ISRAEL AND TURKEY BEGIN COOPERATION ON EREZ

C O N F I D E N T I A L SECTION 01 OF 02 TEL AVIV 000370 SIPDIS E.O. 12958: DECL: 01/26/2016 TAGS: ECON KPAL KWBG PREL IS ISRAELI PALESTINIAN AFFAIRS GOI EXTERNAL GAZA DISENGAGEMENT SUBJECT: ISRAEL AND TURKEY BEGIN COOPERATION ON EREZ INDUSTRIAL ZONE Classified By: Economic Counselor William Weinstein, Reasons 1.4 (b) an d (d). ¶1. (C) Summary: On January 5 the governments of Israel and Turkey signed a Joint Declaration on contributing to the economic development and promotion of the Gaza Strip by establishing a Turkish management company that will operate the Erez industrial zone. According to the Turkish Embassy, this project is the result of a trilateral private sector initiative that is the brainchild of the Israeli Manufacturer,s Association president. Once up and running, the Turkish Embassy believes, it could be a major source of jobs for Palestinians. This project still has a long way to go and both the Turkish and Israeli governments need to iron out a number of issues, not the least of which is meeting GOI security concerns. End summary. ¶2. (C) On January 5, then FM Silvan Shalom and Turkish FM Abdullah Gul signed a Joint Declaration on both governments, &wish to contribute to the economic development and prosperity of the Palestinian population in the Gaza Strip.8 The Joint Declaration expressed appreciation for the initiative of the Manufacturers Association of Israel and the Union of Chambers and Commodity Exchanges of Turkey (TOBB) to start a dialogue aimed at revitalizing the Palestinian economy and the Erez Industrial Zone. According to Turkish Commercial Counselor Kaan Kokturk, this initiative and the Ankara Forum for Economic Cooperation, a trilateral Chamber of Commerce association that spearheaded this project, are the brainchild of Israeli Manufacturer,s Association President Shraga Brosh. -------------- --- DECLARATION LAYS OUT ISRAELI-TURKISH COOPERATION -------------- --- ¶3. (C) In the Joint Declaration, the parties agreed that practical arrangements for the facilitation of the operation of the industrial zone and the usage of Israeli maritime ports for exports and imports to the zone would be coordinated between Israel and Turkey based on a set of agreed principles. The principles include that a Turkish company will be set up to manage the zone and the two sides will work together in order to coordinate activities in connection with the operation of the Turkish management company. Israeli companies will provide electricity and waste infrastructure by way of separate commercial agreements and the Turkish management company will deal with sewage and waste water treatment. All operations and activities, including access and movement of goods between the zone and Israel will be carried out in accordance with agreements between Israel and the Palestinian Authority (PA),Israeli law, and subject to the security situation at any given time. Advisor to Brig. Gen. Baruch Spiegel, Lt. Colonel Oded Herman, told econoff that security remains Israel,s main concern. -------------- A WORK IN PROGRESS -------------- ¶4. (C) Herman said that despite the Joint Declaration, GOI-Turkish cooperation on Erez Industrial Zone development is very much a work in progress. The two sides had their first meeting on January 18 to try to hammer out some of the details. He said the Turks have to complete an environmental survey and plan to demolish and rebuild many of the structures in the zone. Herman said that a permanent point of contact on the Turkish side will soon arrive. He said the two sides will have several meetings during which the Turks will discuss Israel,s security conditions for moving forward with this project, which include concern about Qassem rockets and the current need for the buffer zone and operation of a commercial crossing. After Turkey has signed a formal agreement with Israel, Herman said, it will go back to the PA to sign an agreement with the Palestinians on the same issues. -------------- GOI CONCERNS WITH PA-TURKISH AGREEMENT -------------- ¶5. (C) Gabi Bar, Director of Middle East Trade at the Ministry of Industry, Trade and Labor told econoff that there are also legal challenges posed by having the documents signed separately with the GOI and the PA. The GOI-GOT declaration calls Erez an &industrial zone8 for development and tax purposes, however, he believes that the GOT-PA agreement describes Erez as a &free zone.8 Bar described the problem as mainly a tax issue, and questioned the PA,s ability to unilaterally declare an area a &free zone8 given the existence of a customs union between Israel and Gaza. The problem with the differences in the language between GOI declaration and the PA agreement is that it would discourage Israeli investors in Erez. Under Israeli law, the investors would be subject to taxes while the PA exempts international investors from tax. Bar indicated that the MFA and Israeli customs are working with the GOT and the PA to resolve the differences in language. -------------- ISRAELI PRIVATE SECTOR CATALYST -------------- ¶6. (C) Turkish Embassy Commercial Kokturk told econoff that this initiative has gotten as far as it has, because it is being promoted by the private sector, but also noted that it would be impossible to have strike a trade agreement with the Palestinians without the cooperation of the GOI. Kokturk predicted that, once up and running, the Industrial Zone could provide as many as 10,000 jobs for Palestinians. He said that Palestinian, Israeli, and Japanese businessmen had already approached the Turkish Embassy about possibly investing in the zone. Kokturk said that Israeli Manufacturer,s Association President Brosh pitched the idea of a private sector dialogue that would contribute to the Israeli-Palestinian peace process through business development to TOBB President M. Rifat Hisarciklioglu in ¶2004. He said Turkey has a great deal of experience with organized industrial zones. Kokturk said that Israeli and Turkish businessmen had a good relationship that preceded the intifada, but unfortunately suffered somewhat during the years of violence. The Ankara Forum for Economic Cooperation held its first meeting in Ankara in April 2005 and met again in September. Kokturk said that the Forum established two steering committees that deal with its two areas of interest ) triangular tourism between Turkey, Israel, and the Palestinian territories and the Erez Industrial Zone. ¶7. (C) Comment: Kokturk,s assessment that this idea may not have gotten off the ground without the strong support of the private sector is probably true. Still, establishing the zone and creating a possible 10,000 new jobs are a long way off as discussions of Israeli security concerns have yet to begin. Israel is serious about its security concerns and maintaining security while promoting this new development will not be easy. Turkish interlocutors continue to mention the possibility of a QIZ (qualifying industrial zone) agreement similar to the agreements between the GOI and Jordan and the GOI and Egypt for Erez industrial zone. However, a QIZ would provide no added benefit since production from Gaza for export to the United States is duty free under the existing presidential proclamation extending coverage of the US-Israel FTA to West Bank and Gaza exports. ********************************************* ******************** Visit Embassy Tel Aviv's Classified Website: http://www.state.sgov.gov/p/nea/telaviv You can also access this site through the State Department's Classified SIPRNET website. ********************************************* ******************** JONES