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ECONOMIC POLICY PROGRAMME TOWARDS AN ECONOMICALLY-VIABLE PALESTINIAN STATE: The Regulation of External Trade Monday May 23, 2005 Grand Park Hotel, Ramallah May 2005 Economic Policy Programme 1 From NDTP to Free Trade: Challenges Ahead Professor Thomas Cottier May 2005 Economic Policy Programme 2 This document is an output from a project funded by the UK Department for International Development (DFID) for the benefit of developing countries. The views expressed are not necessarily those of DFID. May 2005 Economic Policy Programme 3 Overall Interest of Palestine • Palestine must be able to conduct a sovereign trade policy in the interest of its national independence, and its economic development and diversification • Palestine and Israel have a common interest in co-operating to maximise economic benefits May 2005 Economic Policy Programme 4 Future Trade Policy Options • NDTP is a sound basis of unilateral trade policy, with a view to join WTO • NDTP and MFN low tariff policy should not prevent preferential agreements with Israel • Trade relations should offer mutual incentives to enter into specific agreements May 2005 Economic Policy Programme 5 NDTP Environment • Economic relations with Israel could suffer in key areas without close cooperation in key sectors: – Customs Cooperation – Labour – Security measures – Transit – Water resources May 2005 Economic Policy Programme 6 NDTP Risks • Application of trade barriers on 96% of Palestinian export trade GDP: – Israel’s WTO-MFN tariffs on Palestinian exports (e.g. 20.6% on agricultural goods) – Israeli’s Non-tariff measures on Palestinian exports • Low-tariff NDTP – Neutralises Israel’s incentive to negotiate FTA – Exposes Palestinian industry to import competition • Israel could make FTA with Palestine conditional on conclusion of regional FTA • Less co-operation = more distrust and increased risk of security measures May 2005 Economic Policy Programme 7 Building Blocks from NDTP to FTA • Sectoral building blocks for FTA: – Customs co-operation – Mutual recognition – Transit – Labour – Trade in Jerusalem – Trade in water – Dispute settlement May 2005 Economic Policy Programme 8 FTA Benefits • Preserves main source of national income • Maintains preferential access to Israel’s market • Avoids an increase in trade transaction costs • Establishes permanent basis for co-operation, especially on traderelated security measures May 2005 Economic Policy Programme 9 Challenges • How to shape NDTP policy with a view to create incentives for further negotiations in a process of dialogue and continuing mutual efforts? • Implications for initial tariff structure and non-tariff barriers to trade? • Implications vis-à-vis joining WTO (bilateral negotiations in goods and services? ) May 2005 Economic Policy Programme 10 ECONOMIC POLICY PROGRAMME TOWARDS AN ECONOMICALLY-VIABLE PALESTINIAN STATE: The Regulation of External Trade Monday May 23, 2005 Grand Park Hotel, Ramallah May 2005 Economic Policy Programme 11