EREZ INDUSTRIAL ESTATE: DAYS MAY BE LIMITED

C O N F I D E N T I A L SECTION 01 OF 02 TEL AVIV 002352

SIPDIS

NEA FOR BURNS/SATTERFIELD

E.O. 12958: DECL: 04/23/2009
TAGS: ECON KWBG IS GAZA DISENGAGEMENT ISRAELI PALESTINIAN AFFAIRS ECONOMY AND FINANCE
SUBJECT: EREZ INDUSTRIAL ESTATE: DAYS MAY BE LIMITED


Classified By: Ambassador Daniel C. Kurtzer, Reasons 1.4 (B) & (D)


1. (C) Summary: On April 21, the Israeli daily Haaretz
reported that the IDF may close the Erez Industrial Estate
(EIE) in response to a spate of recent terror attacks at the
zone. GOI officials told Gaza Econoff that the GOI is split
over whether the EIE should continue operating both in the
short- and long-term, i.e. post-Gaza withdrawal. However,
our contacts believe that the zone will/will likely re-open
after Israeli Independence Day, April 27. Israeli and
Palestinian investors with factories in the zone have
received very little information to date on future plans. A
meeting is scheduled between the GOI and Israeli investors
for Sunday April 26. Palestinian investors, however, are
completely out of the information loop. End Summary.

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Erez: Prime Target for Terrorists
--------------


2. (C) The Erez Industrial Estate (EIE) has been the target
of several attacks since the beginning of the year. On
January 14, a female suicide bomber killed four Israelis when
she blew herself up at the entrance to the zone. On February
25, two Palestinian gunmen infiltrated the zone overnight and
opened fire on GOI buildings near the entrance to the zone
the following morning. One Israeli soldier was killed when
the IDF engaged and killed the gunmen. On April 17, a
suicide bomber who, according to Israeli sources, had a valid
permit to work in the zone detonated his explosives inside
the EIE killing himself and one Israeli border guard.

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GOI Response: Close the EIE?
--------------


3. (C) Throughout the course of the Intifada the GOI has
closed the EIE only rarely, this despite almost daily mortar
shells in the area. Following the terrorist attacks earlier
this year, the GOI responded by closing the zone for a day or
two only. After the April 17 terrorist attack, however, the
GOI instituted a prolonged closure and the zone is not
expected to re-open until after Israeli Independence Day at
the earliest. On April 21, Israeli newspaper Ha,aretz
quoted a senior IDF officer as saying, &It is quite
possible we will have no choice but to close the industrial
zone.8 The same article reported that IDF Chief of Staff
Moshe (Boogie) Ya,alon visited the EIE on April 20 and said
that the zone would not be re-opened until a suitable way of
protecting soldiers is found.

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Working Level Says EIE Will
Likely Re-open After Independence Day
--------------


4. (C) Lt. Colonel Isaac Gurvich, head of the Economic
branch of the Office of the Coordinator of Government
Activities in the Territories (COGAT),told Gaza econoff that
notwithstanding the Haaretz report, &no decisions have been
taken to close the zone.8 Gurvich said that the GOI was
split with some, e.g. Ministry of Defense, advocating to
close the EIE immediately and others, e.g. COGAT, arguing
that it should be kept open for humanitarian/cooperation
purposes. Gurvich said that difficult questions were being
posed ) &Is it justifiable to put Israeli soldiers at risk
to preserve jobs for Palestinians?8 Gurvich noted that the
soldiers are not guarding settlements and Israeli citizens,
nor are they providing security for the Israeli/Gaza northern
border, nor are they securing a significant economic asset.


5. (C) Gurvich said that if the final answer is yes, it
makes sense to keep the zone open because it provides a
livelihood for four to six thousand Palestinians and thus
indirectly feeds 24,000 )36,000 individuals, then the issue
turns on how to keep it open. How much is a reasonable
amount of money to invest in security upgrades? These
concerns were of course further complicated by the Gaza
disengagement initiative. Gurvich said the GOI was
&struggling8 with two &momentums8 ) &What happens to
the EIE after separation and what do we do about terrorist
attacks now?8 He insisted that no final decisions had been
reached on either of those two broad questions.


6. (C) Captain Joseph Levy, COGAT liaison for the Erez
crossing, was firm in his belief that the EIE will re-open
after Israeli Independence Day. Giving the on-the-ground
perspective, Levy said that soldiers have received no orders
to close the zone permanently or to begin preparations for a
closure. Levy said, in fact, the opposite was true; soldiers
have been instructed to review lessons learned from the April
17 terrorist attack and to make recommendations for security
modifications. He said that his orders were to &find the
way8 to allow the zone to re-open. Levy insisted that the
only reason why the zone remains closed is because the April
17 bomber used a new technique of only carrying plastic
explosives which were undetectable by the metal scanners as
opposed to the more typical nail-embedded explosives.
Obviously this security gap would have to be addressed but
the closure was not indicative of a policy decision to
abandon the estate in his view.

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Business Owners in the Dark; Some Not
Sticking Around to Wait for Answers
--------------


7. (C) Gaza Econoff called Um Hassem, a Palestinian woman
who owns a textile factory in the zone, which exports
clothing to Israel and the U.S., for her reaction to the
Haaretz report of a possible permanent closure of the EIE.
Hassem reacted with alarm and dismay and said that the GOI
had not/not apprised Palestinian owners of any possible
closure and that she was preparing to go back to work after
Israeli Independence Day. (Note: The GOI makes very little
differentiation between Palestinian factory owners and
Palestinian day laborers. They use the same entrance/exit
gates and are subject to all other security protocols.
Owners have very little access to information and are not
allowed into their factories when the zone is closed. End
Note). Hassem beseeched the USG to intervene to save the
livelihoods of the business owners and the thousands of
Palestinians who work at the EIE every day.


8. (C) Kobi Cohen, President of the Erez Association of
factory owners and himself the owner of five textile
factories in the zone, told Gaza econoff that factory owners
were very distressed. Cohen said that between April 20-22,
fifteen Israeli owners had decided to close their businesses.
(Note: Before this recent exodus, the EIE had 201 factories
) 97 Palestinian and 104 Israeli owned. End Note.) Cohen
said that he tried to persuade them to stay but to no avail.
Cohen said that the GOI had not told Israeli business owners
that Erez would close, but rather that although it would do
its best to keep it open it could offer no guarantees.
Security would have to be evaluated on a day-by-day basis.
Cohen said that he and other owners of course understood the
security rationale but they could not run businesses under
such circumstances. No one is able to meet their orders, he
lamented. Cohen admitted that he also was actively
considering shifting his factories inside Israel, despite
having been born in Gaza. There is no future for Erez, he
said. &Things are getting worse, not better. So we have to
be realistic.8


9. (C) Asked about his conversations with Palestinian
business owners as the president of the owners association,
Cohen said that it had been limited to some telephone contact
since the Palestinian owners are not allowed in the zone
during closure. Cohen opined that Palestinian owners would
not leave barring a complete closure of the zone.
Palestinians have few options, he said. If they leave Erez
they will be forced to use Karni crossing for their imports
and exports and Karni is not sufficiently reliable to sustain
an export business to a demanding, competitive market.


10. (C) Cohen confirmed information passed to Gaza econoff
by Gurvich that the GOI is planning to meet with Israeli
investors on April 26. Gurvich said that the meeting is
being organized by Deputy Director General, Foreign Trade
Administration, Gabi Bar of the Ministry of Industry and
Trade. According to Gurvich agenda items will include issues
relating to improving security and compensation if the GOI
decides it must close the EIE, either now or in the future
after disengagement.


11. (C) Comment: We assess that the EIE will re-open some
time after April 27. Clearly, however, its future is
ambiguous, at best. As we consider ways to make Gaza
economically viable in the immediate term and
post-withdrawal, we will need to take a close look at the
successes and failures of existing joint Israeli/Palestinian
industrial estates; the mechanisms for guaranteeing security
and a predictable operating business environment; labor
access; and control over access to inputs and outputs,
without which any business will fail.


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