Opinion on relations between the European Union and the Middle East

(95/C 301/14)

On 20 December 1993, the Economic and Social Committee, acting under the fourth paragraph of Rule 20 of its Rules of Procedure, decided to draw up an Opinion on the relations between the European Union and the Middle East.

The Section for External Relations, Trade and Development Policy, which was responsible for preparing the Committee's work on the subject, adopted its Opinion on 6 July 1995. The Rapporteur was Mr Etty.

At its 328th Plenary Session (meeting of 14 September), the Economic and Social Committee unanimously adopted the following Opinion.

1. Introduction

1.1. In January 1993 the Economic and Social Committee adopted its most recent Opinion on Relations between the European Union and the Middle East: The EC and Economic Cooperation in the Middle East (CES 78/93).

The Committee endorsed the European Union's support for the peace process, encouraged it to take initiatives which could help to solve present and future obstacles to peace, and tried to identify the economic and social advantages for the peoples in the Middle East once the political problems, still blocking economic cooperation in the region, are solved.

1.2. On 8 September 1993, the Commission published a Communication on Future Relations and Cooperation between the Community and the Middle East (COM(93) 375 final).

The document addresses the conditions for cooperation, ways to promote a sustainable cooperation process in the Middle East, and future relations of the European Union with the Middle East (in particular with Egypt, Israel, Jordan, the Occupied Territories, Lebanon and Syria). It tries to formulate answers to three basic questions:

- What are the conditions for cooperation?

- Which role should the European Union play in order to promote cooperation?

- How can the benefits for all parties concerned be optimized?

1.3. Among the conditions, peace obviously is considered to be a condition sine qua non. Furthermore, the Commission identifies economic cooperation in areas vital to economic progress and to the well-being of peoples. The pace of economic development throughout the area is identified as an important factor in the longer run.

1.4. As to the role to be played by the European Union, the Commission stresses the importance of creating a climate of confidence by a policy of small steps rather than ambitious undertakings. It mentions the private sector, business federations, universities, municipalities, technical institutions and, indeed, 'any group of partners ready to go ahead in any field, from economy to culture' as actors in such a process. The latter should lead the countries concerned towards what is called 'progressive institutionalization'.

1.5. In 'a common regional vision', the countries in the region could be helped to pool common capacities and to tackle common problems (such as energy, water, health, the environment and refugees).

1.6. Optimizing benefits for all can, according to the Commission, be best pursued in a carefully 'balanced triangular relationship' between Europe, the Mashrek countries, and Israel. In this context, existing cooperation agreements should be revised. Relations should evolve from development cooperation towards new forms of cooperation in many fields (political, economic and social), taking into account the social characteristics of the countries concerned.

1.7. The Commission will develop guidelines for its future policies towards the Middle East, flowing from these ideas, and work programmes implementing these 'while peace is being established in the region and security strengthened'. It announces other complementary initiatives dealing with short and medium-term issues in the near future.

1.8. The Commission further developed its views on future EC policies for the region in the Communication of 19 October 1994 on 'Strengthening the Mediterranean Policy of the European Union; Establishing a Mediterranean Partnership'. The European Council during its meeting of December 1994 in Essen confirmed the strategic importance of the Mediterranean region, and asked for specific proposals on the basis of the orientations of the communication, which were put forward by the Commission in the subsequent Communication of 8 March 1995.

1.9. A first set of such initiatives followed already on 29 September 1993 in the form of a Communication from the Commission to the Council and the European Parliament on EC Support to the Middle East Peace Process (COM(93) 458 final), shortly after the Declaration of Principles of Israel and the PLO. In this document the Commission presents its views on how the European Union can help to materialize the potential of the Declaration of Principles for the peace process.

1.10. The situation, emerging after the signing of the Agreement between Israel and the PLO is described as a 'critical phase' and as very promising but not irreversible.

While noting some of the necessary follow-up actions in the diplomatic field, the Commission underlines the importance of giving the populations concerned the experience that the new and dramatic developments brings about improvements in their material conditions. Therefore, it wants to contribute to responding to the 'most urgent and specific needs' of the Palestinians in the Occupied Territories, and to ensuring that both Israel and the Mashrek countries derive concrete benefits from the peace process.

1.11. As regards Palestinian needs, the Commission wants to make available MECU 500 in the form of grants and long-term loans. This amount should be used for both short-term aims (realizing benefits from projects already under way concerning housing, small credit and assistance for business and SMEs, solid waste removal, sewage, Gaza hospital, setting up some new projects such as constructions of classrooms and completion of industrial parks set up by the Israeli civil administration) and medium-term aims (improving the economic and social infrastructure, as well as certain initiatives aimed at creating jobs in the heavily unemployment-ridden Occupied Territories).

Furthermore, the Commission intends to render technical assistance to the Palestinians in coping with international assistance. It also seeks to play, as a major donor, a central role in coordination of international assistance.

1.12. As regards the realization of tangible positive effects for Israel and the Mashrek countries, the Commission notes that considerable budgetary and loan facilities, available for the European Union's Mediterranean policy 1992-1996 will be available if the peace process succeeds. The Commission believes that the European Union should underpin the process by making funds available for regional cooperation. Target areas mentioned are water, energy and infrastructure. In addition to that, the Commission wishes to increase its activities promoting contacts between 'political and intellectual decision makers of the region' and to invite 'regional parties' to exchange views on the priorities for regional cooperation in the coming years.

1.13. The views, expressed in the 9 September Communication on a review of bilateral relations with the countries in the region, are reiterated. In addition to that, it is stated that a 'structured relationship' between the European Union and the Palestinian self-government should be established, covering all aspects of cooperation.

The European Council reaffirmed this in its meeting of December 1994 in Essen where it also welcomed the peace Treaty between Israel and Jordan of 26 October 1994.

1.14. The Commission's views on and plans with regard to economic cooperation in the Middle East reflect several of the points made by the Economic and Social Committee in its January 1993 Opinion.

The Commission appears to have broadened the scope of 'horizontal cooperation', as it was called in the Opinion, so as to include now infrastructure, water and energy projects. It now also sees a specific role in promoting regional cooperation, and/or by stimulating dialogue between 'regional parties', as stated earlier. Probably, the Committee can interpret this as a positive response to its proposals in the January 1993 Opinion regarding the contribution social partners can make in this respect.

1.15. In its January 1993 Opinion, the Committee noted that its views should be seen as fitting in the broader framework of the European Union's Mediterranean policy.

The Opinion itself concentrated on problems of economic integration of the Middle East, and its recommendations and conclusions aimed at contributing to furthering that goal.

However, it was underlined at the outset that 'essentially political problems' need to be solved before there is any realistic prospects of significant economic cooperation throughout the area. It is obvious that the core problem meant here is the Palestinian problem.

1.16. The Israeli/PLO agreement of 12 September 1993, the economic protocol of 29 April 1994, and the agreement on the Gaza strip and the Jericho Area of 4 May 1994 may prove, hopefully, to have been decisive steps forward on the road to peace; however, the Commission is right to say that they brought the peace process to a critical phase. One should not forget that the potential for success is as vital as the potential for disaster. Public opinion in both Israel and the Occupied Territories is indeed volatile. In the time passed since September 1993; public support for the agreement has fluctuated significantly and, overall, decreased. Several tragic violent incidents have seriously impaired and delayed the negotiations on the implementation of the terms of the agreement, and perhaps the peace process itself.

2. General remarks

2.1. What is happening in the Occupied Territories is, obviously, still the key to peace, stability and security and, therefore, to economic cooperation in the Middle East. It follows that the European Union should concentrate its efforts on helping to reinforce public support for the peace process in the Occupied Territories and in Israel. Several problems between Israel and its closest neighbours are of a purely political nature, on which the Committee does not want to express itself. However, there are also important issues in the socio-economic field where it thinks it can make a contribution. Employment in the Occupied Territories is first and foremost.

2.2. Creation of sustainable jobs must be a major goal of the European Union's efforts in this field. It should be complemented by the employment effects of the infrastructural projects the Commission has already identified as priorities. Jobs in the Occupied Territories seem to be one of the most urgent needs of the population. Reliable figures on the employment situation are difficult to obtain, but according to the International Labour Organization the situation looks very grim. It quoted, in the Report of the Director-General on the Territories of 1993, Prime Minister Rabin, mentioning a percentage to the Knesset of 40% unemployed in Gaza and describing the situation as an economic and occupational time bomb developing.

2.3. The situation has deteriorated significantly since then due to the closure of the Israeli border for most Palestinian workers. Exports from and imports to the Territories are also severely impaired by this. The ILO states, viewing the unemployment crisis, that 'Palestinian and Israeli authorities should consider it, in the interest of peace, a strategic priority to agree as early as possible on ways and means of keeping the green line open for tens of thousands, or better still, an unlimited number of bona fide workers from the territories. It is imperative that security issues be dealt with otherwise than by closing the territories, a practice that has aggravated problems rather than solved them. In addition, the time may have come for the Palestinian Authority, assisted as necessary, to seek the re-employment of Palestinian workers in other Arab countries, in particular the Gulf States' (). Proper attention should be paid to their working conditions in these countries.

2.4. The real situation, however, is that jobs in Israel which used to be taken by Palestinian workers are now given to Eastern European and Asian contract workers. The situation is still aggravated by a population increase in the Territories of 4% per year. More than half of the population of the Gaza Strip is younger than 15 years old.

2.5. International donors, among whom the EU is the largest, have pledged more than US$ 2 billion for aid to the Occupied Territories during the five years' transitional period which is foreseen. These pledges have created strong expectations among the Palestinian population.

However, since the pledges were made, the donors have shown an outright reluctance to make the funds available. Only a small part of the money promised has been received by the Palestinians so far. This money was by far not sufficient to cover the current expenses of the newly created Palestinian Authority. The explanation for the donors' reluctance is their concern about both the absorption capacity and internal procedures and politicking on the Palestinian side, and, to a certain degree, also the inability on the Palestinian side to propose satisfactory projects. This has increased tensions among the Palestinians and between them and the donor countries. Donors are said to be thinking about involving independent aid agencies and UN bodies to supervise the spending on the money.

2.6. The disappointment and irritation on the Palestinian side is understandable, as is the desire for efficient spending of aid and accountability on the part of the donors. It appears that this desire and the perceived weaknesses of the beneficiary creates a deadlock which can last long with disastrous consequences. The donors have agreed in April this year to try and speed up the disbursement of project aid provided that the Palestinian Authority improved its procedures and that Israel made a significant effort to facilitate the development of the Territories (tripartite action plan on revenues, expenditures and donor funding for the Palestinian Authority, Paris, April 1995). It is hard to imagine how Palestinian rule in the Jericho area and the Gaza Strip will be able to perform in a credible way if continuously dependant on ad hoc supportive measures with only short-term effects.

2.7. Under such conditions, effective policies for the improvement of working and living conditions of the Palestinian population of the Occupied Territories will not materialize. Declared opponents of the peace process perceive that very well and try to exploit discontent and despair for their political purposes. This might be the most potent menace for the peace process in the Territories, and therefore in the whole region.

2.8. The problems which cause lack of confidence among the donors will take some time to be resolved. One of the remedies they can promote is training of Palestinians who will administer and implement aid projects. With a view to the short run, however, they will have to find arrangements with the Palestinian Authority for supervision of the projects by third parties who have the confidence of both the donors and the Palestinians.

2.9. Foreign aid should help to keep things going in the Territories in the period of transition and to start economic activity with stimulating effects on local business. Meanwhile, the major general task for the Palestinian Authority will be to combat existing uncertainty which is a disincentive for potential foreign investors and a source of unrest and dissatisfaction for the population. Many initiatives must be taken as regards economic reform, legislation, and institution building.

2.10. In studies undertaken by several international agencies, it has been stressed consistently that the foremost tasks will be:

- to bring about economic reform by removing existing over-regulation and reducing the excessive dependency of the Palestinian economy on external markets, in particular on Israel. (Exports to third countries are heavily controlled by Israel). Appropriate measures would include: strengthening of the private sector (while allowing a significant role for public sector projects like infrastructural works) finding access to alternative markets than Israel, employment and training programs in the agricultural sector, and the establishment of security for investors by the creation of reliable legal provisions;

- to develop a new legal framework: present legislation is a highly complex mix of pre-1967 Jordanian and Egyptian legislation, Israeli law and military orders, etc. All the laws must be reviewed, harmonized and modernized. Legislation relating to economic activities should be drafted and implemented so as to create a market-friendly framework, while ensuring that social justice is not sacrificed to economic reform;

- to provide an institutional basis for society. Institution building, including training for people employed in such institutions, is of cardinal importance for reform and development of the Palestinian economy and, indeed, for Palestinian society as a whole. At present there is, virtually, an institutional void. Economic reform as well as a new body of legislation will require adequate implementation and enforcement. Departments, specialized bodies for e.g. training, housing or social security will have to be established, and also free and independent organizations of employers, workers and other socio-economic interest groups.

3. Special remarks and recommendations

3.1. Given the scarcity of means and the cautious attitude of foreign donors at the present time, and taking into account the political necessity to produce shortly some tangible, positive results of the peace process for the populations, a limited number of strategically chosen aid projects should be selected by the parties concerned for immediate funding, even if the beneficiary cannot fully meet the donors' criteria. The EU, as the major donor, should take the initiative. The projects should alleviate some of the most pressing problems of the population, contribute significantly to the major tasks of economic reform, legislation and institution building, and/or have a high political 'visibility'. Good examples of such projects are the public works (with their, hopefully, stimulating effects on small and medium-sized enterprises and employment) which the EU is already funding, and a new project for the re-integration of 12 000 former political detainees in Palestinian society, developed at the request of the Palestinian leadership by the International Labour Organization (ILO) and the World Bank. The EU has committed itself already for an important contribution to this approximately ECU 22,5 m. two-year programme.

3.2. One international organization which might help the Palestinians in administering and supervising aid projects is the United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA). UNRWA has a long standing reputation in the health and education sector, but it is also very active in employment creation, especially as regards help in setting up small businesses. UNWRA, like the ILO, already functions as a channel for EU aid to the Territories.

3.3. Another is the ILO. For more than a decade it has analyzed the pressing socio-economic problems of the Palestinian population of the occupied territories, cooperated with all the parties concerned in the region, and established a good relationship with the Palestinian leadership. This relationship might facilitate their acceptance by the Palestinian Authority when it comes to the delicate matter of supervision and administration of projects under the present difficult circumstances. Therefore, it might also be worthwhile considering that the ILO has developed five projects which the PLO leadership had identified as priority activities:

- a programme for rehabilitation and reintegration of ex-detainees (mentioned in paragraph 3.1),

- an employment-intensive community infrastructure programme,

- the establishment of a Department of Labour and Social Affairs and elaboration of a labour code,

- assistance in the setting up of a system of social security, and

- support for the setting up of a system of labour and social statistics.

The Committee thinks the ILO could make an important contribution also because of its tripartite character (Governments, employers' organizations, trade unions). Presently, socio-economic interest groups are barely involved in the preparation of important decisions which directly involve them by the Palestinian Authority. The Palestinian Authority has expressed its interest in the tripartite approach and has requested the ILO for technical assistance to help develop it.

3.4. Currently, trade unions and employer organizations, and perhaps also other socio-economic interest groups in and outside the EU, are multilaterally and bilaterally seeking contacts and rendering assistance to their counterparts in the Occupied Territories. In some cases these contacts have already led to forms of concrete cooperations. The Committee welcomes this and thinks this should be encouraged. It further suggests that Governments wishing to develop forms of cooperation with the Palestinian Authority, should as much as possible involve socio-economic interest groups in their country. It is confident that the European Union's approach will be helpful in this respect. In addition, the Committee wishes to underline that it is important to involve non-governmental organizations in the implementation of aid programmes.

3.5. The Committee thinks it is of great importance that the Israeli Government and the Palestinian Authority involve, from the very beginning, socio-economic interest groups and in particular employers' and workers' organizations in the formulation and implementation of plans for industrial zones in the Occupied Territories. Both sides have reached agreement on setting up such zones (5-7 in the West Bank, 3 in the Gaza Strip) and are currently trying to interest foreign donors. Each zone would create 5 000-10 000 jobs for Palestinian workers. Palestinian, Israeli and foreign companies are potential investors in labour-intensive industries and commercial and service enterprises. The Government of Israel and the Palestinian Authority are seeking donors to 'adopt' one or more of these zones to provide them with the necessary infrastructure (estimated costs: US$ 20-25 million each).

Except for the financial problems, this initiative raises a number of other important questions. Some of these should be tackled by the partners in cooperation with relevant international agencies (e.g. a charter for the zones, dispute settlement procedures, registration of companies, taxation, insurance). Some should be dealt with, indeed, in close cooperation with workers and employers so as to avoid that the zones will be turned into places where cheap labour can easily be exploited.

The Committee recommends that the European Union follows the developments closely and helps this project to start and succeed.

3.6. Vocational education and training systems in the Occupied territories are undersized, fragmented, undirected and underfunded. Current international assistance for reforming them should be continued and, if possible, increased. Special attention should be given to adult workers and to self-employed people (current systems focus on young workers exclusively).

3.7. The EU might also look into new possibilities to support the development of agriculture in the Territories: agriculture is a major employment sector for the Palestinians. This will include helping to find solutions for the problems of exports of agricultural products from the Territories with the Israeli Government.

3.8. As regards the negotiations between the European Union and Israel on a new cooperation agreement, the Committee trusts that the Union will pay particular attention to forms of cooperation which could promote better economic integration of Israel in its own region. The same holds for negotiations with Israel's neighbouring countries. Furthermore, it appears to be important to encourage the latter countries to better avail themselves of opportunities already offered to them by the European Union in existing agreements and arrangements.

3.9. At this moment, for most socio-economic interest groups in the Occupied Territories, Jordan and also Egypt consider it too early to engage in a fruitful discussion on future cooperation with each other. Only in the trade union field a structured dialogue has been established between the organizations in Israel and the West-Bank/Gaza, which has led in March of this year to an agreement between the Israeli trade union confederation and the Palestinian trade union federation on the West Bank concerning some important, long standing financial claims of Palestinian workers. The near future might bring new opportunities to bring other relevant organizations together (Euro-Mediterranean Conference, Amman Summit Conference). The Committee hopes and expects that the European Union will remain well aware of developments in this field and will support organizations, like Chambers of Commerce, from the countries concerned who want to take initiatives or even stimulate such initiatives. The Committee will closely monitor this process. It is interested to play a role itself at the appropriate time.

Done at Brussels, 14 September 1995.

The President

of the Economic and Social Committee

Carlos FERRER

() Report of the Director-General, International Labour Conference, 82nd Session, 1995.