, with which Israel has no economic ties because of the Arab boycott. ``The importance of this is to show that the identity of the Palestinian entity is separate from that of Israel,'' Haddad says.

It will also ensure that Palestinians will be able to import lower-cost goods than Israel, giving them another competitive edge besides lower wage costs.

For the first time since the Israeli occupation began 27 years ago, Palestinian farmers and manufacturers will be allowed to sell their goods in Israel. Until now, Israeli goods have sold freely in the occupied territories, but Palestinian goods were banned from Israel.

To protect its farmers, Israel insisted on a few limitations: Quotas, which will be phased out over four years, have been imposed on trade in poultry, eggs, potatoes, cucumbers, tomatoes, and melons. But even these quotas ``are positive compared to what applied before,'' says Samir Abdallah, a senior official of the Palestinian Economic Council for Development and Reconstruction (PECDAR).

Palestinian exporters also hope to take advantage of an Israeli promise that their goods will be given equal treatment at Israeli ports, where they have often been held up on security grounds. Without those sort of obstacles, ``we can be competitive with Israeli agricultural produce in Europe,'' Haddad predicts. The Palestinians have already approached the United States, hoping to be granted most-favored-nation status.

In the meantime, the Palestinians need the money they have been promised by the international community to begin rebuilding their economy, says Haddad, who heads PECDAR's foreign aid department. ``Donors must now start changing their pledges into commitments,'' he says. ``The time has come for implementation, not discussion.''