WORLD BANK STUDY TIES GAZA'S ECONOMIC REVIVAL TO

UNCLAS JERUSALEM 000144

SIPDIS

SENSITIVE
SIPDIS

NEA FOR FRONT OFFICE; NEA/IPA FOR
WILLIAMS/SHAMPAINE/STEINGER; NSC FOR ABRAMS/DORAN/WATERS;
TREASURY FOR SZUBIN/LOEFFLER/NUGENT/HIRSON

E.O. 12958: N/A
TAGS: ECON ETRD EFIN PREL KWBG IS EG
SUBJECT: WORLD BANK STUDY TIES GAZA'S ECONOMIC REVIVAL TO
OPENING OF RAFAH TRADE CORRIDOR



1. (SBU) SUMMARY: A WORLD BANK STUDY OF ALTERNATIVES FOR
PALESTINIAN TRADE HAS CONCLUDED THAT OPENING THE RAFAH TRADE
CORRIDOR FOR EXPORTS FROM THE GAZA STRIP THROUGH EGYPT WOULD
SIGNIFICANTLY BOOST THE FLAGGING PALESTINIAN ECONOMY.
ACCORDING TO THE STUDY, THE RAFAH TRADE CORRIDOR PROVIDES
COMPETITIVE LOGISTICS AND COSTS FOR PALESTINIAN EXPORTERS TO
ACCESS KEY MARKETS, SUCH AS EUROPE AND THE GULF. ACCESS TO
THESE MARKETS WILL REDUCE HISTORICAL PALESTINIAN DEPENDENCY
ON ISRAEL AND HELP PALESTINIANS COMPETE IN THE GLOBAL MARKET.
WORLD BANK PERSONNEL ASSERT THAT THE AGREEMENT ON MOVEMENT
AND ACCESS (AMA) PROVIDES THE BASIS FOR IMMEDIATE USE OF
RAFAH FOR EXPORTS, WHICH COULD BEGIN FLOWING IN LESS THAN TWO
WEEKS AFTER CONCLUSION OF A JOINT AGREEMENT ON BORDER
PROCEDURES. END SUMMARY.


2. (SBU) IN A JANUARY 10 PRESENTATION AT THE CONSULATE
GENERAL, WORLD BANK SENIOR FINANCIAL SECTOR SPECIALIST
JOSEPHINE BASSINETTE AND WORLD BANK TRADE CONSULTANT JOHN
ARNOLD STATED THAT THEIR RESEARCH CONCLUDED THAT THE RAFAH
TRADE CORRIDOR IS A PREFERABLE ALTERNATIVE TO THE HEAVILY
RESTRICTIVE KARNI/AL-MINTAR CROSSING FOR MOVING PALESTINIAN
PRODUCTS OUT OF THE GAZA STRIP. THEY STRESSED THAT OPENING
THE RAFAH CROSSING --INITIALLY ONLY FOR EXPORTS FROM GAZA--
IS URGENTLY NEEDED IN ORDER TO HELP REVIVE THE PALESTINIAN
ECONOMY.

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BREAKING WITH THE PAST
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3. (SBU) THE PRESENTERS NOTED THAT PALESTINIAN TRADE HAS
BEEN LINKED TO THE ISRAELI ECONOMY SINCE 1967. THE VALUE OF
PALESTINIAN TRADE WITH ISRAEL, HOWEVER, IS NOW STAGNANT AND
OPPORTUNITIES TO MOVE TO HIGHER VALUE-ADDED PRODUCTS ARE
LIMITED. AS ISRAEL HAS MOVED TO HIGHER VALUE-ADDED GOODS AND
SERVICES, THE LEVEL OF PROTECTION HAS DECREASED AND WEST
BANK/GAZA GOODS HAVE FACED INCREASED COMPETITION. BASSINETTE
AND ARNOLD, THEREFORE, ASSERTED THAT, EVEN IN THE ABSENCE OF
THE SERIOUS RESTRICTIONS ON THE MOVEMENT OF GOODS,
PALESTINIAN EXPORTS TO ISRAEL WOULD CONTINUE TO DECLINE.
SINCE 2000, THE VOLUME OF TOTAL PALESTINIAN TRADE HAS BEEN
STATIC OR DECLINING AT A TIME WHEN GLOBAL MERCHANDISE TRADE
ROSE BY 4.2 PERCENT EACH YEAR FOR THE PAST 10 YEARS. WHILE
ISRAEL WILL REMAIN AN IMPORTANT TRADING PARTNER, IF THE
PALESTINIAN ECONOMY IS TO GROW, IT MUST FIND AND GAIN DIRECT
ACCESS TO NEW MARKETS.

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RAFAH: A QUICK AND COST-EFFECTIVE ALTERNATIVE
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4. (SBU) WORLD BANK STAFF ASSERTED THAT THE RAFAH TRADE
CORRIDOR PROVIDES THE QUICKEST, MOST COST-EFFECTIVE MEANS OF
MOVING GOODS OUT OF GAZA AND ON TO EUROPE, THE GULF AND
DEVELOPING MARKETS IN ASIA. THE WORLD BANK PRESENTATION
PROMOTED SHIPPING OPTIONS SUCH AS TRUCKING PALESTINIAN GOODS
TO THE AL-ARISH AIRPORT, CAIRO AIRPORT, OR SUEZ CANAL
CONTAINER TERMINAL-PORT SAID FOR ONWARD SHIPMENT BY AIR OR
SEA TO EUROPE AND THE GULF. ALTERNATIVELY SOME GOODS COULD
BE TRUCKED FROM RAFAH TO NUWEIBA, THEN SHIPPED BY FERRY TO
SAUDI ARABIA, AND TRUCKED OVERLAND TO THE UAE. UNDER MOST
SCENARIOS AND FOR MOST PRODUCTS, EGYPTIAN PORTS/AIRPORTS
OFFER CHEAPER RATES AND SHORTER DELIVERY TIMES WHEN COMPARED
TO THOSE OF ISRAELI PORTS/AIRPORTS, ACCORDING TO THE WORLD
BANK FINDINGS. IN ADDITION, THE WORLD BANK STUDY USED
"STANDARD COSTS" AND NOT THE EXORBITANT "UNOFFICIAL" FEES NOW
BEING CHARGED AT THE KARNI/AL-MINTAR CROSSING WITH ISRAEL,
CURRENTLY THE SOLE OUTLET FOR COMMERCIAL GOODS LEAVING GAZA.

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NEXT STEPS
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5. (SBU) BASSINETTE STATED THAT THE AMA PROVIDES THE BASIS
FOR IMMEDIATE USE OF THE RAFAH CROSSING FOR EXPORTS FROM
GAZA. ARNOLD SUGGESTED THAT A JOINT AGREEMENT ON BORDER
PROCEDURES BE REACHED WITH THE PALESTINIANS, EGYPT AND
EU-BAM. BOTH BASSINETTE AND ARNOLD NOTED THAT EGYPTIAN AND
ISRAELI SECURITY CONCERNS WOULD ALSO HAVE TO BE ADDRESSED BUT
ADDED THAT THE FOCUS SHOULD BE ON THE CROSSING ITSELF AND NOT
THE ENTIRE BORDER. (NOTE: EU-BAM COORDINATION WITH THE
ISRAELIS AND PALESTINIANS HAS BEEN WORKING WELL. THE
EGYPTIANS HAVE RECENTLY BEEN INVITED TO FILL A POSITION AT
THE KEREM SHALOM LIAISON CENTER, THEREBY ENHANCING EGYPT'S


ROLE IN COORDINATING RAFAH CROSSING ACTIVITIES. END NOTE.)
"DEMONSTRATION" SHIPMENTS UNDER SPECIAL ARRANGEMENT WOULD
FOLLOW. THE PALESTINIANS AND EGYPTIANS WOULD ALSO HAVE TO
NEGOTIATE IMPLEMENTATION OF A TRANSIT PROTOCOL CONSISTENT
WITH INTERNATIONAL PRACTICES. ARNOLD ASSERTED THAT A BASIC
BACK-TO-BACK OPERATION COULD BE SET UP IN AS LITTLE AS TEN
DAYS. HE ALSO SAID THAT ONCE EGYPTIAN AUTHORITIES ARE
CONFIDENT THAT THE GAZA PRODUCTS WOULD BE FOR RE-EXPORT ONLY
AND WOULD NOT COMPETE WITH EGYPTIAN GOODS ON THE DOMESTIC
MARKET, EGYPTIAN AUTHORITIES WOULD WELCOME THE INCREASED
PORT/FREIGHT FEES AND ASSOCIATED BUSINESS FROM OPENING THE
RAFAH CORRIDOR.


6. (SBU) COMMENT: GIVEN THE DIFFICULTIES THAT CURRENTLY
EXIST AT RAFAH - ISRAELI OBJECTIONS TO REGULAR OPERATIONS,
HAMAS EFFORTS TO TRANSFER CASH TO GAZA, AND LIMITED
PALESTINIAN CAPABILITY TO MANAGE THEIR END OF THE OPERATION -
OPENING A BACK-TO-BACK CARGO OPERATION WILL BE MORE DIFFICULT
THAN THE WORLD BANK TEAM SUGGESTED. THAT SAID, THE IDEA
MAKES ECONOMIC SENSE AND SHOULD BE EXPLORED IN ORDER TO
PROMOTE LONG-TERM DEVELOPMENT IN GAZA.
WALLES