Commission staff working document accompanying the Communication from the Commission to the European Parliament and the Council - Implementation of the European Neighbourhood Policy in 2008 - Progress Report the occupied Palestinian territory {COM(2009) 188 final} {SEC(2009) 511} {SEC(2009) 512} {SEC(2009) 513} {SEC(2009) 514} {SEC(2009) 515} {SEC(2009) 516} {SEC(2009) 517} {SEC(2009) 518} {SEC(2009) 520} {SEC(2009) 521} {SEC(2009) 522} {SEC(2009) 523}
Date: 2009-04-23
Institutions: European Commission
Subjects: European neighbourhood policy, Palestine, impact study, occupied territory, the EU's international role

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 23.4.2009 
SEC(2009) 519 

COMMISSION STAFF WORKING DOCUMENT 

Accompanying the 

COMMUNICATION FROM THE COMMISSION  
TO THE EUROPEAN PARLIAMENT AND THE COUNCIL 

Implementation of the European Neighbourhood Policy in 2008 

Progress Report the occupied Palestinian territory 

{COM(2009) 188 final} 
{SEC(2009) 511} 
{SEC(2009) 512} 
{SEC(2009) 513} 
{SEC(2009) 514} 
{SEC(2009) 515} 
{SEC(2009) 516} 
{SEC(2009) 517} 
{SEC(2009) 518} 
{SEC(2009) 520} 
{SEC(2009) 521} 
{SEC(2009) 522} 
{SEC(2009) 523} 

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1. 

BACKGROUND AND OVERALL ASSESSMENT 

The  Palestinian  Authority  (PA)  and  the  European  Community  first  established  contractual 
relations  in  1997  when  the  EC  and  the  PLO,  on  behalf  of  the  PA,  signed  the  Interim 
Association  Agreement  on  Trade  and  Cooperation.  On  this  basis,  the  EU-PA  ENP  Action 
Plan  was  adopted  in  May  2005,  for  a  period  of  three  to  five  years.  It  was  inspired  by  the 
Palestinian  Reform  Programme  at  that  time,  which  aimed  at  building  the  institutions  of  an 
independent, democratic and viable Palestinian state. A first report on the implementation of 
the Action Plan was adopted in December 2006, a second in April 2008. 

inaugurated  at 

The  Euro-Mediterranean  Partnership 
the  1995  Barcelona  conference 
established a policy with ambitious and long-term objectives. This partnership was reinforced 
in 2008 with the creation of the Union for the Mediterranean. Although the Palestinian state 
has  not  yet  been  created,  the  PA  has  been  a  full  participant  in  this  partnership  from  the 
beginning. However, the PA does not exercise exclusive governmental prerogatives because 
of the on-going Israeli occupation. 

This  document  reports  on  progress  made  on  the  implementation  of  the  EU-PA  ENP  Action 
Plan  between  1  January  and  31  December  2008,  although  developments  outside  this  period 
are  also  considered  when  deemed  relevant.  It  is  not  a  general  review  of  the  political  and 
economic situation in the oPt. 

The overall political context stalled progress in the implementation of the Action Plan during 
2006 and the first half of 2007. This changed after the EU resumed normal relations with the 
PA in June 2007 and re-established political dialogue. The first ENP Joint Committee session 
since three years took place in May 2008 and agreed to set up four subcommittees.  

The  year  2008  saw  some  progress  in  several  of  the  areas  covered  by  the  ENP  Action  Plan. 
The PA undertook steps to implement its Palestinian Reform and Development Plan (PRDP) 
for 2008. The PRDP process itself, as well as the policy objectives embedded in it, provided 
much  improvement  in  the  PA's  planning  and  budgeting  efforts  and  addressed  most  of  the 
areas covered by the Action Plan. Most notable progress was achieved in the fields of budget 
consolidation and security sector reform.   

However,  political  reform  and  institution  building  suffered  a  setback  as  a  result  of  the  split 
between the West Bank and Gaza. Several attempts at factional reconciliation failed and led to 
a deterioration of the human rights situation in both parts of the occupied Palestinian territory, 
i.e.  the  West  Bank  and  the  Gaza  Strip.  The  Palestinian  Legislative  Council  stopped  its 
legislative activity after the detention of more than half of Hamas lawmakers in Israeli jails. 
The  Palestinian  Authority  Government  in  Ramallah  was  challenged  by  Hamas,  who 
established a parallel “deposed” government in Gaza, weakening the institutional capacity of 
the PA. This development further delayed progress in the implementation of the Action Plan. 

Limited  progress  was  observed  in  the  economic  sphere,  with  a  dramatic  regression  for  the 
development of the private sector in Gaza, with only minimum humanitarian aid allowed to 
pass the otherwise complete blockade. The economic development in the West Bank was also 
severely  hampered  by  the  on-going  Israeli  occupation,  settlements  expansion,  Israeli 
government activities in East Jerusalem and the uneased restrictions on movement and access. 
Therefore,  overall  economic  growth  in  the  occupied  Palestinian  territory  remained  anaemic 

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(below 2%), despite massive injection of donors’ funding of more than USD 1.7 billion, and 
well below demographic growth, leading to a continued decrease of per-capita income.  

The  year  2008  ended  with  one  of  the  gravest  chapters  in  the  Israeli-Palestinian  conflict, 
exacerbating  the  situation  of  the  Palestinian  population  in  Gaza,  which  was  already 
impoverished prior to the Israeli offensive. Following the collapse of a six-month long truce 
between Hamas and Israel, on 27 December the latter launched operation “Cast Lead” which 
lasted  until  17  January  2009.  Reportedly  over  1  315  Palestinians  were  killed,  of  which  415 
were children and 110 women, and over 5 500 wounded. 14 Israeli were killed. Despite the 
disastrous humanitarian situation on the ground, it is premature to analyse the political impact 
of the crisis in this report. Therefore, this report does not address the Gaza crisis which will be 
covered in detail in the next report covering 2009, to be issued in 2010. 

2. 

POLITICAL DIALOGUE AND REFORM 

Development of enhanced political dialogue and cooperation 

Objectives  in  this  area  include  strengthening  cooperation  on:  foreign  and  security  policy 
issues,  combating  terrorism,  non-proliferation  of  weapons  of  mass  destruction  and  illegal 
arms trade. 

The Palestinian Reform and Development Plan, submitted in December 2007 (see last year’s 
report),  has  been  central  to  monitor  the  progress  of  the  Palestinian  Authority  towards  the 
implementation of the ENP Action Plan.  

Despite  the  emergence  of  two  competing  governments  in  Ramallah  and  in  Gaza,  and  the 
consequent  weakening  of  PA  institutions,  2008  saw  some  noteworthy  progress  in  terms  of 
bilateral relations between the PA and the EU. The joint committee, which met in May 2008 
for  the  first  time  in  three  years,  established  four  subcommittees.  These  include:  (1)  human 
rights, governance and rule of law; (2) economic and financial matters, trade, customs issues; 
(3)  social  affairs;  (4)  energy,  environment,  transport,  science  and  technology.  The  first 
subcommittee on human rights, governance and rule of law convened in December 2008. The 
other three will follow in 2009. 

On  the  basis  of  the  "Joint  Statement  by  the  European  Union  and  the  PLO  on  Political 
Dialogue"  adopted  in  February  1997,  which  established  a  regular  political  dialogue,  the  EU 
held its first political dialogue at  senior  officials level in Ramallah in December 2008. This 
complements the one at ministerial level that took place in September and November 2008 in 
New York and Marseille, respectively.  

Democracy and rule of law 

Objectives  in  this  area  include:  establishment  of  an  independent,  impartial  and  fully 
functioning judiciary, organisation of transparent general and local elections, constitutional 
and legislative reform, and public administration and civil service reform. 

Democracy  and  the  rule  of  law  continue  to  be  subject  to  developments  in  the  Israeli-
Palestinian conflict and progress is hardly perceptible. In the absence of a quorum, with over 
40 Parliamentarians  held in Israeli jails,  the  Palestinian  Legislative Council (PLC) has  been 
non-functional  throughout  the  year,  with  rival  sessions  of  Palestinian  Legislative  Council 
members  being  held  in  the  Gaza  Strip  and  the  West  Bank  contending  for  democratic 

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legitimacy.  President  Abbas  issued  some  legislative  decrees  using  emergency  powers,  but 
these were limited to urgent cases. The non-Hamas PLC members in the West Bank started 
meeting  regularly  as  of  June  2008  and  asked  to  be  consulted  informally  by  the  President's 
office on a regular basis on planned legislative decrees issued under emergency powers. PM 
Fayyad  met  with  the  same  group  of  PLC  members  in  July  2008  and  presented  the 
Government's reform plans amid criticism of by-passing the PLC in the reform process.  

The  municipal  elections  scheduled  for  the  end  of  2008  were  not  held  given  the  political 
instability  and  the  difficulty  to  hold  elections  in  Gaza.  Subsequently,  the  PA  government 
decided to appoint local authorities. This triggered criticism as it is seen as undermining local 
democracy.  The  political  divisions  also  complicated  the  organisation  of  national  elections. 
Although Hamas has insisted that the Basic Law states that the Presidential term is four years, 
and  therefore  questioned  the  authority  of  President  Abbas  as  of  January  2009,  the  PA 
government  and  the  Palestinian  Legislative  Council  Secretariat  consider  that  the  applicable 
legal  basis  is  the  Election  Law  as  amended  in  2007,  which  provides  for  legislative  and 
presidential elections to be held simultaneously. In this context, and aiming at overcoming the 
political  deadlock  in  Gaza,  the  President  announced  at  the  end  of  2008  that  he  will  call  for 
Presidential  and  Parliamentary  elections  as  soon  as  possible  and  in  any  case  before  January 
2010  when  the  term  of  the  PLC  ends.  Since  the  President  cannot  dissolve  the  Palestinian 
Legislative Council, agreement is needed between Fatah and Hamas for elections to be called. 

The preparations of the Berlin Conference on civil security and the rule of law in June 2008 
provided momentum to improve sectoral planning and coordination both within the judiciary 
and the security sector. PM Fayyad has made considerable progress in the area of rule of law 
and  succeeded  in  deploying  security  forces  in  Nablus,  Jenin,  Hebron  and  Bethlehem,  in  an 
attempt to wrestle back control in the security sector under the sole authority of the PA. The 
EUPOL COPPS mission and the European Commission reinforced their engagement towards 
the  Palestinian  Civil  Police.  On  the  other  hand,  Hamas  has  established  parallel  structures 
throughout  the  Gaza  Strip,  including  duplicates  of  institutions  already  existing  in  the  West 
Bank, which exacerbated the split between the two parts of the occupied Palestinian territory. 

In  the  West  Bank  the  judicial  system  made  limited  progress  in  solving  the  current  case 
backlog (approximately 60 000 cases), in part due to a lack of judges. On the positive side, 
new judges and prosecutors were appointed, bringing the total number to 183 judges and 96 
prosecutors; and the Chief Justice and the Attorney General received additional administrative 
staff. However, the capacity of the Ministry of Justice and the Attorney General’s Office still 
suffer acutely from having most of their official staff located in the Gaza Strip. In May 2008, 
the  Chief  Justice,  Attorney  General  and  Minister  of  Justice  presented  a  joint  strategic 
framework  for  the  reform  of  the  justice  sector.  The  implementation  of  the  "Law  on  the 
Judicial  Authority"  is  hampered  by  the  ambiguity  of  its  provisions  in  relation  to  the  Basic 
Law  and  other  Palestinian  laws.  This  ambiguity  regarding  the  respective  roles  and 
responsibilities of the judicial institutions has led to competition between the judicial actors. 
The  conditions  for  training  of  judges  and  prosecutors  were  improved  by  the  EC  supported 
establishment  of  the  Palestinian  Judicial  Training  Institute.  In  Gaza,  the  functioning  of  the 
judiciary system regressed, through establishment by Hamas of a parallel prosecution system, 
a  separate  judicial  training  institute  and  the  eventual  destruction  of  the  Ministry  of  Justice 
building in December 2008. 

While  the  PRDP  provides  a  general  public  administration  and  civil  service  reform  agenda, 
the PA has not yet made available capacities with a sufficient political mandate to develop a 
government-wide strategic medium- to long-term reform programme in this field. The success 

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of  the  overall  implementation  of  the  PRDP  depends  heavily  on  the  public  administration’s 
capacities. In absence of an overall public administration reform mandate, the focus of the PA 
and  the  donor  community  has  since  been  on  building  up  strategic  planning  capacity  and 
providing  technical  assistance  for  specifically  targeted  PA  institutions.  Major  progress  in 
planning, coordinating and unifying the legislative process was achieved by the PA through 
the overall successful implementation of the first year of the legislative plan for 2008-2012. In 
the current environment it is however not possible to allow for parliamentary review and to 
make  institutions  accountable  to  the  PLC  although  in  the  long-term  this  is  crucial  for  the 
development of democratic institutions. 

Human rights and fundamental freedoms 

Objectives  in  this  area  include:  strengthening  legal  guarantees  for  freedom  of  speech, 
freedom  of  the  press,  freedom  of  assembly  and  association  ensuring  the  respect  of  human 
rights  and  basic  civil  rights,  and  fostering  a  culture  of  non-violence,  tolerance  and  mutual 
understanding. 

Respect of human rights and basic liberties, in particular the right to life and personal safety, 
suffered  further  setbacks  as  a  result  of  the  violations  committed  by  Israeli  forces  and  the 
Palestinian  factions.  In  the  West  Bank,  PA  forces  have  cracked  down  on  criminals  and 
members  of  armed  groups,  as  well  as  opposition  members,  with  reports  of  violations  of 
fundamental rights in the process, especially in PA detention facilities. The Palestinian Centre 
for  Human  Rights  (PCHR)  has  received  affidavits  from  Palestinians  who  were  subjected  to 
beating,  torture  and  inhuman  and  degrading  treatment  by  the  Palestinian  police  while  in 
detention,  mostly  in  the  Gaza  Strip,  but  also  in  the  West  Bank.  In  the  Gaza  Strip,  Hamas 
security  forces  suppressed  inter-militia  fighting  and  family  feuds  to  an  unprecedented  level, 
often at the expense of human rights. 

Death  penalty  sentences  were  issued  in  the  West  Bank  and  Gaza,  which  is  a  regression  of 
high  concern,  even  though  in  December  2008,  the  President  issued  an  announcement  that 
death  sentences  would  be  commuted  into  imprisonment.  After  almost  four  years  of  tacit 
moratorium on the death penalty, a total of 11 death penalty sentences were issued in 2008, of 
which 5 in the West Bank and 6 in the Gaza Strip. Most of these civilians were sentenced by 
military courts, which represent a misuse of these courts to expedite procedures. 

Freedom of press was increasingly curtailed. According to the Independent Commission for 
Human Rights (ICHR), 32 journalists were arrested by the PA without due process; none of 
them were brought to court. ICHR criticized the PA government for using the military court 
system (illegal since infringing the basic law as well as criminal procedure law). 

Freedom of religion has not improved and is hampered by the restricted access for Christians 
and  Muslims  to  their  holy  sites  in  East  Jerusalem.  The  Israeli-imposed  restriction  was 
particularly acute during the month of Ramadan when thousands of Palestinians were trying 
to  attend  prayers  at  the  Al-Aqsa  mosque.  In  Gaza,  violence  that  occurred  after  the  Hamas 
takeover  illustrated  the  religious  pressure  on  Christian  minorities.  The  access  of  Christian 
leaders to Gaza has been curtailed. 

The  situation  of  women  in  the  occupied  Palestinian  territory  remained  difficult  during  the 
reporting  period.  Palestinian  women  face  particular  challenges  due  both  to  the  on-going 
conflict  and  internal  constraints.  Gender-based  violence  and  honour  killings  are  regularly 

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reported. Women are still discriminated against in laws governing marriage, divorce, custody 
of children and inheritance. 

The participation of women in economic, social and political life remains low in spite of the 
high  literacy  rate  and  enrolment  in  higher  education.  This  is  aggravated  by  the  acute  socio-
economic crisis, which leaves the majority of women out of the labour market or forces them 
to enrol in unprotected labour: 35 to 50% of university enrolments in the West Bank and Gaza 
are women but this does not translate on the labour market, as 88% of women are outside the 
labour force compared to 29% for men. 

In July 2008, the Ministry of Women’s Affairs launched its own Strategic Plan for 2008-2010 
in  line  with  the  PRDP.  The  priorities  of  the  strategy  are:  enhancing  the  effective  role  of 
Palestinian  women  in  policy  and  decision-making,  increasing  the  economic  security  and 
rights  of  Palestinian  women  and  decreasing  violence  against  women.  The  strategy  also 
endorses  the  contents  of  the  Convention  on  the  Elimination  of  All  Forms  of  Discrimination 
against  Women  (CEDAW),  the  Istanbul  process  and  UN  Resolution  1325.  The  Ministry 
finalised  a  Women’s  bill  of  Rights  along  these  lines,  which  is  expected  to  be  adopted  by 
Presidential Decree. Other activities of the Ministry in 2008 were focused on building a strong 
partnership and coordination with civil society organisations around the strategy. 

Financial Accountability and Sound Management of Public Finances 

Objectives  in  this  area  include:  establishment  of  a  well-functioning  system  of  financial 
control,  improving  the  transparency  of  PA  finances,  concerted  action  to  tackle  corruption 
within  public  institutions  and  to  fight  against  fraud,  ensuring  transparency  of  public 
procurement operations and putting in place a sustainable pension system. 

In  terms  of  public  finance  management,  improvements  were  registered  after  the  re-
establishment of a Single Treasury Account in terms of tracking and monitoring expenditure. 
In  2008,  a  budget  process  directly  linked  to  the  PRDP  and  unifying  recurrent  and 
development  budget  was  launched.  Budget  transparency  has  been  considerably  enhanced 
since March  2008 with  the publication of monthly  fiscal reports on the Ministry of Finance 
website.  

The  Government  is  working  on  a  unified  procurement  law  to  replace  the  1998  General 
Procurement  law.  The  new  law  includes  provisions  for  the  establishment  of  an  independent 
public  procurement  unit  and  the  unification  of  procurement  procedures  in  all  Palestinian 
ministries  and  agencies.  An  independent  review  body  for  complaints  is  also  foreseen  under 
the new law. 

In  terms  of  public  internal  financial  control  the  internal  audit  department  within  the 
Ministry of Finance, supported by European Commission technical assistance, has drafted an 
audit  plan  and  completed  audits  in  four  line  ministries.  A  progressive  extension  to  other 
ministries  is  foreseen.  An  Audit  Committee  was  established  to  improve  the  efficiency  of 
internal  audits  and  their  independence.  European  Commission  assistance  provided  refresher 
and  on  the  job  training  to  staff  at  the  Ministry  of  Finance,  with  special  focus  on  risk 
assessments and internal audit. There has not yet been a focus on the implementation of the 
principle  of  managerial  accountability  and  the  development  of  financial  management  and 
control systems. 

The external audit of the PA’s financial statements remains a challenge. In 2008, the State 
Audit  and  Administrative  Control  Bureau  (SAACB)  submitted  their  annual  report  for  2007. 

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This  young  institution  has  high  needs  in  terms  of  capacity  building,  equipment  and 
institutional framework. Providing assistance is one of the European Commission’s priorities.  

Safeguards against corruption continue to be weak due to the lack both of an adequate legal 
framework  and  of  enforcement  measures.  Bodies  established  to  monitor  corruption  remain 
weak without adequate resources to fulfil their mandates. The SAACB requires a declaration 
of financial interests by Ministers and members of the PLC and its extension in due course to 
public  servants  is  planned.  A  draft  action  plan  against  corruption  was  developed  by  civil 
society.  The  SAACB  is  currently  establishing  an  ‘Integrity  Reinforcement  and  Anti-
corruption’ department.  

3. 

ECONOMIC AND SOCIAL REFORM  

Macroeconomic framework and functioning market economy 

Real GDP growth of 2% remains below the 3.8% population growth, implying that per capita 
living  standards  continue  to  deteriorate.  Per  capita  GDP  has  fallen  by  nearly  30%  from  its 
height  of  USD  1610  in  1999  to  around  USD  1130  in  2006,  a  steady  decline  that  has 
accelerated  in  the  last  couple  of  years.  The  rate  of  growth  is  lower  than  envisaged  at  the 
December 2007 donors’ conference in Paris (3.5%) and is the result of uneven developments 
in  the  occupied  Palestinian  territory.  Although  there  is  no  breakdown  of  GDP  between  the 
West  Bank  and  Gaza,  it  is  estimated  that  there  has  been  some  growth  in  the  West  Bank 
fuelled by improved security and full repayment of wage and private sector arrears by the PA. 
On the other hand, the Gaza Strip is progressively becoming fully dependent on external aid. 
The  percentage  of  the  black-market  economy  has  increased  because  of  the  full  blockade  in 
Gaza.  Tunnels  have  been  used  for  the  delivery  of  fuel  and  other  crucially  needed  goods. 
Israel’s restrictions on entry of  food, fuel and  cash needed by commercial banks devastated 
Gaza’s  economy  in  2008;  this  situation  was  aggravated  in  December  as  a  result  of  Israel’s 
military operation.  

Average inflation was close to 9% in 2008 in spite of world’s lower food and oil prices during 
the half of the year. Israeli’s restrictions on movement and access have contributed to create 
an  artificial  shortage  of  productive  assets.  The  situation  on  movement  and  access  has  not 
improved due to a deepening of the geographical division of the West Bank into six separate 
areas,  with  physical  and  administrative  means  being  used  to  enforce  the  restriction  of 
movement  between  these  areas  (permanent  and  flying  checkpoints,  physical  obstacles,  the 
"Separation Barrier" with close to 60% of its overall route completed, and the permit regime). 
According to the latest published UN data, the number of obstacles to movement in the West 
Bank has increased to 625, from 376 in August 2005. The 2005 Agreement on Movement and 
Access stipulated that a plan would be developed to reduce, to the maximum extent possible, 
the number of such obstacles in the West Bank in order to facilitate the movement of people 
and  goods  and  minimise  disruption  to  Palestinian  lives.  The  restriction  of  movement  had 
important consequences on access to health, the economy, family networks, and education. 

Fiscal  consolidation  has  proceeded  reasonably  well  on  account  of  implementation  of  fiscal 
reforms. According to the Ministry of Finance, the recurrent fiscal deficit on a commitment 
basis is projected to decline to 23.6% of GDP (down from 28.7% in 2007), reflecting restraint 
on  the  wage  bill  and  reduced  subsidies  for  utilities.  This  is  in  line  with  projections  for 
recurrent  deficit  presented  in  the  2008  Budget  Law.  A  further  reduction  of  the  recurrent 
deficit to 17% of GDP was envisaged by the 2009 Budget Law through continued expenditure 

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restraint and improved cash management; however, a likely increase in emergency spending 
resulting from the Gaza war might alter this positive forecast. 

The  global  financial  crisis  has  not  directly  affected  the  Palestinian  economy.  A  limited 
exposure  of  domestic  banks  to  global  financial  markets  together  with  conservative  lending 
practices has kept the occupied Palestinian territory isolated from the global financial storm. 
The main impact of the financial turmoil will hit Palestinian exports through Israel’s expected 
lower growth. The decline in oil and food prices stemming from the global recession would 
have a effect on production costs and real incomes. 

Local  banks  have  not  suffered  from  the  global  financial  turmoil  because  deposits  are  made 
into the local financial market which has limited exposure to the world. The Palestinian Stock 
Exchange (PSE) has suffered a limited impact of the global financial crisis due to its size (just 
35  companies  are  listed)  and  relative  isolation.  There  are  no  major  foreign  investors  or 
investments at the PSE. Listed companies have few or no external investments, do not rely on 
exports and have limited foreign contacts. The Al Quds index has experienced some volatility 
since October 2008 but there is no evidence of this contraction responding to the crisis in the 
global financial markets. 

There is no progress reported regarding the adoption and implementation of new legislation 
governing  the  Palestinian  economic  framework.  However,  ministries  are  preparing  new 
legislation in line with the national legislative  plan, adopted in  February 2008 by  the Prime 
Minister,  which  is  being  coordinated  from  the  Cabinet  Office.  The  Ministry  of  National 
Economy created a new Directorate General to follow up the drafting and consultation of new 
or amended economic legislation. Progress in this area will continue to be largely dependent 
on  individual  ministries  and  agencies.  However,  in  the  short  term  efforts  would  also  be 
needed  to  ensure  that  new  economic  legislation  can  be  properly  enforced  by  the  present 
judiciary. 

Employment and social policy 

The number of poor people, as reported by the World Bank, who are living on less than USD 
2 per day, reached more than 2.8 million in 2007. 80% of families in Gaza currently rely on 
humanitarian aid compared to 63% in 2006. Approximately half of all Palestinian households, 
and  around  three-quarters  of  Gaza’s  population,  are  dependent  on  international  food 
assistance, a situation which has become even more critical with the rise in food prices. The 
consumer  price  index  for  food  increased  by  28%  in  Gaza  and  21%  in  the  West  Bank  from 
June 2007 to June 2008. 

The  employment  and  labour  situation  deteriorated  over  the  reporting  period  due  to  the 
closure of the Gaza strip and the separation barrier. Unemployment stood at 45% in Gaza and 
16%  in  the  West  Bank  in  the  second  quarter  of  2008.  Youth  unemployment  is  an  issue  of 
concern (27% in the West Bank and 62% in the Gaza Strip). According to the World Bank, 
95%  of  Gaza’s  industrial  operations  are  suspended  due  to  the  blockade.  The  labour  force 
participation  rate  remained  low  at  41.6%.  The  International  Labour  Organisation  (ILO) 
provides  technical  assistance  to  the  authorities  in  their  employment  programme.  This 
programme,  on  which  social  partners  were  consulted,  aims  at  strengthening  labour  market 
governance  and  rights;  improving  employability  and  strengthening  entrepreneurship  and 
productivity  for  private  sector  growth.  In  April  and  November  2008,  the  ILO  expressed 
concern  about  the  situation  of  Palestinian  workers  whose  fundamental  rights  to  equal 

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opportunities and treatment in employment and occupation as well as their right to organise 
and to bargain collectively are severely limited by restrictions on movement. 

As regards social dialogue, the Ministry of Labour and social partners are working, together 
with the ILO, on the establishment of a tripartite committee.  

The Ministry of Social Affairs is in charge of developing a social protection strategy to guide 
the ‘social protection reform and integration’ programme, which is aimed at improving the 
equity,  efficiency  and  effectiveness  of  social  protection.  A  short  term  mission  in  2008, 
financed  by  the  European  Commission,  supports  the  Ministry  in  reforming  the  social 
assistance  sector.  In  2008,  the  European  mechanism  for  Member  States  and  the  European 
Commission,  PEGASE,  granted  direct  support  to  poor  and  vulnerable  families.  Cash 
allowances were made on a quarterly basis to more than 47 000 beneficiaries, half of whom 
are in Gaza. A substantial increase of vulnerable families as a result of the war is also to be 
expected (estimates up to 12 000).  

The PA’s Unified Pension Law of 2005 has still not been fully enacted. It aims at creating a 
two-pillar system, under the supervision of a new and independent pension agency, to cover 
all  civilian  and  security  employees.  This  system  is  considered  generous  by  international 
standards but might not be fiscally sustainable. Since January 2008, pension coverage in Israel 
has  been  extended  to  all  workers,  including  Palestinian  workers  based  in  the  occupied 
Palestinian  territory.  The  Israeli  National  Insurance  Law  provides  for  compensation  in  the 
event  of  work  accidents,  but  Palestinian  workers  face  difficulties  in  practice  when  claiming 
such  compensation  because  medical  reports  from  the  occupied  Palestinian  territory  are  not 
recognised in Israel. 

No progress can be reported regarding sustainable development in the occupied Palestinian 
territory. Most  local  and  international  resources  are  channelled  to  maintain  basic  services, 
leaving  very  limited  funds  to  be  invested  in  sustainable  development.  The  Palestinian 
Authority administers the most populated areas of the West Bank but has limited control over 
their  natural  resources  and  agricultural  lands.  As  the  population  in  these  regions  quickly 
grows  and  its  needs  are  increasing,  too  little  suitable  space  for  demographic  growth 
causes irrational land use and unsound environmental management. 

Moreover,  the  conflict  situation  with  Israel  has  an  additional  negative  impact  on  the 
sustainable development of the occupied Palestinian territory. As the West Bank is split into 
areas with different security and administrative arrangements and authorities, some parts of it 
are under full control of the Israeli military, including the land administration and planning. In 
effect, these remain sparsely populated and underutilised. 38% of West Bank land area is also 
reserved  by  Israel  for  the  settlements  and  serves  the  security  objectives  (military  presence, 
checkpoints,  road  closures,  the  separation  barrier),  where  the  free  movement  of  people  and 
goods is heavily constrained. Palestinian population’s development is confined to the existing 
cities and villages with too little suitable space for demographic growth. 

4. 

TRADE-RELATED ISSUES, MARKET AND REGULATORY REFORM 

The  core  obstacles  to  trade  and  economic  development  related  to  movement  of  goods  and 
access to the occupied Palestinian territory, as reported last year, were still in place during the 
reporting period. In December 2008, for the first time in many years, there was some progress 
through an initial loosening of constraints in the Northern West Bank (including Nablus) in 

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opening hours and vehicle movements. However, it is too early to assess the economic impact 
and the permanent nature of such measures. During the reporting period, Palestinian exports 
to the EU decreased dramatically by 49.1%, while imports from the EU increased by 37.1%. 
Work  towards  the  establishment  of  a  “dispute  settlement  mechanism”  for  an  effective 
resolution  of  trade  disputes  in  the  framework  of  the  IAA  is  on-going.  The  PA  actively 
participated  in  the  Trade  Senior  Official’s  Working  Group  set  up  to  draw  a  Euromed 
Roadmap of next steps in the field of trade till 2010 and beyond. This roadmap is due to be 
adopted at the Ministerial meeting in autumn 2009. 

Some  progress  was  made  during  the  reporting  period  in  discussing  specific  technical 
assistance  for  capacity  building  within  the  Ministry  of  National  Economy  for  the 
implementation of their future WTO obligations and for the Palestinian Customs Department 
to help prepare for a management reform programme in 2009. 

Concerning  free  movement  of  goods  and  technical  regulations,  the  first  bilateral  EC-PA 
Euro-Mediterranean  Charter  for  Enterprise  meeting  in  March  2008  highlighted  the  need  to 
support industrial modernisation by upgrading the Palestinian Quality Framework. Terms of 
reference were agreed between the Ministry of National Economy, the Palestinian Standards 
Institute and the  European Commission  for  a needs  assessment and programme formulation 
mission on the Palestinian quality framework. The mission took place in December 2008.  

In the area of sanitary and phyto-sanitary issues the EC funded a needs assessment for the 
entire  Palestinian  Quality  Framework  as  a  first  step  towards  a  multi-annual  support 
programme. 

The Palestinian legal framework for business remains weak, contributing to the uncertainty of 
the  business  climate.  The  process  for  starting  up  a  company  is  cumbersome  and  takes  on 
average  two  to  three  weeks,  as  delays  occur  due  to  the  assembly  of  documentation  for 
registration and to obtaining permits and licences.  

The  authorities  continued  their  efforts  to  attract  new  investments  and  support  private  sector 
initiatives. A major Palestinian Investment Conference took place in May 2008 in Bethlehem 
to  discuss  investment  opportunities  and  to  forge  partnerships  between  the  Palestinian  and 
international  business  communities.  Furthermore,  the  Israel-Palestinian  Business  Forum 
(IPBF) that was established in late 2007, geared up its operations. It is the first organization 
run jointly by Israelis and Palestinians to facilitate contacts, to promote the founding of new 
businesses  and  to  support  existing  ones.  In  addition,  an  Israel-Palestinian  Chamber  of 
Commerce is currently being established by leading Israeli businesspeople. 

In  the  field  of  financial  services,  the  Palestine  Monetary  Authority  (PMA)  continued  to 
perform well, regulating the Palestinian banking sector. The PMA strengthened prudential and 
regulatory  standards  in  coordination  with  the  Bank  of  Israel  to  ensure  continued  smooth 
financial relations in a difficult political environment. New laws on banking and on the PMA 
are  under  preparation.  Payment  system  legislation  is  also  under  preparation.  Through  the 
implementation of its strategic transformation plan, the PMA continued to make considerable 
progress on internal reform and capacity building. In May 2008, the PMA launched the Credit 
Bureau,  a  credit  registry  which  should  make  for  better  risk  assessment  and  improve  the 
quality of loans.  

Other key areas 

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In  2008  some  progress  was  made  on  the  preparation  and  adoption  (mostly  by  Presidential 
decision) of new legislation in the area of taxation. The major cuts in income and corporate 
taxes that the Palestinian cabinet had approved on 31 December 2007, came into effect in the 
first  half  of  2008  following  Presidential  signature.  These  included  increasing  the  basic 
threshold of tax-free income from USD 3000 (EUR 2333) p.a. to USD 7200 (EUR 5599) p.a., 
and  reducing  the  basic  rate  from  8%  to  5%  (on  annual  income  up  to  $10,000).  The 
corporation tax on businesses was reduced from 16% to 15%, with increased deductibles for 
training, research and development and investment in meeting quality standards.  

For  public  procurement,  please  see  the  section  on  financial  accountability  and  sound 
management of public finances. 

In  the  area  of  statistics,  the  Palestinian  Central  Bureau  of  Statistics  (PCBS)  presented  in 
September  2008  the  preliminary  results  of  the  2007  Population  and  Housing  Census.  The 
European  Commission  signed  a  EUR  1  million  grant  contract  in  September  2008  with  the 
PCBS  to  support,  the  further  analysis  and  subsequent  dissemination  of  the  census  findings. 
PCBS  is  an  active  partner  in  the  Euro-Mediterranean  Statistical  Cooperation  Programme 
(MEDSTAT),  and  OECD  within  its  Human  Rights,  Democracy  and  Good  Governance 
programme. 

On enterprise policy, the PA assessed its progress in implementing the Euro-Mediterranean 
Charter for Enterprise. The assessment shows that the enterprise policy is heavily constrained 
by  curtailed  administrative  powers,  security  restrictions,  lack  of  budgetary  resources  and 
persistent  political  instability.  The  PA  has  no  formalised  government  policy  for  promoting 
enterprise  development;  actions  are  rather  taken  on  an  ad  hoc  basis.  Despite  difficulties, 
public-private  dialogue  is  relatively  open  and  is  conducted  in  the  framework  of  National 
Economic Dialogue Committee which meets several times per year.  

5. 

ENERGY, THE ENVIRONMENT, TRANSPORT, RESEARCH AND DEVELOPMENT 

The  prevailing  political  situation  did  not  allow  for  progress  in  the  transport  sector.  The 
obstacles in movement and encountered difficulties in trilateral cooperation are at the origin 
of  the  lack  of  progress  in  this  area.  However,  despite  the  difficult  situation,  the  PA  has 
actively participated in the regional programmes (e.g. Euromed aviation and MEDAMOS), in 
the  Euromed  thematic  working  groups  and  in  the  Euromed  Transport  Forum  in  December 
2008. 

The PA established an updated energy policy in the context of the Palestinian energy sector 
assistance programme 2008-2010, the PRDP 2008-2010 and the “Letter of sector” policy. The 
policy includes objectives such as the improvement and extension of electricity infrastructure 
and services; capacity-building and institutional reform including the separation of policy and 
regulatory  functions  from  commercial  functions;  and  increased  efficiency.  The  Cabinet 
approved an electricity law, which awaits finalisation of the legal procedures. The law creates 
a  basis  for  the  establishment  of  the  Palestinian  electricity  regulatory  commission  and 
separates commercial from regulatory functions.  

The occupied Palestinian territory remained largely dependent on energy imports from Israel. 
In 2008 the Gaza power station was completely dependent on external aid and had to reduce 
or  halt  electricity  production  due  to  supply  limitations  imposed  by  Israel.  This  situation 
continued to impact on the daily life of Gaza inhabitants. Approximately 187 MW/hour are 
currently available in Gaza against the around 225 MW/hour needed. This results in frequent 

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power  outages  and  the  need  to  use  fuel  generators  for  the  most  essential  facilities.  Of  the 
available capacity, around 120MW is sold by the Israeli Electrical Company (64%), 17MW 
(9%)  is  bought  from  Egypt  and  around  50MW  (27%)  are  generated  by  the  Gaza  Power 
Generating  Company  (GPGC).  Since  February  2008,  electricity  flows  to  Jericho  through  a 
new electricity interconnection with Jordan. Reflections started for further links between the 
West Bank and Jordan. The PA completed a feasibility study regarding a substantial upgrade 
of the Egypt-Gaza electricity link. Egypt, Jordan and the PA started to explore possibilities for 
further  network  interconnections.  In  October  2008,  the  Palestinian  Authority  became  a 
participant  in  the  Arab  electricity  interconnection  project  alongside  Egypt,  Iraq,  Jordan, 
Lebanon, Libya, Syria and Turkey. The PA, Jordan and Israel exchanged views on possible 
future electricity interconnections. Due to the situation in the Gaza strip, the construction of 
an electricity line Gaza-Israel remained frozen. 

The PA worked further on the development of four electricity substations in the West Bank 
and,  with  support  from  the  European  Commission,  started  on  the  upgrading  of  West  Bank 
electricity  networks.  It  installed  pre-paid  electricity  meters,  with  a  view  to  improve  bill 
collection.  The  PA  and  Egypt  studied  interconnection  possibilities.  The  economy  could 
benefit  from  the  development  of  the  Gaza  offshore  gas  resources,  which  in  the  current 
circumstances cannot be developed.  

In 2008, the PA became a partner in the Regional Centre for Renewable Energy and Energy 
Efficiency  for  Middle  East  and  North  Africa  countries.  The  Cairo-based  Centre  was 
inaugurated  in  June  2008  and  is  supported  by  the  European  Commission,  Denmark  and 
Germany.  The  PA  developed  plans  for  a  solar  power  plant  in  Jericho.  The  European 
Commission launched a pilot project on wind energy.  

At regional level, the Palestinian Authority pursued Euro-Mediterranean energy cooperation, 
in particular through the multiple projects (see the sectoral report). The July 2008 Summit of 
the Union for the Mediterranean endorsed the development of a Mediterranean Solar Plan. In 
2008, the PA, Israel and the European Commission re-launched trilateral energy cooperation 
with  the  aim  of  facilitating  the  joint  Palestinian-Israeli  “Solar  for  Peace”  initiative  and  the 
establishment  of  a  joint  energy  office.  A  European  Commission  financed  study  was 
undertaken to support the Solar for Peace project.  

The  overall  environment  situation  deteriorated  significantly.  The  number  of  Palestinian 
households not connected to drinking water supply, or receiving good-quality drinking water, 
increased. Salination of the aquifer in the Gaza Strip is a concern.  

There  is  a  need  for  better  sewage  connection,  wastewater  treatment,  waste  collection  and 
landfills, both in the Gaza Strip and in the West Bank. In the West Bank, the construction of 
waste  and  wastewater  related  infrastructure  is  blocked  due  to  the  non-issuing  of  the  related 
permits  by  the  Israeli  Civil  Administration.  In  the  Gaza  Strip,  import  restrictions  on 
construction  materials  prevent  proceeding  with  the  construction  of  the  infrastructure. 
However,  some  improvements  of  solid  waste  management  took  place  in  the  West  Bank,  in 
particular as regards landfills.  

Administrative  capacity  has  significantly  weakened  with  the  offices  of  the  Environmental 
Quality Authority (EQA) and the Palestinian Water Authority (PWA) in Gaza being closed in 
2008. Some positive developments can however be reported as the EQA started the process of 
formulating  a  national  solid  waste  policy.  The  PWA  issued  a  draft  national  agenda  and 
released priority needs on water by Governorate for the period 2009-2011. Steps were taken 

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to set up a database for environmental data and a national team for environment statistics was 
set  up.  Environment  strategies  and  legislation  still  need  updating.  A  major  challenge  is  to 
revive administrative implementation capacity. 

Representatives of the PA participated in activities under the EU Water Initiative and in the 
December  2008  Euro-Mediterranean  Ministerial  Conference  on  Water,  launching  the 
preparation of a regional water strategy for the Mediterranean. 

In  the  information  society  sector,  the  Ministry  of  Telecommunications  and  Information 
Technology received in May 2008 from the Israeli authorities the frequencies required for the 
license of the second mobile operator, planned to be issued in 2009. The Ministry granted five 
licenses  for  broadband  access  to  electronic  communications  services,  in  particular  Internet 
and 21 licenses for voice over IP services. 

In the area of research and innovation, participation of Palestinian researchers in the calls of 
the Framework Programme 7 (FP7) is so far relatively low (4 applicants out of 25 were main-
listed). Nevertheless, Palestinian research institutions could increase their participation in the 
research  activities  of  FP7,  particularly  in  the  Specific  International  Cooperation  Actions 
targeted  to  the  Mediterranean  region  in  thematic  aspects  and  challenges  of  mutual  interest. 
Thanks  to  its  reinforcement  through  the  programme  Capacities,  the  PA  will  also  be  able  to 
consolidate its S&T cooperation with Europe in the near future in a number of geographically 
and  thematically  targeted  international  activities  opened  in  the  FP7  –  Cooperation 
programme. 

6. 

PEOPLE-TO-PEOPLE CONTACTS, EDUCATION AND HEALTH 

Education  is  a  priority  for  the  PA:  education  accounts  for  more  than  30%  of  the  PRDP’s 
proposed budget support for recurrent expenditure and approximately 20% of donor support 
requested for the investment programmes. In July 2008, the Ministry of Education and Higher 
Education  presented  its  five-year  Education  Development  Strategic  Plan  (EDSP)  for  2008-
2012. The plan defined four priority areas: ‘equitable access to education for all, enhancing 
quality of education, developing management reform programmes, and improving access and 
quality  of  vocational  and  technical  training  and  adapting  it  to  the  current  Palestinian  labour 
market  needs’.  In  order  to  reach  the  goal  of  quality  education  the  Ministry  has  developed  a 
Teacher  Education  Strategy  with  the  support  of  UNESCO,  which  aims  at  upgrading  the 
teaching  profession  and  developing  teacher  training  and  qualification  programmes.  In 
December  2008  the  European  Commission  and  UNESCO  signed  an  agreement  for  the 
programme “Quality System for Quality Teacher” which plans to put into place a system for 
the  implementation  of  the  Teacher  Education  Strategy.  The  European  Commission 
contribution to this programme is EUR 3.7 million.  

The Ministry plans to reactivate the Palestinian Education Initiative (PEI) developed with the 
World Economic Forum in order to significantly increase the use of information technology in 
education. 

The  Tempus  programme  continued  to  support  the  development  and  reform  of  higher 
education with two projects selected under the first call for proposals under Tempus IV. The 
National  Tempus  Office  for  the  occupied  Palestinian  territory  was  re-opened  in  July  2008, 
adding  impetus  to  promotion  and  reform  activities  under  the  programme.  Three  Palestinian 
students  and  one  scholar  benefited  from  scholarships  under  Erasmus  Mundus  for  the 

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academic  year  2008-9,  while  student  and  academic  mobility  was  further  enhanced  through 
participation in Erasmus Mundus External Cooperation Window. In addition, two Palestinian 
students  received  scholarships  in  European  integration  studies  at  masters  level  for  students 
from the ENPI region under a special pilot project for the academic year 2008-9.  

Ten Palestinian youth projects were selected under the Euromed Youth Programme III in the 
period 2007-8 in the areas of youth exchange, informal education and intercultural dialogue. 
In  parallel,  Palestinian  youth  organisations  continued  benefiting  also  from  the  opportunities 
offered  by  the  Youth  in  Actions  Programme  supporting  cooperation  and  partnership  with 
European counterparts to develop similar youth projects taking place in Europe. While there 
was  an  increase  in  voluntary  service  actions  under  Youth  in  Action  as  compared  to  2007, 
there  was  a  decrease  in  youth  exchanges  and  youth  workers’  mobility,  attributable  to 
restrictions  on  free  movement  and  access.  The  Ministry  of  Youth  and  Sports  developed  the 
outlines  of  a  future  youth  policy  with  the  cooperation  of  UNFPA  and  a  civil  society 
organization as well as a concept paper for the establishment of a youth leadership academy. 

In the area of culture, the PA participated in a regional project under Euromed Heritage III on 
capacity-building  and  promotion  of  the  preservation  of  shared  Byzantine-Islamic  cultural 
heritage  alongside  partners  from  Israel,  Cyprus,  Greece  and  Turkey.  The  local  call  for 
proposals for cultural activities was finalised and will support the Jerusalem Arab Capital of 
Culture 2009 event in the framework of the Arab League.  

In  terms  of  cooperation  with  civil  society,  the  European  Union's  Partnership  for  Peace 
Programme (PfP) continued to promote projects contributing to conflict resolution and mutual 
understanding  in  the  areas  such  as  science  education,  protection  of  shared  cultural  heritage 
and peace education.  

The PA pursued health reform on the basis of the National Health Strategic Plan 2008-2012 
and the PRDP 2008-2010. Reform focuses, among other things, on improving the quality of 
health  of  citizens,  health  organisations  and  facilities.  Preparations  started  towards  a  social 
health insurance law. Access to health services and medicines, in particular for the inhabitants 
of the Gaza strip, remains difficult due to movement restrictions and the limitation on energy 
imports  into  the  Gaza  strip.  The  strikes  in  the health  sector  in  the  Gaza  Strip,  since  August 
2008,  further  impacted  negatively  on  the  provision  of  services  although  these  strikes  were 
called  off  following  the  Israeli  military  attacks  in  December.  In  November  2008,  the  PA 
participated  in  the  second  Euro-Mediterranean  ministerial  health  conference,  which  opened 
new perspectives for regional health cooperation. It continued involvement in the “EpiSouth” 
network for EU, Mediterranean and Balkan countries on communicable diseases. As last year, 
the  European  Commission  invited  the  PA  to  the  EU  Network  of  competent  authorities  in 
health information and knowledge. 

7. 

FINANCIAL COOPERATION – 2008 KEY FACTS AND FIGURES 

In 2008, the European Commission provided a total of EUR 486 million to the Palestinians. 
The bulk  of  Community assistance has been provided for emergency assistance through the 
PEGASE  mechanism  which  replaced  the  Temporary  International  Mechanism  (TIM)  in 
March 2008. PEGASE offers direct financial support to the Palestinian administration to meet 
salary costs of vital workers (particularly in the health and education sectors), supply of fuel 
to the Gaza power plant and payments to vulnerable Palestinian families. The mechanism also 
funded a scheme to repay Palestinian administration arrears to the private sector and offered 

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support  to  the  legal  system,  the  Central  Elections  Commission  and  the  Palestine  Monetary 
Authority. 

The European Commission co-chaired the Paris Donor Conference in December 2007 where 
it pledged EUR 440 million, the largest amount of financial support pledged by any donor to 
the Palestinians for 2008. Taking all contributions together (ENPI, Humanitarian Assistance 
and IfS), actual Community funding for the Palestinian people amounted to EUR 486 million. 

Among  this,  humanitarian  aid  in  the  areas  of  food  aid,  emergency  job  creation,  health, 
psycho-social support, water and sanitation and protection has continued through the DG for 
Humanitarian Aid in parallel. Of the EUR 71.6 million provided to the Palestinians, EUR 56.5 
million was for food aid and cash for work activities for the most vulnerable segments of the 
Palestinian population. Of the EUR 56.5 million, EUR 34.8 million was for Gaza inhabitants. 
The  EC  has  also  maintained  its  support  to  UNRWA  through  a  contribution  to  the  General 
Fund of EUR 66 million and several other projects exceeding an overall contribution of EUR 
113 million in 2008. 

The on-going institution building programme has been reinforced by targeted support for the 
public  financial  management  reform,  and  for  taxation  and  customs  departments  of  the 
Ministry of Finance. To underpin the EU policy regarding East Jerusalem, the EC programme 
focusing  on  community  services  for  the  East  Jerusalem  inhabitants  has  been  reinforced. 
Through the Instrument of Stability, the European Commission supports the work of Quartet 
Representative Tony Blair, and projects with Palestinian civil police in close cooperation with 
EUPOL COPPS.  

The  oPt  can  also  benefit  from  cooperation  activities  financed  under  the  ENPI  regional 
programmes and is eligible under the ENPI CBC Mediterranean Sea basin programme (EUR 
173.607 million for the whole programme in the period 2007-13). 

An additional EUR 4.4 million was programmed in 2007-2008 for the oPt under the thematic 
programme “Non-State Actors and Local Authorities in Development”. 

In  2008,  the  European  Commission  participated  in  two  meetings  of  the  Ad  Hoc  Liaison 
Committee at ministerial level in London and New York, where it confirmed its support for 
the PA Budget through the PEGASE mechanism. It was also involved in donor’ coordination 
in-country through the Local Development Forum and the relevant sectoral groups, including 
the Governance Strategy Group that it chairs. 

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