Communication from the Commission to the Council and the European Parliament - EU-Palestinian cooperation beyond disengagement - towards a two-state solution
Date: 2005-10-05
Institutions: European Commission
Subjects: Israel, Palestine, Palestine question, West Bank question, cooperation policy, economic development, establishment of peace, rule of law, the EU's international role

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 5.10.2005 
COM(2005) 458 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE 
EUROPEAN PARLIAMENT 

EU-Palestinian cooperation beyond disengagement - towards a two-state solution 

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COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE 
EUROPEAN PARLIAMENT 

EU-Palestinian cooperation beyond disengagement - towards a two-state solution 

INTRODUCTION 

Following  a  period  of  almost  five  years  of  terrorism,  violence,  destruction  of  infrastructure 
and economic decline in the West Bank and Gaza, 2005 has witnessed a concerted effort to 
advance  the  peace  process.  In  this,  Israelis  and  Palestinians  have  been  supported  by  the 
international community. 

Israel’s  disengagement  from  the  Gaza  Strip  and  parts  of  the  Northern  West  Bank  is  a 
significant step, offering the best chance of sustained peace in the region for many years. The 
Quartet Special Envoy, James Wolfensohn, is working determinedly towards a breakthrough 
in the political impasse Palestinians and Israelis have found themselves in since the beginning 
of  the  second  Intifada.  Successful  conclusion  of  his  efforts  could  provide  the  decisive 
opportunity for a resolution of the conflict. The Quartet Roadmap, a necessary condition for 
the  creation  of  a  Palestinian  state,  remains  the  reference  point  for  EU  activities  and  its  re-
launch the focus of EU policy. 

This optimistic perspective does, however, depend on whether disengagement can bring real 
benefit to Palestinians and Israelis alike as well as whether the momentum generated by the 
withdrawal can be used to further implementation of the Roadmap. This includes, inter alia, 
improved  security  for  Israel,  better  economic  and  social  conditions  in  Gaza  and  the  West 
Bank and progress towards a Palestinian state able to assume its responsibilities and exercise 
the functions of a modern democracy.  

The EU is the biggest donor of assistance to the Palestinians, providing around € 500 million 
each year, over half of which comes from the EC budget and the remainder from bilateral EU 
Member  State  funding.  It  is  also  a  key  member  of  the  Quartet.  As  such,  the  EU  has  the 
potential to make a significant contribution to the future establishment of a Palestinian State 
living  at  peace  with  Israel.  In  order  to  fulfil  this  potential,  the  EU  should  now  define  a 
comprehensive  medium-term  strategy  for  supporting  progress  towards  a  two-state  solution 
envisaged by the Roadmap and for its relations with a future Palestinian State. 

This Communication sets out elements for a comprehensive and coherent strategy towards the 
Palestinian Authority and the Palestinians of the West Bank and Gaza Strip. It aims to define 
the priorities for EU engagement following the Israeli disengagement from the Gaza Strip and 
parts of the Northern West Bank, inter alia in support of the reform and institution-building 
efforts  of  the  Palestinian  Authority.  It  also  indicates  a  number  of  key,  but  not  exhaustive 
criteria  that  the  Commission  considers  necessary  for  a  successful  involvement  following 
disengagement. The Commission proposes to prepare a Country Strategy Paper for the West 
Bank and Gaza Strip on the basis of the elements laid out in this Communication and in line 
with the European Neighbourhood Policy Action Plan with the Palestinian Authority. 

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This  Communication  does  not  cover  issues  arising  from  the  broader  context  of  the  Middle 
East  peace  process.  Commission  services  are  working  with  the  EU  Special  Representative 
(EUSR) for the Middle East peace process to identify EU positions on key issues in order to 
promote a forward-looking approach to the Middle East in a post-disengagement situation. 

1. 

THE QUARTET SPECIAL ENVOY FOR DISENGAGEMENT 

The  Quartet’s  designation  of  James  Wolfensohn  as  Special  Envoy  for  disengagement  sets  a 
new  context  for  the  work  of  the  international  community  in  the  short  term.  The  European 
Commission has seconded staff to his team and is coordinating closely with other donors, and 
has made available a € 60 million package for launching quick-start projects. 

The Special Envoy has presented six points or joint issues for the Israelis and the Palestinians 
to address in order to set the conditions for ensuring the  success of the disengagement  plan 
and future engagement of the international donor community. These cover questions relating 
to border crossings, the West Bank/Gaza link, air and sea ports, houses in the settlements, and 
the greenhouses in the settlements. 

In the context of agreements between Israel and the Palestinian Authority on these points, the 
Commission  is  making  available  support  for  customs  operations  at  the  border,  and  has 
provided resources for infrastructure which could be used for the sea or air ports. 

Looking  beyond  the  disengagement  period,  the  Quartet  Envoy  has  also  presented  three 
priorities on which the Palestinian Authority should focus: fiscal stabilisation, a medium-term 
development plan and job creation. The Commission is addressing these priorities through its 
contribution to the World Bank Public Financial Management Trust Fund, as this multilateral 
channel  has  proved  to  be  the  most  efficient  system  in  the  current  circumstances,  as  well  as 
making available resources for quick-start projects. 

Subject to the progress made on the six points, the Quartet Envoy has proposed a doubling of 
resources  from  the  international  community  to  € 3  billion  a  year  over  the  next  three  years. 
This has been endorsed by the G8. 

The priorities set out in this Communication are part of the response to this new context. 

2. 

REFORM  OF  THE  PALESTINIAN  AUTHORITY  AND  PREPARING  FOR  A  PALESTINIAN 
STATE 

The  Commission  has  been  one  of  the  few  donors  pursuing  its  assistance  to  the  Palestinian 
reform process throughout the Intifada, alongside the provision of extensive emergency aid. It 
has done so both by targeted institution-building programmes and by attaching reform-related 
conditions to its financial support to the Palestinian Authority.  

In  the  wake  of  disengagement,  however,  the  Palestinian  Authority  still  faces  immense 
challenges. The effective and complete assumption of responsibility for security and service-
provision  in  Gaza  is  a  major  challenge.  At  the  same  time,  a  more  comprehensive  and 
sustainable  programme  of  institution-building  is  required  in  preparation  for  a  future 
Palestinian State in both Gaza and the West Bank. 

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The EU needs to focus its assistance increasingly on the promotion of institution-building by 
the  Palestinian  Authority.  The  Commission  Office  in  Jerusalem  has,  following  the  London 
conference on Palestinian reform, prepared a short-term governance strategy which has been 
transmitted  to  the  PA.  This  identifies  the  most  pressing  issues  of  reform  and  guides  the 
activities of international donors, setting out the short-term priorities for reform and possible 
donor  involvement.  This  should  be  done  in  conjunction  with  the  investments  required  to 
revitalise the Palestinian economy and to improve prospects for growth. 

This  focus  must  be  in  addition  to  the  short-term  efforts  needed  to  make  a  success  of 
disengagement as well as to the EC assistance provided to meet humanitarian needs. 

3. 

PRIORITIES FOR EU SUPPORT 

The  main  institution-building  priorities  are  already  set  out  in  the  EU-Palestinian  Authority 
European  Neighbourhood  Policy  (ENP)  Action  Plan.  This  pays  particular  attention  to 
establishing a functioning judiciary, effective enforcement of legislation and strengthening the 
rule of law; strengthening institutions and reinforcing administrative capacity and building on 
the  progress  already  made  in  establishing  an  accountable  system  of  public  finances.  These 
agreed  priorities  provide  guidance  for  the  Commission’s  financial  assistance  programme  to 
the Palestinians. 

A  key  issue  for  the  development  of  Palestinian  authority  is  the  question  of  political  and 
economic viability of the future state, with economic and political dimensions interlinked and 
inseparable.  Political  viability  requires  the  strengthening  of  democratic  institutions,  proper 
control of the security situation, accountability, and the rule of law, respect for human rights 
and fundamental freedoms and a thriving civil society. Economic viability depends to a large 
extent  on  access  to  and  from  Gaza  and  the  West  Bank,  movement  within  the  West  Bank, 
territorial contiguity and economic interaction with Israel.  

With a budget deficit of € 400 million in 2004, it will also require appropriate fiscal policies 
and reliable public financial management in addition to efforts to promote economic recovery, 
trade  and  investment.  Benchmarks  attached  to  budgetary  support  for  the  PA  have  been  and 
will  remain  instrumental  in  promoting  progress  towards  fiscal  stabilisation  and  the  further 
development of a transparent and accountable system of public finances.  

Political viability 

Political priorities 

–  Reinforcing legitimacy and accountability 

Support to the electoral process 

–  Strengthening the rule of law 

Assist Palestinian reform efforts in the judiciary; develop short-term strategy for consolidating 
the rule of law including the fight against corruption and organised crime 

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–  Promoting respect for human rights and fundamental freedoms 

Continue  to  address  the  issue  of  incitement  in  political  dialogue  with  the  PA,  support  civil 
society initiatives for human rights 

–  Improving security 

Complement EUSR’s work on transformation of civil police 

–  Engaging civil society 

Promote civil society initiatives in support of the Middle East peace process 

–  Making public administration more effective 

Support Palestinian public administration reform efforts, including twinning 

–  Jerusalem 

Develop a strategy of assistance for East Jerusalem 

–  Addressing the refugee issue beyond immediate humanitarian needs 

Contribute to discussion on future role of UNRWA 

Efforts  to  advance  PA  reform  in  the  short  term  must  encompass  the  ultimate  objective  of 
ensuring  political  viability.  This  should  be  done  through  political  dialogue,  conditioned 
financial  assistance  and  tailored  support  programmes,  including  the  twinning  mechanism, 
addressing the following issues:  

– 

Reinforcing legitimacy and accountability 

The  EU  has  taken  the  lead  within  the  international  community  in  support  of  elections,  co-
chairing the Election Reform Support Group, providing technical assistance to the Palestinian 
elections administration, contributing to initiatives in support of civil society and deploying an 
EU election observation mission (EUOM) for the Presidential elections in January 2005. 

The Commission is likely to send a further EUOM for elections to the Palestinian Legislative 
Council scheduled for January 2006. With the objective of achieving self-sustainability of the 
Central  Elections  Commission,  the  ongoing  EU  support  for  the  CEC  should  gradually  be 
replaced by appropriations from the PA budget. 

Criteria for EU involvement: implementation of the relevant recommendations 
of the EU election observation mission report on the PA Presidential elections 
of January 2005. 

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Following the elections, the Community should provide capacity building for the Palestinian 
Legislative Council to strengthen the quality of legislation and the effectiveness of reforms. 

– 

Strengthening the rule of law 

As part of the Palestinian Reform process, the EU should expand on areas where it is already 
active and where its support can yield tangible results, in particular in consolidating the rule 
of  law.  Efforts  have  already  been  undertaken  through  conditions  attached  to  the  EC’s 
budgetary support programme, such as the adoption and entry into force of the Basic Law and 
the Law on the Independence of the Judiciary. EUCOPPS (see below) also includes elements 
aimed  at  modernising  the  judicial  system.  Moreover,  the  Commission’s  programme  on 
empowering the judiciary is contributing to the modernisation of the Palestinian legal system.  

A  short-term  strategy  analysing  further  measures  needed  to  consolidate  the  rule  of  law,  to 
fight  against  corruption  and  organised  crime  and  to  promote  the  establishment  of  an 
independent,  impartial  and  fully  functioning  judiciary,  is  currently  under  preparation.  The 
Commission, as chair of the local reform support group on the judiciary is coordinating work 
on  this  comprehensive  needs  assessment,  working  closely  together  with  the  recently 
established Palestinian Steering Committee for reform of the judiciary. 

Criteria  for  further  EU  involvement:  commitment  by  the  PA  to  reform  the 
judiciary,  in  line  with  the  agreed  priorities  in  the  ENP  Action  Plan,  and  full 
implementation of the relevant provisions of the Roadmap. 

– 

Promoting respect for human rights and fundamental freedoms 

Further  actions  will  need  to  be  taken  in  support  of  efforts  to  protect  and  promote  human 
rights, including freedom of association, freedom of expression and an independent media. 

Measures to reduce and eradicate incitement to hatred and violence are part of this process. 
Eradication of incitement to violence will require greater involvement of civil society but also 
a  more  comprehensive  approach  to  reforming  the  Palestinian  education  system,  and  an 
undertaking by the Palestinian Authority to implement the provisions of the ENP Action Plan 
and the Roadmap. This will be necessary in order to sustain the peace process and develop a 
culture of tolerance, moderation, understanding, and mutual respect.  

– 

Improving security 

Establishing  a  safe  and  secure  environment  for  all  Palestinian  citizens  through  the 
maintenance of law and order is crucial to the success of the whole reform agenda, as well as 
an integral part of it. The Commission judiciary programme complements the work of the EU 
Special Representative security and police programme (EUCOPPS) as well as the efforts of 
the  US  security  coordinator.  With  EUCOPPS,  the  EU  has  entered  a  long  standing 
commitment of support to the transformation of the Palestinian police. It will help to create a 
more  effective  police  service  and  to  improve  coordination  of  donor  activities  in  this  field. 
Improved  security  is  also  the  principal  concern  of  Israel,  which  will  continue  to  gauge 
progress in the peace process by measuring the success of PA efforts to end incitement and 
dismantle terrorist structures. 

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– 

Engaging civil society 

Political  viability  will  be  strengthened  by  active  engagement  of  civil  society,  necessary  to 
sustain  support  for  the  peace  process.  The  Commission’s  Partnership  for  Peace  programme 
has been instrumental in promoting Israeli-Palestinian cooperation on an informal level, and 
in  helping  to  sustain  the  concept  of  dialogue  in  times  of  intense  conflict.  This  will  be 
continued in the future. 

– 

Making public administration more effective  

A  properly  functioning  public  administration  requires  reforms  across  the  whole  Palestinian 
civil  service.  Urgent  measures  need  to  be  taken  to  implement  the  civil  service  and  public 
administration  reform  programme  to  strengthen  performance  and  the  efficiency  of  service 
delivery.  The  EU  should  support  theses  efforts  through  technical  assistance,  in  particular 
through twinning projects, with Member States sharing their particular areas of expertise with 
the Palestinian Authority. 

Criteria  for  EU  involvement:  strengthened  accountability  of  non-ministerial 
public institutions, progress on restructuring of Ministries. 

There  are  two  other  important  dimensions  to  legitimacy  and  to  the  political  viability  of  a 
future Palestinian State: the issues of Jerusalem and refugees. 

– 

Jerusalem 

The  EU  has  been  active  in  providing  support  to  the  Arab  population  of  East  Jerusalem.  A 
number of measures have already been undertaken by the European Commission since 2002 
including support for the private sector, social services, and cultural and educational activities. 
Despite  the  efforts  of  the  international  community  and  the  Roadmap  commitments, 
Palestinian institutions in East Jerusalem, such as the Chambers of Commerce, remain closed. 
An integrated development plan for East Jerusalem should be further supported. These efforts 
should  be  worked  into  a  strategy  of  assistance  to  East  Jerusalem  without  pre-empting  the 
Final Status negotiations. 

At the same time, the EU must increase the effectiveness of its messages rejecting the recent 
upsurge in settlement activity and efforts to establish new ‘facts on the ground’. The situation 
of Jerusalem as a Final Status issue is becoming more intractable with the construction of the 
separation barrier through the city. 

– 

Addressing the refugee issue beyond immediate humanitarian needs 

International  (and  EC)  support  to  Palestinian  refugees  is  primarily  channelled  through 
UNRWA, with the EU the largest contributor. The Commission humanitarian office (ECHO) 
is also actively responding to the humanitarian needs of the Palestinian people, refugees and 
non-refugees,  in  the  West  Bank  and  Gaza  Strip,  through  non-governmental  organisations, 
relevant UN agencies, and the Red Cross family. As the peace process advances, the refugee 
question will increasingly come to the fore as will the mandate and role of UNRWA. 

While not pre-empting the outcome of future negotiations, an independent Palestine can have 
no  place  for  refugee  camps.  The  conversion  of  camps  into  permanent  dwellings  will, 

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however, require major investment. This is just one of many aspects of a just solution to the 
refugee issue which will need to be considered. 

Economic viability 

Despite the remarkable resilience of the Palestinian economy, the West Bank and Gaza still 
need to become economically viable. There is, in addition, a strong dependence on the Israeli 
market and Palestinian efforts to diversify markets should be strengthened. The Commission 
proposes to consolidate the achievements of Community aid and extend assistance in order to 
put  in  place  the  building  blocks  for  the  establishment  of  an economically  viable  Palestinian 
State.  

Economic priorities  

–  Developing bilateral and regional trade relations 

Improve  market  access  for  Palestinian  products;  provide  technical  assistance;  facilitate 
dialogue  to  overcome  administrative  and  regulatory  obstacles;  develop  scenarios  for 
economic arrangements with Israel; encourage integration of the Palestinian economy in the 
region 

–  Building up a customs administration 

Provide support to customs administration; consider seconding experts; offer to provide third 
party presence 

–  Reconstructing and rehabilitating the West Bank and Gaza Strip 

Provide funds for quick-start infrastructure projects; promote a renewed inflow of investment 

–  Creating the enabling environment for private sector investment 

Assist Palestinian efforts to review legal framework 

–  Supporting the private sector 

Work  with  the  European  Investment  Bank  (EIB)  to  combine  loan  and  grant  resources  for 
private  sector  investment;  provide  assistance and  training  to  SMEs  to  improve  management 
capacity and performance 

–  Improving the management of public finances 

Support Palestinian efforts to modernise revenue administration; provide assistance for further 
development of financial control  

–  Developing a knowledge-based economy 

Examine options for support to roll-out of broadband applications 

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–  Addressing the social dimension 

Contribute  to  social  welfare  programmes,  in  particular  the  World  Bank’s  Social  Safety  net 
reform programme 

– 

Developing bilateral and regional trade relations 

The EU goal is to dismantle tariff barriers and establish a free trade area between the PA and 
the  EU  covering  all  goods  and  services  as  well  as  to  promote  intra-regional  trade  and 
investment links. 

The EU has already taken a number of measures to deepen trade relations and improve market 
access  for  Palestinian  products  through  the  Interim  Association  Agreement  on  Trade  and 
Cooperation with the Palestinian Authority. Measures to further liberalise trade in agricultural 
produce  were  adopted  in  January  2005.  Further  measures  to  liberalise  trade  will  also  be 
considered. 

Within the wider regional context, trade and customs links between Israel and the Palestinian 
Authority  will  also  need  to  be  considered  as  will  the  extent  to  which  the  Paris  Economic 
Protocol1 might be revised with a view to a future Palestinian State. The goal of promoting 
intra-regional  trade  and  investment  underpins  the  EU  position  that  the  PA/Israel  customs 
envelope should be maintained for the time being. The Commission has urged the Israeli and 
Palestinian  authorities  to  maintain  the  customs  envelope  in  the  short  term  pending  future 
arrangements to be agreed between both parties. 

The  EU  will  endeavour  to  facilitate  the  integration  of  the  West  Bank  and  Gaza  Strip  into 
regional trading arrangements including Pan Euro-Mediterranean cumulation, as appropriate. 
The EU is actively encouraging Israeli-Palestinian cooperation. To this end, the Commission 
has organised a trilateral working group on trade that brings together Palestinian and Israeli 
authorities  along  with  Commission  experts.  The  trilateral  working  group  will  also  examine 
ways in which to overcome administrative and regulatory obstacles to trade and to facilitate 
the implementation of the EU Interim Association Agreement with the PA. 

The  EU  should  actively  encourage  cooperation  between  the  Palestinian  Authority  and  its 
neighbouring countries to reinforce the existing trade links and to develop economic activities 
that would be of mutual benefit. The neighbouring countries should, in this context, be invited 
to review and reduce tariff and regulatory barriers. 

The  Palestinian  Authority  needs  to  be  prepared  for  future  responsibilities  in  the  areas  of 
customs  and  trade,  including  compliance  with  international  trading  rules  and  strengthening 
administrative capacity. These areas will be further supported by the EU. 

Criteria  for  EU  involvement:  a  significant  improvement  of  the  security  and 
access situation, in line with the recommendations of the World Bank report to 

1 

The  Paris  Protocol  on  Economic  Relations  was  signed  in  Paris  on  29  April  1994  and  it  outlines  key 
economic responsibilities for the PA and Israel.  

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the  December  2004  Ad  Hoc  Liaison  Committee  (AHLC)2,  and  substantial 
progress on the six points outlined by the Quartet Special Envoy. 

– 

Building up a customs administration 

The  Commission  is  providing  extensive  support  to  the  Palestinian  Customs  administration, 
working  with  UNCTAD  to  introduce  a  computerised  declaration  processing  system. 
Following  disengagement,  the  Palestinian  customs  administration  in  Gaza  will  face  many 
challenges. The Palestinian Authority has therefore requested further assistance as well as a 
third party presence at their new customs borders.  

The Commission is ready to provide further assistance, such as the funding of the deployment 
of customs officers, under a well-defined mandate, with the aim of building confidence and 
improving  the  capacity  of  the  PA  customs  authorities.  The  Commission  will  examine  this 
issue with Member States and can draw on EU experience of improving border management 
in  Central  and  Eastern  Europe.  .  Such  a  deployment  could  be  accompanied  by  a  European 
Security and Defence Policy (ESDP) mission for assistance to border control functions. 

Criteria for EU involvement: agreement by the Parties on location and regime 
applied to border crossings as well as a request by the parties for a third party 
presence. The EU should seek to extend Israeli guarantees on the operation of 
land border crossings to the airport and seaport. 

– 

(Reconstructing and) rehabilitating the West Bank and Gaza Strip 

The disengagement from Gaza and Northern parts of the West Bank has provided a renewed 
impetus  for  donors  to  return  to  reconstruction  activities.  The  Commission  has  established  a 
€ 40 million Infrastructure Facility in the context of its 2005 financial assistance programme 
to  be  coordinated  with  the  Palestinian  Authority  and  other  donors.  A  number  of  projects 
relating to customs, transport, water and energy supply have already been identified.  

As the peace process advances, a major reconstruction and rehabilitation programme for the 
whole  of  the  Palestinian  Territory,  encompassing  both  Gaza  and  the  West  Bank  should  be 
envisaged, in line with the Quartet Special Envoy’s three-year plan. If there are improvements 
in the regulatory environment and respect for the rule of law, reconstruction efforts can focus 
on  the  short  term  to  kick-start  economic  development  and  to  promote  a  renewed  inflow  of 
investment.  

A  comprehensive  reconstruction  plan  would  need  to  encompass  transport  in  general, 
including the rebuilding of the Gaza seaport and airport, energy, water supply and wastewater 
treatment,  solid  waste  management,  rural  development,  and  re-building  of  institutions,  in 
particular  security  complexes  and  courthouses.  This  could  only  be  done  in  the  context  of  a 
well developed plan including all major donors and international financial institutions. Work 
could build on the damage assessment database established by the Commission, but focussed 
on providing for future needs rather than simply replacing what has been destroyed. 

2 

“High levels of donor assistance cannot substitute for a positive economic environment If, and only if 
the parties take sufficient steps to move the economy back onto a path of sustainable growth, a donor 
funding conference would be justified.” Stagnation or Revival? Israeli Disengagement and Palestinian 
Economic Prospects, World Bank, December 2004. 

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Criteria  for  EU  involvement:  prior  to  major  infrastructure  investments, 
movement and access restrictions for people and goods will have to be eased, 
and guarantees from Israel on the operation of the port and airport will have to 
be sought. There must be coordination with other donors, and with the Ministry 
of  Planning  (including  in  the  context  of  an  improved  Medium-Term 
Development Plan). 

– 

Creating the enabling environment for private sector investment 

As the peace progress advances, foreign and domestic investment in the West Bank and Gaza 
Strip  should  increase.  Palestinian  investment  from  abroad  is  to  be  expected,  together  with 
interest  from  companies  from  Israel,  neighbouring  Arab  countries  and  further  afield  in 
establishing operations in the West Bank and Gaza Strip.  

Criteria  for  EU  involvement:  Progress  on  improving  the  legal  and  regulatory 
environment for private sector investment. 

Foreign investment will in particular depend on the existence and enforcement of transparent 
and  predictable  rules.  The  Commission  has  already  provided  assistance  in  order  to  draw  up 
and/or  revise  legislation  on,  for  instance,  competition  and  public  procurement.  Enforcement 
will require the far-reaching reform of the judicial and security sectors addressed above. 

– 

Supporting the private sector 

Despite  the  devastating  effect  of  the  conflict  on  the  Palestinian  economy,  the  private  sector 
has shown remarkable resilience and adaptability. The SME sector will be the main motor for 
economic growth and regional integration, contributing to regional stability, job creation and 
reduced dependency on public sector employment. Vocational training could be of particular 
benefit, as could the provision of micro-credits. The Commission will continue to support the 
efforts of the PA to revitalise the private sector, taking into account the principles of the Euro-
Mediterranean Charter for Enterprise. 

Criteria  for  EU  involvement:  the  PA  will  have  to  accelerate  its  efforts  in 
creating an environment conducive to private sector development whilst Israel 
will have to allow for improved movement of goods and services, in line with 
the Quartet Special Envoy’s six points. 

The  European  Investment  Bank  is  currently  reviewing  conditions  for  a  resumption  of 
activities  in  the  West  Bank  and  Gaza  Strip  and  in  Israel.  The  EIB  and  the  Commission  are 
considering how best to combine loan and grant resources to support private sector investment 
and  promote  access  to  finance  for  SMEs.  This  will  need  to  be  accompanied  by  support  to 
improve management capacity.  

– 

Improving management of Public Finances 

A  viable  Palestinian  State  must  possess  a  modern  and  transparent  system  of  financial 
management.  Through  the  budgetary  support  package  provided  by  the  EC  and  Member 
States,  there  have  been  marked  improvements  in  the  management  of  PA  public  finances. 
Nonetheless,  there  remains  a  need  to  further  develop  an  improved,  transparent  and 
accountable  system  of  budgeting  and  control  of  public  expenditure  which  has  the  full 
confidence of the Palestinian population and international community.  

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Criteria  for  EU  involvement.  Progress  on  drafting  an  adequate  fiscal 
stabilisation  plan  by  the  PA,  progress  on  the  consolidation  of  the  pension 
system, and improvement of planning capabilities.  

At the same time, the Palestinian Authority must improve the efficiency and effectiveness of 
revenue  collection.  The  Commission  is  currently  assisting  the  PA  to  put  in  place  a  modern 
system of tax collection which should over time help to increase revenue. However, with the 
establishment of a Palestinian State with autonomous tax and customs rules, the PA will also 
be responsible for collection of all VAT and for customs duties, a task currently undertaken 
by the Israeli authorities on the basis of the Paris Protocol. In addition to efforts to improve 
the transparency of management of the Paris Protocol and address the issue of fiscal leakage, 
further  capacity-building  will  be  required  to  increase  the  transparency  and  efficiency  of  the 
relevant Palestinian institutions, including a modern and reliable statistics system. 

– 

Developing a knowledge-based economy  

Support  is  needed  to  develop  a  knowledge-based  society  through  higher  and  vocational 
education,  research  and  development  in  order  to  strengthen  and  diversify  the  Palestinian 
economy. EC support in line with the recommendations of the UNDP Human Development 
Report  will  be  as  valid  for  West  Bank  and  Gaza  Strip  as  for  other  countries  in  the  region. 
Special  effort  should  be  devoted  to  strengthening  Palestinian  research  and  development 
facilities.  In  view  of  the  particular  geographic  situation  of  the  West  Bank  and  Gaza  Strip, 
advanced  applications  such  as  broadband  connections  could  allow  individuals  and 
organisations to bridge distances and physical barriers. High-speed connections could enable 
both government institutions and businesses to communicate and access services regardless of 
their location in either West Bank or Gaza. Broadband could also allow Palestinians to access 
advanced  services,  such  as  e-health  or  e-learning.  Existing  internet  penetration  rates  are, 
however, extremely low. 

– 

Addressing the social dimension  

Social development should go hand in hand with any economic development. Efforts must be 
undertaken to support the sections of the Palestinian population most in need and to improve 
living and working conditions for all as well as to offset possible short-term adverse effects 
from some reforms. 

Structural  action  is  required  to  address  urgent  social  needs  beyond  the  short-term 
humanitarian  assistance  provided  by  ECHO  and  other  donors.  Consolidating  the  pension 
system will contribute to protecting the needs of the elderly. A minimum level of physical and 
financial access to the entire range of health and educational services should also be achieved. 
As part of this process, the Commission is contributing to the World Bank social safety net 
programme. 

Promoting  active  employment  policies  and  equal  opportunities  will  contribute  to  social 
development. Poverty reduction schemes such as micro-credit, grass-root job creation systems 
or specific programmes for the socio-economic integration of the most vulnerable parts of the 
population (young adults, women, the disabled), should be fostered in order to increase access 
to basic goods and services. 

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4. 

FACILITATING ISRAELI-PALESTINIAN COOPERATION 

Policy dialogues 

The viability of the West Bank and Gaza Strip will require full and active cooperation with 
Israel. 

The Commission has invested considerable resources in facilitating cooperation and contacts 
between  Israeli  and  Palestinian  authorities  in  order  to  foster  dialogue  and  build  confidence. 
This has been achieved by identifying issues and areas of mutual interest for both parties. 

Some  of  these  are  specified  in  the  Action  Plans  for  Israel  and  the  Palestinian  Authority 
adopted  in  the  context  of  the  EU  European  Neighbourhood  Policy.  Trilateral  meetings 
sponsored by the Commission have already been established in the areas of energy, transport 
and trade.  

The  Commission  is  establishing  a  programme  for  energy  cooperation  with  a  view  to 
enhancing  joint  energy  security  of  supplies.  In  this  context  a  joint  energy  office  will  be 
established and a commercial agreement should be reached dealing with electricity exchanges 
between  both  parties  in  compliance  with  international  standards.  A  joint  transport  office  is 
also in the process of being established between the parties covering transport infrastructure 
planning and the facilitation of transport of goods and persons.  

The Commission hopes for similar progress on trade issues. Such efforts should continue and 
be  expanded  to  cover  areas  such  as  customs  cooperation,  environment,  science  and 
technology and as appropriate, issues relating to justice and home affairs. Use should also be 
made  of  the  possibilities  for  regional  cooperation  in  the  context  of  the  European 
Neighbourhood Policy between the PA, Israel and Jordan. 

Third party mediation as part of the peace process 

In  addition  to  such  Community  efforts,  the  Commission  recognises  the  importance  of  third 
party  mediation/facilitation  in  the  conflict  to  ensure  dialogue  takes  place  and  to  generate 
greater  confidence  between the Parties. The Quartet Special  Envoy, with  a  regular presence 
on the ground, has had a positive impact in the context of the Israeli withdrawal from Gaza 
and  parts  of  the  northern  West  Bank.  The  Commission  has  supported  his  efforts  both 
financially and  by seconding  an experienced member  of  staff.  It  would  welcome  a  renewed 
mandate for a Quartet Envoy, extended in both duration and scope. 

Implementing the Interim Association Agreement  

As progress is made on Final Status issues, the EU should be ready to commence negotiations 
on a full Association Agreement . In the interim, consultation with both Israel and the PA is 
necessary to develop the EC Interim Association Agreement with the PLO (for the benefit of 
the Palestinian Authority) and to implement it more effectively. Consultations should address 
difficulties experienced by Palestinian and EU producers in gaining access to their respective 
markets  (due  in  particular  to  administrative  problems  faced  by  exporters  at  Israeli  customs 
borders). The EU should also continue to press for full recognition of the Interim Association 
Agreement by Israel. 

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5. 

IMPROVING EU EFFECTIVENESS AND VISIBILITY 

The efforts and activities  of  the  EU  need to be more  visible, to strengthen  our  political and 
reform  messages.  The  Union  should  step  up  its  efforts  to  present  its  messages  in  a  co-
ordinated manner.  

International coordination 

In  terms  of  assistance,  there  is  already  close  coordination  with  the  EU  Special  Envoy  and 
Member  States  and  with  international  partners,  including  the  United  States,  Israel  and 
international  financial  institutions.  The  Commission  actively  participates  in  the  Quartet  and 
Quartet-established bodies such as the Task Force on Palestinian Reform and the local donor 
coordination bodies, namely the Local Aid Co-ordinating Committee (LACC). To follow-up 
the London conference on Palestinian reform, the Commission, together with the World Bank, 
has presented proposals for a streamlining of donor coordination structures. The Commission 
will  work  closely  with  the  Quartet  Special  Envoy  and  with  the  local  coordination  bodies  to 
ensure effective coordination of international action.  

The Commission is in regular contact with the international donor community as well as with 
international financial institutions and is actively involved in the AHLC. Cooperation with the 
IMF  has  been  extensive,  particularly  in  the  context  of  the  Commission’s  budgetary  support 
programme to the PA. Together with the World Bank, the Commission has set up the Public 
Financial  Management  Trust  Fund  which  builds  on  the  mechanism  established  for  previous 
Commission  budgetary  support.  The  Trust  Fund  was  originally  conceived  as  a  temporary 
measure  to  overcome  the  fiscal  deficit  of  the  PA.  It  will  have  to  be  succeeded  by  a  more 
sustainable instrument.  

A Clearing House for EU assistance 

Efforts to coordinate Member States and Community resources more closely in support of the 
main policy objectives of the EU - through a local Clearing House mechanism - will improve 
the  visibility  of  EU  assistance.  This  should  include  a  regular  flow  of  information  on 
Community  and  bilateral  plans  and  projects,  facilitating  planning  and  burden-sharing 
according to the specialist capacity of Member States and the Commission. 

As a first step, priority should be given to implementing the measures identified in the short-
term strategy on governance, prepared by the Commission office in Jerusalem following the 
London  Conference,  Member  States  should  be  invited  to  participate  in  this  framework  with 
the  objective  of  facilitating  coherence.  Whilst  the  management  of  national  funds  would 
remain with Member States, national strategies for assistance should reflect and be guided by 
the  adopted  EU  strategy.  A  policy  committee  composed  of  all  contributors  could,  for 
example, be set up to ensure coordination and prioritisation of expenditure within the EU and 
with  the  PA.  Such  a  committee  could  ensure  complementarity  and  define  where  the  use  of 
pool funds or cofinancing would be most appropriate. The Commission should take a leading 
role in this mechanism.  

As  a  second  step,  if  Member  States  agree,  we  could  think  of  extending  this  mechanism  to 
other  areas  of  assistance,  for  example  infrastructure.  Improved  EU  ‘flagging’  of  assistance, 
together with an awareness raising campaign in the region, could also be pursued in the short 
term. 

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Coordination  of  Community  resources  should  also  be  accompanied  by  a  pooling  of 
information among donors to ensure that funds are properly spent. 

In the medium-term, the EU could consider the establishment of a special reconstruction fund 
or  an  EU  Agency  for  Reconstruction,  drawing  on  the  EU’s  successful  experience  of  post-
conflict reconstruction in the Balkans. 

Financial resources 

Improved visibility is a necessary counterpart for any additional budget resources that may be 
explored  in  response  to  the  G8  endorsement  of  Mr  Wolfensohn’s  calls  for  a  significant 
increase  in  financial  assistance.  At  the  Gleneagles  summit  of  the  G8,  Mr  Wolfensohn 
presented an outline of his development plan which foresees financial assistance to the West 
Bank and Gaza rising to € 3 billion annually in the coming three years. This represents over 
double the current efforts of the international donor community. Such an increase will only be 
possible as a joint effort, with significant burden-sharing, in particular on the part of the Arab 
states. 

In the light of the Commission’s role as the biggest donor to the Palestinians, the response to 
the Quartet Special Envoy’s request could possibly correspond to an increase in support from 
the Community budget of about € 200 to 300 million per year, accompanied by an increase in 
Member State bilateral assistance.  

These  resources  would  be  targeted  on  the  priorities  set  out  in  this  paper,  addressing  the 
objectives  of  fiscal  sustainability,  strengthening  institutions  and  an  improvement  of  the 
economic situation through increased investment.  

However,  for  these  significant  additional  resources  to  have  an  impact  on  the  economic 
situation in the West Bank and Gaza, meaningful progress in security and access policy needs 
to be achieved. This was stressed by the World Bank in its 2004 report, endorsed by the Ad 
Hoc Liaison Committee (AHLC) in December 2004. 

The Commission will come back with further details on proposals for additional resources in 
the  2006  budget  by  early  2006  at  the  latest,  and  taking  into  account  the  financial  resources 
available, in particular the Flexibility instrument. These will also take into consideration the 
progress  on  the  Quartet  Envoy’s  “six  plus  three  points”,  more  detailed  plans  from  the 
Palestinians and further consultations with the international community. 

6. 

CONCLUSION 

For the EU to lend its weight effectively to a re-launch of the Roadmap (a necessary condition 
for the creation of a Palestinian State) Member States and the Commission must concert their 
positions on key issues so as to increase the impact of our messages. Such concertation should 
set out in particular an EU strategy in the event that progress is stalled due to, for example, a 
breakdown  of  the  calm  and  a  return  to  conflict,  lack  of  progress  on  the  six  joint  issues 
outlined  by  Quartet  Special  Envoy  James  Wolfensohn,  continued  expansion  of  settlement 
activity in the  West Bank or the effects  of the Separation  Barrier. It  will also  require better 
coordination of assistance. 

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With this in mind, the Commission invites the Council to: 

–  endorse  the  objectives  and  priorities  set  out  in  this  Communication  as  the  basis  of 

European Community action; 

–  note the Commission’s intention to prepare, on the basis of this Communication, a Country 
Strategy  Paper  for  Community  support  to  the  West  Bank  and  Gaza  Strip  and  a  Multi 
Annual National Indicative Programme for the West Bank and Gaza Strip; 

–  to  agree  better  mechanisms  for  coordination  of  EU  actions,  reflecting  the  Commission 
proposal to act as a ‘clearing house’ for coordination in order to increase the impact of EU 
financial assistance; 

–  confirm the objective of the negotiation of an Association Agreement with the Palestinian 
Authority  and  work  to  ensure  the  full  implementation  of  the  EU-PA  Interim  Association 
Agreement,  including  establishing  the  structures  necessary  to  implement  the  European 
Neighbourhood Policy Action Plan; and seek assurances from Israel on recognition of the 
Interim Association Agreement. 

The Commission invites the Budgetary Authority to:  

–  examine the need, on the basis of proposals from the Commission, to increase Community 
financial assistance to the Palestinians over the period 2006 to 2008 in the light of the three 
year Palestinian development plan announced by the Quartet Special Envoy. 

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