World Bank: PA losing $285m. a year due to Paris Protocol problems

Certain aspects of deal established in 1994 are outdated and unable to serve interests of parties, says financial institution in report ahead of donor meeting set to begin tomorrow in Brussels

The Paris Protocol have to be amended to halt the annual loss of $285 million to the PA, the World Bank said in a report it issued Sunday in advance of Tuesday’s meeting in Brussels of the Ad Hoc Liaison Committee.

Separately, the World Bank said, Israel is holding $669m. it collects from Palestinian worked in Israel and their employers that was due to be transferred to a decimated pension fund under the auspices of the Palestinian Authority.

But the PA never created that fund, the World Bank said.

It also called for the revival of the Joint Economic Committee established with the Paris Protocol in 1994, but which last met in 2009.

“If revenue losses are mitigated, this can reduce the 2016 fiscal deficit to below US $1 billion, and narrow the expected financing gap by more than 50 percent,” said Steen Lau Jorgensen, World Bank country director for West Bank and Gaza.

The Paris Protocol regulates economic relations between Israel and the Palestinian Authority, including the collection of customs and income taxes, the World Bank explained.

This includes taxes Israel collects from Palestinians living in Area C and the sharing of exit fees from pedestrians traveling through the Allenby Bridge between Israel and Jordan.

But the agreement, designed to last for only five years has been in place for 22 years, the World Bank said.

“The failure of the permanent status negotiations between the parties led to the de facto extension of the protocol far beyond the period it was designed for.

“As a result, certain aspects of it have become outdated, and hence, unable to serve the interests of the parties,” the World Bank said.

For example, Israel collects import taxes and fees on goods heading to the Palestinian territories and transfers them to the PA.

But direct imports from third countries makes up less than a third of the overall Palestinian imports, the report stated.

Instead Israeli businesses import the products, and the custom fees are collected by Israel. The products are then sold to Palestinians, thereby making it easier for the products to clear customs.

Imports designated for the Palestinian territories have to undergo an additional security check.

The Palestinian importers have extra licensing requirements and many of the regulations are only posted in Hebrew, according to the World Bank.

It suggested that Israeli businesses be bared from selling such imports to the Palestinians.

The World Bank also argued that the PA should be able to tax Palestinians who work for Israeli companies for minimum wage.

Their minimum wage status makes them exempt from Israeli taxes, but that same salary is not minimum wage in the Palestinian territories, the bank said.

It estimated that such revenue would amount to $22m. annually

According to the World Bank, 94,000 Palestinians held jobs in Israel in 2014. That number rose to 136,500 in 2015.

Representatives from the Israeli and Palestinian finance ministries recently met and agreed that Israel would transfer $128m. to the PA to offset some of the losses.

According to the World Bank the PA’s total deficit in 2015 was $1.45b.

This sum was offset by $798m. in financial assistance, a sum that was 30 percent lower than what it received in 2014. This left an unfunded gap of $65m.

Looking back at the $3.5b. pledged to the Palestinians for Gaza in the 2014 at the Cairo Conference, the World Bank said, that donors still have to pay out $1.48b.