it A COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 23.10.1995 
COM(95) 505 final 
COMMUNICATION FROM THE COMMISSION 
TO THE COUNCIL AND THE EUROPEAN PARLIAMENT 
ON FUTURE EUROPEAN UNION ECONOMIC ASSISTANCE TO THE WEST BANK 
AND THE GAZA STRIP 

COMMUNICATION FKOM THE COMMISSION TO COUNCIL AND PARLIAMENT ON 
FUTURE EUROPEAN UNION ECONOMIC ASSISTANCE TO THE WEST BANK AND 
THE GAZA STRIP 
L INTRODUCTION . 
This Communicarion is made in response to the Council Declaration on the Middle East Peace 
Process of 2 October 1995, which invited the Commission to present concrete proposals on! this-
issue (seefull text ofthe Council Declaration). 
This Communication.outlines the key elements of a common European Union strategy to be agreed 
upon following the signature of the second Interim Agreement signed by the P JLO. and Israel on 28 
September 1995. This common strategy should'be' adopted prior to the international conference on 
assistance to the Pdestihiansscheduled to take place before the end of the year. 
The goal of EU assistance to the Palestinian people of the West Bank and the Gaza Strip should be 
to support Palestinian poImcaL mstminonal and economic empowerment. 
H. EUROPEAN UNION STRATEGY 
1.'Political empowerment 
The democratic legitimacy of the Palestinian Authority is the central piece for Palestmian.political 
empowerment. The European Union support to the holding of the first Palestinian general electoral 
process should be the focus of the Union's efforts. 
2. Institutional empowerment .. 
It is vital to create sound Palestinian governmental »nd administrative structures, able to assume the 
administration of Palestinian self-rule in the West Bank and the Gaza Strip including, inter alia, the 
provision of an overall legal framework, the provision and administration of essential public services 
and the programming and implementation of the significant volumes of international assistance to the 
Palestinian people. 
3. Economic empowerment 
It is essential lay the foundations for sustainable social and economic development m the West Bank 
and the Gaza Strip. A sound twin strategy aimed at achieving: a balanced budget and sustainable 
development is a prerequisite of economic empowerment. Integration of the Palestinian economy at 
regional and international level, is also an objective of maximum priority. 
A , 
m, EUROPEAN UNION PRESENT ASSISTANCE TO THE WEST BANK AND THE GAZA 
STRIP 
1. Political empowerment 
In the Declaration of Principles of 13 September 1993 Israel and the P.L.O. agreed to the holding of 
Palestinian elections following Israeli redeployment from the West Bank and the Gaza Strip. 
On 19 April 1994 the Council adopted a joint action in support of the Middle East Peace Process 
committing the EU to the implementation of a coordinated programme of assistance to the 
preparation and observation of Palestinian elections. 
On. these basis the Community started providing technical support to the Palestinian Authority for 
the preparation of the elections. Assistance has focused on drafting the electoral law, establishing the 
national and distria election offices, establishing a press office, drawing of polling districts, carrying 
out a civic education campaign, training election officers and provision of electoral equipment 
(ballots, etc). 
Foreshadowing the second Palestinian-Israeli Interim Agreement of 28 September 1995 by which the 
Unionis requested to participate in and coordinate tbg international observation, of the Palestmian 
elections^on 25 August 1995 the Council-decided to deploy a 300-strong electoral observation team 
and to set up a European Electoral Unit to coordinate the international observation operàtion. 
The- Union is in the process of gradually deploying a-300-strong observation team on the ground to 
cover the whole electoral cycle from the beginning of the registration process. The European 
Electoral Unit is already set up and will be deployed on the field by early November 1995. 
A total-of 17.6 MECU has been provided so fer out-of the Community budget in assistance for the 
preparation, observation and coordination of international observation' of the elections (see Table I 
for details). 
2. Institutional empowerment 
The Community started providing direct support to Palestmian institutions in the West Bank and the 
Gaza Strip in 1987. Following the first P.L.O-Israel Interim Agreement of May 199.4, which 
established the Palestinian Authority in the Gaza Strip and Jericho, this assistance focused on 
technical and financial support to the new administration. This comprises technical assistance, 
equipment and funding the start-up costs of such bodies as, among others, the Palestinian Central 
Bureau of Statistics, the Palestinian Broadcasting Corporation, the Project Management Unit for 
rehabilitation of ex-detainees and the Palestinian Energy Center. ITieGommunitylias recently offered 
a programme of technical support to the mrmstries of the PA. In addition, a development programme 
of assistance to Palestinian local authorities has been launched. 
In view of the transfer of further spheres of powers and ÛÎQ territorial enlargement of Palestinian 
autonomy as ;per the second P.L.O.-Israel Interim Agreement of 28 September 1995, present 
programmes of assistance to iiMrtutiohàl building will have to be extended in time and in size. 
Institutional building assistance provided so fer from the Community budget amounts to 12.1 MECU 
(see Table IJ for details). 
The Community has, since the establishment of the PA, committed considerable grant resources to 
the recurrent costs of the Palestinian administration. This assistance has focused on universities and 
community colleges, primary and secondary education centres, the police force and the unit of 
rehabilitation of ex-detainees. The Commission believes it is necessary to maintain this support for 
a limited period with a view to rapid and rational progress towards a Palestinian balanced budget. 
At present, the total of Community financing of the recurrent costs of the Palestinian administration 
amounts to some 80 MECU (see Table HI for details). 
3. Economic empowerment 
Total Community assistance to the Palestinian population of the West Bank and the Gaza Strip since 
the signature of the Declaration of Principles of September 1993, amounts to 215.3 MECU in grants 
(see Table IVfor details). The qualitative and quantitative expansion of Palestinian autonomy has 
substantial economic implications which require a continuation of the assistance effort on the part 
of the international donor community. 
The European Union is as a whole (Community, European Investment Bank and Member States) 
so far providing 183 MECU for Palestinian development in 1995 alone (see Table V for details), 
that is, 45% of the entire donor effort, making the Union by far the largest donor to Palestinian 
development. According to World Bank figures, the three next largest donors are Saudi Arabia (76 
MECU/19%), the US (64 MECU/16%) and Japan (30 MECU/8%). 
As to the Community itself, it has provided development assistance to the Palestinian population of 
the West Bank and the Gaza Strip since 1980, at first through NGOs, and since 1987, through 
Palestinian institutions. In addition to this, it has provided support to Palestinian refugees through 
UNRWA since 1971 (between 1993 and 1995, 136 MECU). 
Following the September 1993 Declaration of Principles, Community funding for Palestinian 
development was substantially increased. At the Washington donors conference of October 1993, 
the Council pledged 500 MECU to the development of the Occupied Territories for 1994-98. This 
package would comprise 250 MECU in grants from the Community budget (50 MECU per year) 
and 250 MECU in long term loans through the European Investment Bank. 
Since 1993, the Commission has used grant funds to support the development of the Palestinian 
administration, especially of the education sector, but also to finance large scale projects of basic 
infrastructure. The Community has more than lived up to its pledge. The grant component has been 
greatly exceeded in both 1994 and in 1995. An amount of 75 MECU was committed out of the 
Community budget in 1994, and some further 88 MECU will have been committed by the end of 
1995. 
The European Investment Bank has signed with President Arafat a Memorandum of Understanding 
to assure a Palestinian Authority guarantee of loan financing. It is in the process of committing the 
available funds in loans for a number of large scale infrastructure developments, and, to stimulate 
economic development, as credit for Palestinian commercial enterprises through local banks. It has 
already finalised an agreement for one of such credit lines through two local banks for an amount 
of 26 MECU. 
IV. PROPOSED PLAN OF ACTION 
1. Political empowerment 
The Union's current involvement in supporting Palestinian political empowerment is already 
substantial and only requires its continuation without any additional financial effort. The Union 
should continue to provide technical support to the Palestinian Authority for the holding of 
Palestinian elections. The gradual deployment on the field of the European Electoral Unit, as 
well as of the 300-stronjg observation team, will sis© ensure that the Union is perceived as a 
vital partner in this field. 
2. Institutional empowerment 
The Union should support the extension of the Community's present programmes of assistance 
to Palestinian institutional building. These programmes will have to be adapted to the new 
situation created by the extension of Palestinian autonomy. They will als© have to be tailored 
to the needs of individual Palestinian ministries and local authorities, in order to pass on 
expertise in the administration of public services, and to advise on future strategies and 
policies. 
3. Economic empowerment 
Consistent with the objectives of EU assistance to the Palestinian people, and in line with the 
strategy laid out in the present communication, the Union should adopt the following positions in 
the lead up to the ministerial donors conference, and beyond. 
A. Tripartite Action Plan (TAP) 
The European Union introduced to the international community the idea of a Tripartite Action Plan 
in order to help balance the Palestinian Authority budget. Agreed by the Palestinian Authority, 
Israel and the international donor community on 25 April 1995, the TAP obliged all parties to take 
action together to address the structural deficit of the Palestinian Authority (full text of the TAP in 
Annex A). The framework set up by the TAP has proved its effectiveness so far by achieving a 
substantial reduction of the Palestinian Authority budget deficit. In the light of the challenges 
posed by the economic consequences of the expansion of Palestinian autonomy, the TAP needs 
to be reviewed. 
The Union should plav a central role In the review of the Tripartite Action Plan. It should 
argue to the other donorss to the Government of Israel and the Palestinian Authority, that: 
the TAP should specify th€ actions to be tsktm by the Palestinian. Authority to improve 
fiscal admmistratioE and expenditure control, and economic management more1 
generally, and, crucially, setup a timeframe for the implemeiitaiieiï ©f such actions; 
the TAP should be more detailed regarding the actions to be taken fey Israel to facilitate 
the cross-border passage of goods, labor, Palestinian Authority staff and consultants, 
and project staff and project equipment; 
donors should not be expected to provide support for start-up costs beyond a certain 
period, but the deficit problem should be treated according to a medium term 
framework. 
This will permit the setting of a realistic timetable for the elimination of the deficit and the 
thus the phasing out of donor contributions. 
the TAP should define more precisely the means by which international monitoring of the 
performance of all three parties to the Plan should be effected. 
B. Development strategy 
The donor approach to the development of the territories has so far been piecemeal. In order to 
ensure the effectiveness of any fresh donor funding while avoiding the fragmentation of donor 
efforts, it is necessary that a sound, comprehensive and long-term development strategy be designed. 
It is essential that the Palestinian Authority prepares, adopts and presents to the donors its own' 
development strategy, within the context of a macroeconomic framework also defmed by the PA. 
Such strategy should, in the context of a medium-term macroeconomic framework, establish the 
preconditions necessary for. the attraction of foreign non debt-creating investment flows, for the 
promotion of private investment and for the creation of jobs. The Union should assist the 
Palestinian Authority in its efforts to prepare such a strategy which is to be owned by the 
Palestmian people. 
The Community should argue for the creation of a special working group, formed by the 
Palestmian Authority, the three main bilateral donors (EU, Japan and the US), the United Nations 
Special Coordination Office (UNSCO), the World Bank and the IMF, to assist with the 
preparation of such a development strategy, including actions in the field of industrial cooperation 
(the main elements of such a strategy are outlined in Annex B). • 
To promote a coordinated approach, the Union should actively support the Palestinian Authority 
in its efforts to ensure that all new funding be programmed in line with the Palestinian 
Authority development strategy. 
C. Trade 
The Community has taken steps towards the integration of Palestinian economy at regional and 
international level. At present all Palestinian manufactured products enjoy free access to the 
Community market and key Palestinian agricultural products are granted, according to Council 
regulations, free or concessional access. However, these concessions have not so far generated 
significant trade flows to the European market as expected, mainly due to institutional obstacles. 
Thus, in addition to granting further agricultural trade concessions* the Community should 
explore practical means to promote Palestinian exports . 
4. Future Community Assistance 
The Community should remain committed to plav a central role in the effort of providing 
assistance to the West Bank and the Gaza Strip. 
The Commission is engaged in discussions with the Palestinian Authority for the progi*anammg 
of grant funds for 1996 and beyond, always taking care to coordinate the programming and 
Implementation of Community funding with the Member States and other donors. 
In addition, the Commission is negotiating a convention between the Community and IMRWA 
to govern the Community contribution to this Agency for the years 1996-98. 
In order to facilitate the committment of available ressources, the Commission is also 
discussing with the European Investment Bank a formula which would allow for subsidising 
the interest rates through a contribution from the Community budget. 
5. Euro-Mediterranean Partnership . 
The Union has invited the Palestinian Authority to participate as a full partner in the Euro-
Mediterranean Ministerial Barcelona Conference of November 1995. The Conference will mark the 
launching of the Euro-Mediterranean Partnership based on the progressive establishment of a free 
trade area and a substantial increase in financial cooperation in accordance with the conclusions of 
the European Council in Cannes. This multilateral framework for Euro-Mediterranean relations aims 
at complementing bilateral relations between the Union and its Mediterranean partners. Membership 
to this Partnership will bring added value to relations between the Palestinians, the other 
Mediterranean partners and the Union. ' 
As to the bilateral relations between the Community and the Palestinian Authority, the 
Commission, in the light of the conclusions of the General Affairs Council of 2nd October 
1995, is exploring suitable solutions to create a bilateral framework for relations in the context 
of the Euro-Mediterranean policy, taking into account present legal limitations. 
V. CONCLUSIONS 
The Commission proposes that the Council adopts the foregoing strategy and proposed plan of action 
as the basis for a European Union common position on future assistance to the West Bank and the 
Gaza Strip in view of the Ministerial Conference to take place on this issue before the end of 1995. 
The Commission calls upon the Presidency to organise the necessary coordination meetings to 
prepare the position of the Union at the Conference. 
TABLE I 
European Union assistance to Palestinian fterfinnsi 
1. Assistance to the preparation of elections (European Commission) 
Project Amount 
Financial assistance to the Palestmian Commission for Local 
Government and Elections. 1,766,725 
Civic education campaign and press office 8911663 
Support of the registration process 1,391,386 
Drawing of polling districts 221,324 
Training of election officers 629,946 
Polling day and-thé count 835,289 
Technical assistance 1,080,715 
Equipmeot 775,710 
Total 7,592,758 
2. Observation of elections and coordination of the international observation (European 
Union) . 
Project Amount 
European Electoral Unît and logistics support team 3,400,000 
European Union observers (300 observers) 4,300,000 
Equipment and premises: 
.Local personnel 
Contingencies 
Total 1,150,000 
150,000 
1,000,000 
10,000.000 
^figures in ECU -r 
TABLE H 
European Community assist «n^e to institntional capacity bnflding since September 19932 
lEroject and year of commitment. Committed 
Various projects -1993 03 
Palestinian Broadcasting Corporation -1993 
Palestinian Bureau of Statistics -1994 1.4 
Equipment for PoKce Force - 1994 
Support for Ministry of Social Affairs (through Programme for Rehabilitation 
ofEx-Dctàinccs)-1994 . , 0.4 
Palestmian Energy Centre - 1994 0.3 
Institutional support programme (various ministries and- municipalities) - 1995 2.5 
Total 12.1 
TABLE m 
Snnport to the recurrent costs of the Palestmian àdinînforgtîon since September 1993 
Project and year of commitment Committed Disburse 
d 
Universities and communrty coDegës- 1993 15 14.8 
Rehabilitation of ex-détainees - 1994 10 
Palestmian police force3 -1994 15 15 
Universities and conraunity colleges - 1995 15 10-8 
10 Prnnary and secondary schools0 -1995 , . 
Support for the recurrent costs of the PA3 (to be committed in Nov) 10 
Total 15 
80 55,6 
^afl figures m MECU . . . 
-*These iteims are included in the budget of the Palestinian Authority; other ittms can be counted as contributions to 
the xecarrent costs of the public sector more broadly * 
% 
TABLEIV 
Community financial and technical assistance to the'W»«* T**nk and the Gaga Strip 
committed since September 1993 
L Total financing made available by the Commnnity td projects for implementation solely in 
the West Bank and the Gaza Strip • 
1493 1994 1995 TOTAL DISBURSED BURSED 
95.5 51.9 75,4 88 2153 
"2. Projects fîiLMiced under direct aid budget line and financed solely in the West Bank and 
the Gaza Strip 
Budget Une 
Direct Aid (B7-711) 
Direct Aid (B7-7U) 
Direct Aid (37-711) 
•Direct Aid (B7-711) 
Direct Aid (B7-711) 
Direct Aid (B7-711) 
Direct Aid (B7-711) 
Direct Aid (B7-7I1) 
DiTectAid(B7-7n) 
Direct Aid (B7-711) 
Direct Aid (B7-711) 
Direct Aid (B7-711) 
Direct- Aid (B7-711) 
Direct Aid (B7-711) 
Direct Aid (B7-711) 
Direct Aid (B7-7I I) 
Direct-Aid (B7-711) 
SUB-TOTAL Project description/sector . 
- Universities and community colleges -
recurrent costs 
Primary and secondary schools -• 
recurrent costs 
Gaza City solid waste programme -
completion: 
Tnsuiuiional support programme 
Municipal support programme 
Completion of the constructioii of the 
. Khan Yonnis hospital 
Final technical prcpararions of elections 
Contribution to the recrurent costs of 
the Palestinian Authority4 
Housing programme -
School construction and rehabilitation 
Credit for SMEs/de\-elopmient"bahk: 
Rehabilitation of ex-detainees 
Stroport for Palestinian police force 
Demographic indicators 
Election registration materials 
Technical assistance 
Universities and comrnunity colleges -
recurrent costs 1993 ! 1994 
Sen-Dec 1 
.1 . 
i 
i 
1 - • 
1 10 
5 
15 To. 
8 
5.5 
20 
1.4 
0.1 
5 
20 | 60 1995 
15 
• 10 
• 5 
' -2.5 
10 
7.5 
2 
15 
67 Disbursed 
10.8 
10 
0 
0 
. . 0 
0 
0 
5' 
.• 4.5 
2J5 
. 2.6 
15,8 
[ LI 
0.05 
• 5.4 
17.8 
• 72.75 
"*As contribution to PA budget 1996. conditionaJ on respect of Tripartite Action Plan 
? 
3, Eroj-acte JônâEsced sasder ©t&ér .indgct fees and frapleasesied m tfce Wot Bfesk 
,'âad aie Gsza- Strip ;••••• 
4. Regional projects in the Medkerranean area în wliicii Palestinian organisations 
are involved . 
su? 4 
B^Ufee_. 
Common Foreign and 
Seeariiy Policy 
R£CoastnsctioB4md • 
Tdbo&Iitatioa 
Regional ooopoatkm-
Regional cooperation 
Environment . 
Democracy and 
taiman rights in . 
developing comjtries 
Energy cooperation in 
third countries 
MEDA 
Actions in fevour of 
democracy and nnman, 
4ghts {various budget 
lines) . 
JsGOed^aanemg 
NGO co-financing 
European Commission. 
HmnanitariaD Office, 
Population 
SUB-TOTAL Project dcsciip^ss/feastor • • 
EU elation ifor lie obszrvafkm of . 
Baksfesan decÇoss^ and for the 
. cc^xferta of As iateiEBaQonal 
observation ojsast&sn 
Sc^emem to pxq^ STT th@ 
rebabilîtation ofeîc-detainbes 
JKaâth. sewage sss&jecl -
EadJo/TVijrolact 
Kafi&immidpatoy and Gaza Ciry 
Assistance fer etecûon préparation 
Palestinian Energy Centre- . 
Private sector dcveluuujient programme 
Various projects 
Eesith 
E&Kêiiaa 
' Soppoftxo wDsxtt, 
JaBOoaoff devdopxasot 
AgncaUuee 
Envuunnacni 
•Jfamut Jttspls 
SoeialTi&UK 
Food aid and medical snppfics 
• 
• • . . m3 • 
Sea-Bee 
. 
15 
2 
2.S 
• 
03 
OJ 
02 
OJ 
0.4 
OJ 
0.02 
0.02 
• 1.4 
10.4 
31.9 XS54' 
" ' . 4.5 
0„S 
L5-
OJ 
. 
0.3 
ft* 
0J 
0J 
0.4 
0.O2 
0.02 
0J 
2.1 
4.7 
. 1 
15.4 ims 
10 
.., . 
• .0.9 
3 
0J 
OJ 
<?J 
0.1 
• • 
. 
ft* 
1.6 
4.7 
20.7 Bisfeassed 
2.4 
as 0.8 
L • 23-
appro*. &5-
finorox.03 
0 
approx.0.5 
" 
approx.1.2 
appfox. 
13.9 
0 
TL&_ 
Regional 
cooperauon/MEDA 
Med programmes 
• 
Med programmes Microproiects 
Peace Network' 
MedUfbs 
Med Media 
MedCampus 1994 
0:5-
2 
'2 1995 
1 
L4 
0J 
1.8 
J J 
. 5 
TABLE Y 
European Union contrifrntioBS to PaJcfffanian devdopment: 1995 commitment 
. (grants - unless otherwise specified!»3 
MECU 
Belgium 6_2 
Finland 
France 2.6 
8-8 
QrermflTvy 5.4 ••" 
Ireland 
Italy; 0.7 
14 
Luxembourg 1.5 
Netherlands 
Spain. '7.4 
5.9 
Sweden 13.8 
United Kingdom 5.2 
European Union 87.9 
European Investment Bank (loans) 24.6 
TOTAk 184.4 
5source: AHLC Secretarial, July 159-5 
M 
A 
TRIPARTITE ACTON PLAN ON 
REVENUES. gXPFNPmjRES ANQ DQNQR RINEN& 
FOR Trie PALESTINIAN AUTHORITY 
- ' THE AD+JOC UAÎSÔN COMMfTTEE (AHLC) MET IN PARIS ON APRIL 27-23 1S95 TO CONSIDER 
THE NEW REQUIREMENTS CONCERNING FINANCING FOR PALESTINIAN -SELF-GOVERNING 
ARRANGEMENTS iN THE WEST BANK AND GAZA. ' 
DISCUSSION AT THE MEETING FOCUSED ON HOW. DONORS COULD ASSIST THE 
PALESTINIAN AUTHORJTY(PA) IN FINANCING ITS BUDGET DEPOT FOR THE PERIOD APRIL 1.1995 
THROUGH'DECEMBER 31,1995. THE DISCUSSIONS LEADING TO THIS ACTION. PLAN TOOK PLACE IN 
ACCORDANCE WITH THE EXISTING AGREEMENTS BETWEEN THE PLO AND ISRAEL, INCLUDING THE 
SEPTEMBER 13,1S33 DECLARATION OF PRINCIPLES ON INTERIM SELF-GOVERNMENT 
. ARRANGEMENTS (THE "DECLARATION OF PRINCIPLES^ THE AGREEMENT ON THE GA2A STRIP AND 
THE JERICHO AREA, .SIGNED AT CAIRO ON MAY A. 1994 (THE^MAY 4 AGREEMENT QR.THE 
"GAZA/JERICHO AGREEMENT): AND THE AGREEMENT ON PREPARATORY TRANSFER OF POWERS 
. AND RESPONSIBILITIES, SIGNED AT ER£2 ON AUGUST 23. 1994 (THE "AUGUST 22 AGREEMENT! 
THE DISCUSSION ALSO TOOK NOTE OFTHÉ OSLO DECLARATION OF SEPTEMBER-.13.1994 SIGNED 
• BY CHAIRMAN ARAFAT. FOREIGN MINISTER PcRES, AND FOREIGN MINISTER GODAL-ANDTHE 
UNDERSTANDING ON REVENUES. EXPENDITURES AND DONOR FUNDING FOR THE PALESTINIAN 
AUTHORITY, OCTOBER .1.19S4 -MARCH 31.' 1995" (THE -UNDERSTANDING-) SIGNED IN BRUSSELS 
ON NOVEMBER 30.1S94. 
. ATTENTION WAS ALSO" PAID TO THE NECESSITY OF ENSURING THE LONGER TERM. 
SOLVENCY OF THE PALESTINIAN AUTHORITY BUDGET AS WELL AS THE DEVELOPMENT OF THE 
PALESTINIAN ECONOMY.- IN. FACT, THE CURRENT SITUATION REQUIRES THAT. ASIDE FROM . 
ADDRESSING THE SHORT TERM PROBLEM OF FINANCING THE PALESTINIAN AUtHORiTTS BUDGET. 
ACCOMPANYING MEASURES AR£ UNDERTAKEN TO ASSIST THE PALESTINIAN ECONOMY. WHICH 
wiLLÎN THEMSELVES IMPROVE THE REVENUE BASE OF THE BUDGET. THE CONCERTED 
COOPERATION OF THE PALESTINIAN AUTHORITY. THE GOVERNMENT OF ISRAEL AND THE DONORS 
• !S REQUIRED TO MOVE THE PA TO A POINT WHERE EXPENDITURES CAN 3E MET 5Y REVENUES. 
' THE PARTICIPANTS AT THE MEETING WELCOMED THE PROGRESS THAT HAS BEEN . 
ACHIEVED SINCE SEPTEMBER 13.. 1993 AND CONCLUDED THAT FURTHER PROGRESS WOULD 
' DEPEND UPON GOOD WILL AND SINCERE EFFORTS Or THE PALESTINIANS. ISRAELIS. AND THE ~ 
DONORS. BASED UPON A CLEAR UNDERSTANDING OF THE STEPS EACH WAS PREPARED TO TAKE! 
PALESTINIAN REQUIREMENTS AND RESPONSIBILITIES ... 
, THE PALESTINIAN AUTHORITY ADVISED THE DONORS OF THE FINANCIAL REQUIREMENTS' 
FOR THE.NINE MONTH PERIOD APRIL U1995THRQUGH DECEMBER 31.1995 ARISING FROM THE . 
MAY4TH.AND AUGUST2STH AGREEMENTS. THESE. REQUIREMENTS ARE REFLECTED IN THE • 
"-PALESTINIAN AUTHORITY'S DRAFT BUDGET FOR APRIL - DECEMBER 199S" PRESENTED AT THE 
MEETING BY THE PA REPRESENTATIVE (SEE ATTACHED). THESE REQUIREMENTS DO NOT INCLUDE 
ADDITIONAL. FINANCIAL NEEDS WHICH MAY: RESULT FROM THE INTERIM AGREEMENT TO SE 
CONCLUDED BET-VEEN ISRAEL AND THE PLO. 
IN CONNECTION WITH THESE FINANCIAL REQUIREMENTS, THE PA STRESSED ITS 
COMMITMENT TO THE FOLLOWING STEPS: 
FISCAL POLICY 
1 ENSURE A FUNCTIONAL TAX COLLECTION SYSTEM THROUGHOUT THE WEST BANK AND 
.GAZA. 
. . Z' CONTINUE TO IMPLEMENT IMF RECOMMENDATIONS ON \MPRO\fibiG ÏTS TAX 
ADMINISTRATION AND EXPENDITURE MANAGEMENT BY THE DATES INDICATED (SEE ATTACHED). 
l^ 
3. PREPARE QUARTERLY REPORTS FOR THE AHLCON TAX COLLECTION AND 
EXPENDITURES. IN CONJUNCTION WITH THE IMF 
A CONTINUE EFFECTIVELY TO UTILIZE IMF ASSISTANCE TO IMPROVE ?H£ OPERATION OF 
THE TAX SYSTEM. INCLUDING THE IMF OFFER Or RESIDENT ADVTS6RS PARTICULARLY WITH • 
RESPECT TO-BUDGETING, TREASURY AND REVENUE ADMINISTRATION, BY MAY 1-5. THE PA WILL'V 
ALSO AOPCINT QUALIFIED AND FULLY AUTHORIZED DIRECTORS FOR THE CENTRAL BUDGET • 
OFFICE-CENTRAL TREASURY. AND INTERNAL AUDIT UNIT IN THE MINISTRY Or FINANCE.. 
• ' ' 5. FREEZE SALARIES AND HIRING AT LEVELS CONTAINED IN THE BUDGET; CONSISTENT 
WITH THE REQUIREMENT FOR EXPERTISE WITHIN THE PA AT SENIOR LEVELS- . 
.* 5.. CENTRALES ALL' FISCAL REVENUES. FISCAL EXPENDITURES AND THE PAYMENT "'. . 
•PROCESS PLACING THESE UNDER THE DIRECT CONTRpL OF THE MINISTRY COFINANCE BY JUNE 
30. . . • .'_.-• '•'•.'•• 
• . 7. DISCUSS WITH ISRAEL AND RESOLVE BY JUNE 1 OUTSTANDING ISSUES RELATED TO TAX 
•CLEARANCES AND COOPERATION IN THE JOINT ECONOMIC COMMITTEE. 
8. MAINTAIN TAX OPERATIONS IN THE WEST BANK, IN ACCORDANCE WITH THE AUGUST 29 
AGREEMENT. AND THE NOVEMBER 30.1994 UNDERSTANDING. 
• 9: ESTABLISH BY OCT03ER 1995 A SINGLE-BUDGET FORECAST FOR 1995. BINDING ON ALL 
MINISTRIES AND COVERING ALL PUÈUC ACTIVITIES FOR WHICH CENTRAL ADMINISTRATION IS 
RESPONSIBLE WHICH. REPRESENTS THE PRINCIPLE THAT REVENUES MUST LEAD EXPENDITURES. 
'.•.-' 10. ESTABLISH A COMPREHENSIVE TAXATION PLAN FOR 1995-1995. IN THE CONTEXT OF . 
PREPARING THE ANNUAL BUDGET FOR 1996. THE PA WILL SET REALISTIC REVENUE TARGETS 
BASED ON-MEDlUMiTERM FISCAL AND MACROECONOMCFRAMEWORKS. THE PA W1LLÂLSO 
PROVIDE FOR ADEQUATE PERSONNEL WITH APPROPRIATE EXPERTISE AND SYSTEMS SUPPORT. ' 
AND ESTABLISH PROCEDURES. SO AS TO MEET REVENUE TARGETS IN 19S5-19SU 
11. MAK£: BEST EFFORTS SO THAT DONOR SUPPORT FOR START-UP COSTS WILL NOT BE 
' REQUIRED BEYOND DECEMBER 31.1995; • THE DONORS UNDERTOOK TO REVIEW THE CONTINUING 
NEED FOR START-UP COSTS BEYOND THAT DATE PRIOR TO THE END OF THE YEAR-
GENERAL ECONOMIC POLICY 
•' 1. BY MAY 15. PREPARE AND CIRCULATE TO DONORS A.DOCUMSNT OUTLINING 
FUNCTIONAL DIAGRAMS AND POLICY RESPONSIBILITIES OF PECDAR. THE MINISTRY OF ECONOMY. 
AND TRADE. THE MINISTRY OF .INTERNATIONAL PLANNING AND CÔOPERATiCN.THE PALESTINIAN 
• MONETARY AUTHORITY (PMA) AND THE MINISTRY OF FINANCE. SPECIFICALLY, THE. DOCUMENT, 
SHOULD-IDENTIFY A SINGLE POINT OF CONTACT FOR EACri- OF THE FOLLOWING: FiNANCE 
{INCLUDING TAXATION AND EXPENDITURES). ECONOMY-AMD TRADE (INCLUDING TRADE. PRIVATE 
SECTOR INVESTMENT AND COMMERCIAL CONTRACTING). THE DEVELOPMENT PROGRAM • • 
(INCLUDING AID COORDINATION) AND MONETARY AFFAIRS (INCLUDING BANKING).; 
••' : 2. BY MAY 15, DESIGNATE ITS REPRESENTATIVES TO THE JOINT LIAISON COM7JII7TEE 
ESTABLISHED PURSUANT TO THE NOVEMBER AHLC MEETING IN BRUSSELS.- THE COMMiTtEE. AS 
THE.PRIMARY FORUM FOR WORKING OUT PROBLEMS 'RELATED TO THE OVERALL ASSISTANCE ' ' • 
EFFORT. SHOULD MEET 3Y MAY 31. ".•'•• . • . • •• 
.' .3. SYJI;NEI. i-^.u^rr^cy.,'^;-, " J. AND iNVESTr.SNT CODES OF GAZA/JER;CHO 
ANO DEVELOP X •: WOP V •"-. I \l ofu \:.'D k,. - .V:T PROCEDURES-BETWEEN GA2A/JERICHQ AND 
THiRD COUNTriiEo. uS'iV^l > jH A CM ~AR LIST C "-RlORITIcS FOR INVESTMENT AND TECHNICAL 
ASSISTANCE. THAV CAN c'li .^ADc AVAIL/ .3L£ i ;j 2QTH DONORS AND THE PRIVATE SECTOR. 
t. DECENTRALIZE PROJECT IMPLEMENTATION. DESIGN AND EXECUTION THROUGH-; 
.-/3 
PECDAR UTLI2ING MUNlClPAUTIES. VILLAGE COUNCILS. NdC'S. MINISTRIES AND UN AGENCIES IN 
ACCORDANCE WITH EXISTING SYSTEMS AND REGULATIONS. - ' 
5. FINALIZE WITH ISRAEL A JOINT CONCEPT PAPER ON INDUSTRIAL ZONES AND CONTINUE 
TO WORK WITH THE DONORS AND THE WORLD BANK ON THE ESTABLISHMENT OF INDUSTRIAL 
•ZONES. ... " 
•-€. WORK TOWARD THE ESTABLISHMENT OF AN APPROPRIATE REGULATORY FRAMEWORK 
FOR THEMOSIUZATION OF PRIVATE SECTOR INVESTMENT. . 
7. EXPEûrfë NEGOTIATIONS WTTH ISRAEL ON TH^ 
HARBOR, IN ACCORDANCE WTTH THE MAY A AGREEMENT. 
LSRAPL1 REQUIREMENTS AND RESPONSIBIUTIES 
••' TOGETHER WTTH THE PALESTINIANS AND THE DONORS, ISRAEL INTENDS TO CONTINUE ITS 
OWN EFFORTS TQ CONTRIBUTE TO THIS PROCESS. IN PARTICULAR, ISRAEL INDICATED IT IS 
COMMTTTEO TO THE FOaOWING STEPS: -
BSCALPOUCY 
1. COOPERATE WTTH THE PA TO ENSURE A FUNCTIONING TAX OPERATION IN THE WEST 
BANK. ISRAEL WILL EXPEDITE TRANSFER TO THE PA OF ALL TAXES DUE PURSUANT TO THE 
AUGUST 29 AGREEMENT AND ALL OTHER.RELEVANT AGREEMENTS. : 
2. WITH RESPECT TO GAZA/JERICHO. COOPERATE WITH THE PA IN SUPPORT1NGTHE 
NEWLY ESTABLISHED TAX STRUCTURE ISRAEL WILL RESPOND POSfTIVELYTO A PA REQUEST TO 
REESTABLISH Trie. COMPUTER CONNECTION FOR THE TAX SYSTEM IN GAZA/JERICHO. ISRAEL 
ALSO WILL ENSURE MONTHLY TRANSFERS OF TAXES PROVIDED FOR Ifi THE MAY 4 AGREEMENT.. 
'3. DISCUSS WITH THE PA AND RESOLVE OUTSTANDING MAY - DECEMBER 1994 VAT 
CLEARANCES FOR GAZA^ERICHO. ''.."' 
4_ DISCUSS AND RESOLVE WITH THE PA OUTSTANDING ISSUES RELATED TO TAX . • • • 
CL£ARANCES*AND COOPERATON IN THE JOINT ECONOMIC COMMITTEE. ~ 
• 5. COOPERATE WITH THE PATO'PROVlOcTRAINlNG FOR PALESTINIAN TAX ADVISERS FOR 
\TnB NINE MONTH PERIOD. AS REQUESTED BY THE PA. 
6. ISRAEL WILL ENSURE THAT AGREEO TAXES RELATED TO ECONOMIC ACTIVITY IN THE 
WEST BANK AND GAZA WILL ACCRUE TO.THE PA ACCORDING TO THE MAY 4 AND AUGUST 29 
AGREEMENTS. 
. GENERAL ECONOMIC POLICY . - . 
1. OcSlGNATE THE DIRECTOR'GENERALOFTHE MINISTRY OF RNANCE AS HTS CENTRAL 
'POINT OF CONTACT ON ECONOMIC. ISSOES RELATING TO THE PALESTINIAN ASSISTANCE EFFORT. 
2. ISRAEL IS COMMITTED TO THE RELEVANT PROVISIONS OF THE MAY 4 AGREEMENT AND 
' WILL CONTINUE TO DO ITS UTMOST TO EASE THE TRANSFER OF GOODS BETWEEN ISRAEL AND 
GAZA/JERICHO. GAZA AND THE WEST 3ANK, THE WEST BANK AND JORDAN. AND GAZA AND.EGYPT 
! CONSISTENT WITH ITS SECURITY CONCERNS-
, 3 FiNALi2£\vrrHTiËPA A JOINT CONCEPT-PAPER ON lNDUSTRlAL2:ONES. 
'4. ENSURE THE SWIFT INSPECTION AND PASSAGE OF GOODS DESTINED FOR 
DEVELOPMENT PROJECTS IN THE WEST BANK AND GAZA 
Ih 
-•" • 5. EXPÊDfTE NEGOTIATIONS WITH THE PA ONTHE ARRANGEMENTS.REGARDING THE GAZA 
HARBOR. IN ACCORDANCE WITH THE MAY 4 AGREEMENT. 
.. \ 6. TAKE ALL POSSIBLE CONTINGENCY MEASURES IN ORDER TO MAINTAIN MAXIMUM 
• POSSIBLE PALESTINIAN ECONOMIC ACTMTY WHENEVER SECURITY MEASURES ARE APPLIED IN 
ACCORDANCE WITH THE RELEVANT AGREEMENTS BETWEEN THEPARTIES.. " . 
• ISRAEL STANDS READY TO CONSULT WITH THE AHLC, THE PA AND . 
RELEVANT INTERNATIONAL FINANCIAL INSTITUTIONS TO ENSURE THIS EFFORT IS A SUCCESS. ' 
PQNQR REQUtRgMgNTS AND RE^PQNSIpjL/nS? ". 
THE AHLC DELEGATIONS WELCOMED THEPRESTATION BY THE PA. THE AHLC . 
' DELEGATIONS ALSO WELCOMED THE SUPPLEMENTARY EFFORTS ANNOUNCED BY THE ISRAELI 
DELEGATION TO EASE THE BUDGETARY DIFFICULTIES OF THE PA AND TO ASSIST THE PALESTINIAN 
•ECONOMY, AND ITS INTENTION TO PURSUE THESE EFFORTS. THE DELEGATIONS EXPRESSED 
THEIR WILLINGNESS TO WORK œLLECTTVELY TO MAKE BEST EFFORTS IN ADDRESSING THE 
FINANCING GAP DESCRIBED IN THE PALESTINIAN PRESENTATION. THE AHLC DELEGATIONS 
STRESSED THE NEED FOR ALL DONORS TO IMPLEMENT PROMPTLY THEIR PLEDGES MAÎDE AT THE 
OCTOBER 1993 DONORS CONFERENCE TO SUPPORT. MIDDLE EAST PEACE AND ATTHE 
SUBSEQUENT THREE AHLC MEETINGS IN PARIS AND BRUSSELS: THE AHLC AGAIN CALLED ON 
DONORS TO DEVOTE ?5 PERCENT OF THEIR OVERALL PLEDGES TO START-UP COSTS. THE AHLC 
'DELEGATIONS COMMITTED THEMSELVES TO PROCEED AS FQLLOWS: 
• 1.' F0RTHEPER1ODAPRIL1.1995-OECEMBER31,-19S5THED0N0RSWOULDSTRIVETO . 
PROVIDE ADDITIONAL SUPPORT FOR.START-UP. COSTS AS OUTLINED IN THE PA BUDGET. 
• . 2,. IN ADDITION. DONORS ACKNOWLEDGE.THAT. UNDER THE TERMS OF THE BRUSSELS 
UNDERSTANDING (COVERING OCTOBER 1 ,• 1S94 - MARCH 31.19SÔ) CERTAIN EXPENDITURES WERE 
: NOT FULLY COVERED. TO ADDRESS THIS ISSUE/DONORS WILL ENDEAVOR TO PROVIDE THE . 
: REQUIRED FUi^DS. INCLUDING SI5.85. MILLION FOR THE POLICE. CONORS ALSO INDICATED THAT 
THEY WILL MAKE AN EFFORT TQ EXPEDITE THE RELEASE OF OUTSTANDING PLEDGES FOR ' 
START-UP COSTS' MADE IN BRUSSELS. FINALLY, THÉ AHLC CALLED UPON DONORS TO RELEASE 
NOW ANY UNCOMMITTED BALANCE OFTHEIR1994 PLEDGES TO THE HOLST.FUND. 
. '.'" 3. DONORS NOTED THAT ALL DONOR FUNDING FOR START-UP COSTS WOULD REQUIRE 
THE PALESTINIANS TO CONTNUS.TO MEET ALL ACCOUNTABILITY REQUIREMENTS FORTHE HOLST 
FUND.' UN PAYMENTS TO THE POUCE, AND.B1LATERAL MECHANISMS. DONORS HAVE AGREED TO 
EXTEND OPERATION THROUGH DECEMBER 31. ÎS95 ÔF30TH-THE BRDS.HOLST FUND AND UN'S 
• POLICE DISBURSEMENT MECHANISMS. • 
. 4. 'DONORS NOTED THAT THE GOVERNMENT OF ISRAEL AND THE PLO ARE: CONTINUING 
THEIR NEGOTIATIONS ON THE TRANSFER Or ADDITIONAL SPHERES AND THEIR FINANCING. THEY 
ALSO NOTEDTHE WILLINGNESS OF ISRAEL AND THE PA TO KEEP THE DONORS INFORMED OF THE 
PROGRESS Or THESE NEGOTIATONS. 
5.. DONORS'INDICATED THAT THEY WOULD CONTNUc TO SEEK TO RAISE.THE NECESSARY 
RESOURCE'S FOR QUICK-DISBURSING JOB CREATION PROJECTS.. THE DONORS INDICATED THEIR 
•WILLINGNESS TO OFFER PREFERENTIAL TRADE ACCESS FOR PALESTINIAN GOODS. THEY ALSO 
DECLARED THEIR' READINESS TO OFFER. INCENTIVES AND GUARANTEES FOR PRIVATE ' 
INVESTMENT IN THE WEST BANK AND GAZA. 'T^EYSTATEO.THAT THEY WILL CONSIDER .' 
FAVORABLY, IN DUE TOE, THE FINANCING OR CO-FINANCING OF PROJECTS FOR THE GAZA ' 
HARBOR AND THE-INDUSTRIAL ZONES. • "•' . 
"6. THE DONORS REQUESTED THAT THE AHLC SECRETARIAT AMD IMF CONTINUE TO 
REVIEW ACTUAL REVENUE COLLECTIONS. THE'AHLC SECRETARIAT ANDTHE IMF WOULD ALSO ' 
'CONTINUE TO REVIEW THE RECORD OF PALESTINIAN AND ISRAELI EFFORTS TO ESTABLISH AND 
OPERATE TAX SYSTEMS. EXERCISE FISCAL CONTROLS, AND REPORT THE RESULTS TO THE . 
If 
DONORS THE CONORS NOTED THAT 1F-ÎHESE SPORTS REVEALED ANY PROBLEMS WITH 
' REVENUE COLLECTION, EXPENDITURES. OR INSTTUTIONAL DEVELOPMENT,, s HE AHLC WILL , 
CONVENE TO CONSIDER THE MATTER. 
?. THE DONORS STRESSED THAT THciR OWN CONTINUING EFFORTS WOULD BE • 
CONTINGENT UPON PERFORMANCE BY PALESTINIANS AND ISRAELIS IN IMPLEMENTING THE STEPS 
•DESCRI3ED IN THIS ACTION PLAN. THE DONORS NOTED THE PALESTINIAN PLEDGE TO MAKE BEST 
EFFORTS SO THAT DONOR SUPPORT FOR STARTUP COSTS. WILL NOT BE REQUIRED BEYOND . 
DECEMBER 31.1-S95. THE DONORS UNDERTOOK TO REVIEW THE CONTINUING NEED FOR START­
UP COSTS BEYOND THAT DATE. PRIOR TO THE END OF THE YEAR. 
8. DONORS NOTED THAT THE PA'S DRAFT BUDGET FOR APRIL-DECEMBER. 1995 IS BASED 
dNANUMBEROFKEYASSUMPTlONS.TO'8EMONITORED.BY.THEIMFANDTH£AHLC • . 
SECRETARIAT.:-
AHLC RESPONSIBILITIES: THE AHLC WILL BE RESPONSIBLE FOR A PERFORMANCE 
REVIEW PROCESS TO OVERSEE THE IMPLEMENTATION OF THIS ACTION PLAN. THE AHLC ASKED 
THÉ IMF TO MONITOR THE PALESTINIAN BUDGET. IT APPOINTED THE AHLC SECRETARIATTO 
FOLLOW-UP ON OONOR CONTRIBUTIONS AND THE IMPLEMENTATION OF THE PUBLIC SECTOR 
INVESTMENT PROGRAM. THE AHLC WILL UTILIZE THE LOCAL1 AID COORDINATION COMMITTEE 
' (LACC) AND THE JOINT LIAISON COMMITTEE (JLC) TQ.OVERSEE ON A CONTINUING BASIS-THE 
IMPLEMENTATION OF THE ACTION PLAN BY THE PA, GOVERNMENT OF ISRAEL AND THE DONORS.. 
ON BEHALF AND UNDER THE INSTRUCTION OF THE AHLC. THE LACC AND THE JLC WILL REVIEW 
THE aUARTERLYREPORTS'PREPARED BY THE PA IN CONJUNCTION WITH THE IMF AND • 
INFORMATION PROVIDED BY THE AHLC SECRETARIAT ON STEPS TAKEN TO IMPLEMENT THIS. • 
ACTION PLAN. THE AHLC WILL MEET TO MONITORTHE SITUATION AT THE REQUEST Or THE CHAIR 
UPON THE RECOMMENDATION. OF ANY OF ITS MEMBERS. • 
ATTACHMENTS: 
- IMF RECCMMENDATJdNS 
- PA ORAFTBUOGET FOR APRIL-DECEMBER. 1995 
FORTHSPtO • • FOR THE GOVERNMENT OF ISRAEL 
FCRTHE BENEFIT OF . , 
THE PALESTINIAN AUTHORITY 
FOR THE AD HOC LIAISON COMMITTEE 
APRIL 27.1995 
./' 
ANNEX B 
ECONOMIC ASPECTS OF THE STRATEGY FOR THE PALESTINIAN 
TERRITORIES. 
The signing of the Interim Agreement on 28 September signals a new em in 
Palestinian autonomy and means that international donors will have to rethink their 
priorities and action. The European Union believes the Palestinians should be helped 
to draw up a comprehensive strategy within an appropriate macroeconomic framework 
which takes account of medium-term imperatives and acts as a reference point for the 
action of donor countries. 
A s the EU sees it, this strategy should have three interdependent goals: 
to sustain a balanced budget, 
to kick-start productive investment, 
to help draw the emerging Palestinian economy into regional and world trade. 
To do this, the EU suggests a two-pronged approach, including: 
a redefined and stronger Tripartite Agreement to consolidate progress made on the 
budget; 
the swift creation of a coordination group to outline a development plan for the 
West Bank and Gaza Strip. 
1. SUSTAINING A BALANCED BUDGET 
2. Good budgetary prospects for 1995 and beyond 
For the first time since the Palestinian Authority was set up, budgetaiy prospects are 
looking good. This should help calm the ongoing tension which has so far marked 
international assistance to the Palestinians. 
This year, there are few additional deficits to be covered.1 Initial indications post-
1995 are also very encouraging. 
Implementation of the Interim Agreement is expected to have a positive effect on 
tax receipts. Next year's deficit should be halved to USD 7$ million. Tax receipts 
for 1997 should meet the Administration's current expenditure and there could even 
be a budget surplus in 1998. 
i This is due in part to one-off actors (exceptional tax refunds by the Israelis) but also to encouraging 
developments such as: 
(i) & tight squeeze on spending (e.g. freeze on civil service pay and recruitment, freeze on police 
recruitment); 
(ii) the benefits of a new tax collection system; 
(iii) the prompt transfer of tax receipts by the Israelis. 
/'• 
2. Risks 
However, for this to happen, a number of conditions must be met.2 
The main risks have to do with the assumptions on which the budget forecasts are 
based, namely that: (i) budget policy remains problem free and (ii) security does not 
deteriorate (no repeated sealing off of the Palestinian Territories, reducing the 
number of Palestinian workers in Israel to 35 000). 
Another risk concerns the timetable for transferring authority since any additional 
delay would have immediate effects on tax receipts.3 More generally, the alternative 
economic policy scenarios drawn up by the IMF show that the above factors 
(number of workers in Israel or transfer timetable) have a marked impact on budget 
equilibrium. 
3. EU proposal (TPA) 
The TPA has been instrumental in steadily reducing the Palestinian Authority's deficit by 
encouraging: 
(i) Palestinians to implement an extremely prudent budgetary policy; 
(ii) Israelis to make taxation transfers on time and 
(iii) donor countries to take steps to meet any outstanding deficit. 
The TPA has also enabled the ad hoc liaison committee and the IMF to play a real part 
in overseeing the respective commitments of the three parties. Even though budget 
prospects have improved, the EU feels that the TPA must remain in place not only 
because of the potential loss of control over taxation outlined above but also because the 
impact the transfer of authority under the Interim Agreement will have on taxation has 
not yet been fully gauged. 
However, although the TPA must remain, changes are required to it: 
it must be simplified and made to focus on issues directly relevant to the budget. 
Any provisions in the Agreement which refer to other matters such as investment 
or industrial zones must be deleted; 
obligations (such as the timetable for the steps to be taken by the Palestinians and 
the Israelis) must be clarified and made more binding. Monitoring mechanisms must 
therefore be strengthened; 
the TPA must take a medium-term view. The search for a lasting solution to the 
Palestinian tax deficits must look beyond the short term if persistent factors are to 
be accommodated alongside purely cyclical ones. The fact that we are not yet 
certain of the economic and fiscal consequences that the transfer of authority will 
In addition to budget discipline and tax collection efforts. 
For example, forecasts for 1996 state that by the time of the elections in March the Palestinian 
Authority will be in receipt of all levies on oil and all customs clearances on direct imports. 
A 
have increases the need to develop a medium-term approach. The EU would 
therefore ask that the working party suggested below be given explicit responsibility 
for analysing - as quickly as possible - what impact the Agreement will have on the 
budget. 
EL ENSURING THAT PRODUCTIVE INVESTMENT GETS OFF THE GROUND 
1. Situation: delays and weaknesses. It is true that investment in infrastructure could 
have been more substantial if (i) conditions on the ground have been more favourable and 
(ii) the administration of the aid, notably on the Palestinian side had been more effective. 
However, one of the key reasons for the lack of investment has been the unexpected 
surge of recurring costs which have needed some 150 million dollars more to finance than 
anticipated over the last 18 months. 
2. Approach. Private investment will of necessity be the driving force of economic 
growth and the main source of employment. Private investment must, however, be made 
easier in two ways: (i) an enhanced programme of public investment to restore the basic 
infrastructure indispensable for a resumption in economic growth, (ii) promotion of an 
investor-friendly legal and regulatory climate and (iii) underpinning institutional 
structures. 
3. European Union proposal 
Bilateral cooperation. As set out above, the EU has already carried out an in-depth 
study to determine the content of and arrangements for its assistance in 1996 on the 
strength of intense consultation with the Palestinian Authority. 
Multilateral approach. The EU is proposing that a task force be set up as soon as 
possible to help the Palestinians hammer out the exact content, priorities, schedule 
and arrangements for their development strategy. This strategy would also serve as 
a framework for the intervention of donor countries and would be made up of the 
three main donors, the European Union, the United States and Japan, together with 
the IMF, the World Bank and the UN special coordinator. Its prime objective would 
be to help the Authority put the finishing touches to its public investment programme 
for which it has received help from the World Bank, taking care to integrate the 
programme into the macro-economic background and affording it a medium term 
dimension. This task force should be set up at the next meeting of the Consultative 
Group in Paris and would put forward a detailed work programme at the ministerial 
coordination meeting in December on Palestine. 
/? 
m. INTEGRATING AN EMERGING ECONOMY INTO REQIONAfcAND GLUHAJLT 
TRADE 
2. The challenges. Lasting economic development of the West Bank and Gaza Strip 
must go hand in hand with the integration of the Palestinian economy into regional and 
global trade in goods, services and technology, and this therefore constitutes one of the 
main planks of the European Union's proposed development strategy. Such integration, 
which should be gradual and consistent with the EC. / Israel Association Agreement, is 
warranted on a number of counts. Market discipline and competition are necessary to 
bring about a change in thinking (there has been a trend in some quarters to consider the 
issues in isolation), to grasp the expected opportunities of progress toward peace and 
stability in the region, and to be able to make inroads into certain European or world 
markets. The small scale of the West Bank and Gaza Strip economy, coupled with its 
marked dependence on the outside world, lend weight to this need for relevant 
international specialization. 
2. EU proposal The Palestinian Authority would be helped to devise a development 
strategy that fosters the integration of the West Bank/Gaza Strip into regional and world 
trade. We propose a three-pronged approach: 
Regional integration. There would be two goals to pursue: (a) helping the 
Palestinians play a full role in the increasing number of regional projects and 
programmes forming part of the peace process, which concern transport links, power 
links, energy and water, and (b) encouraging the Palestinian Authority to negotiate 
trade accords with other countries in the region. 
International integration. There are two avenues that could be followed: (i) 
encourage the industrialized countries to follow Europe's example and grant far-
reaching trade concessions to Palestinians goods and services and (ii) help the 
Authority to approach the WTO with a view to familiarizing the Palestinians with that 
institution's practices and rules. 
EU-Palestinian bilateral relations. Bilateral relations between the European Union 
and West Bank/Gaza Strip should be bolstered on a number of fronts: the Union has 
already decided to make the Palestinians a fully fledged member of the Barcelona 
Forum. The Community could, moreover, look at the possibility of strengthening and 
extending the trade concessions it has already granted to Palestinian products (their 
key farm products already enjoy free or preferential access and manufactures enjoy 
free access). The Community could also embark on exploratory talks with the 
Palestinian Authority to step up and formalize bilateral relations and - in the light of 
the conclusions of the General Affairs Council of the 2nd October 1995 - extend their 
scope to economic, trade and institutional cooperation. 
io 

ISSN 0254-1475 
COM(95) 505 final 
DOCUMENTS 
EN 11 
Catalogue number : CB-CO-95-552-EN-C 
ISBN 92-77-95218-0 
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