Source: EURLEX
Language: en
Format: md

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# 52014SC0095

**JOINT STAFF WORKING DOCUMENT Implementation of the European Neighbourhood Policy in Palestine Progress in 2013 and recommendations for action Accompanying the document JOINT COMMUNICATION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Neighbourhood at the Crossroads: Implementation of the European Neighbourhood Policy in 2013 /\* SWD/2014/095 final \*/**

  

1. OVERALL
ASSESSMENT AND RECOMMENDATIONS

This document
reports on overall progress made on the implementation of the EU‑Palestinian
Authority (PA) European Neighbourhood Policy (ENP) Action Plan between 1
January and 31 December 2013, although developments outside this period are
also considered when deemed relevant. It is not a general overview of the
political and economic situation in Palestine.[1]
For information on regional and multilateral sector processes readers should
also refer to the Partnership for Democracy and Shared Prosperity progress
report.

EU-Palestinian
bilateral relations in 2013 saw the entry into force of the new ENP Action
Plan, a major step forward. The Action Plan articulates the PA’s commitment to
build Palestinian institutions based on rule of law, democracy and the respect
of human rights as a basis for the establishment of a Palestinian state and its
determination to develop closer relations with the EU. The Action Plan also
reflects the EU’s commitment to supporting these objectives. It lays the
foundation for deeper EU-Palestinian relations in preparation for a
fully-fledged Association Agreement to be concluded between the EU and the
future state of Palestine. In the context of the current peace talks, the EU in
the December Council conclusions indicated it would offer a Special Privileged
Partnership to both Israel and the future state of Palestine in the event of a
final peace agreement.

The PA has made
progress towards implementing the new Action Plan. However, there is scope for
the PA to accelerate reforms in areas within its control; this is particularly
the case for civil service reform and pension reform, and in the justice and
security sectors. The Israeli occupation and the restrictions it imposes are
heavily hindering Palestinian economic development and remain the biggest
obstacle to sustained reform, especially with regard to the PA’s financial
sustainability. A report issued in 2013 by the World Bank concluded that the
potential value added from the alleviation of current restrictions in Area C[2] amounts to around USD
3.4 billion, or 35 % of the Palestinian GDP.

The new Prime
Minister Rami Hamdallah resigned a few weeks after his appointment in June
2013. He was subsequently sworn in again as Prime Minister in September 2013.
The lack of progress in intra-Palestinian reconciliation remains a major
challenge. The PA’s authority is not effective in the Gaza Strip, and the
Legislative Council is paralysed. Full democratic legitimacy can only be
restored through legislative and presidential elections throughout Palestine. In the meantime, this increases the importance of ensuring transparency of
decision-making and proper consultative processes with civil society to further
democratic governance. Equally, it is important that the PA is empowered to act
within its areas of competence.

In the area of
foreign and security policy, the EU underlined its full backing for the
resumption of Israeli-Palestinian peace talks in August 2013, commended the
personal commitment of both President Mahmoud Abbas and Prime Minister Benjamin
Netanyahu and reiterated its support for a two-state solution based on an
agreement on all final status issues, offering a Special Privileged Partnership
to both parties if such agreement is reached. In parallel, the EU warned
against actions that undermine the negotiations. It deplored continued
expansion of settlements and expressed grave concern regarding incitement,
incidents of violence, house demolitions and the deteriorating humanitarian
situation in Gaza.

In 2013 the EU
continued to be the major donor to the Palestinian people, including
Palestinian refugees. The September 2013 Ad Hoc Liaison Committee (AHLC)
meeting was held at ministerial level, for the first time in four years. The High
Representative for Foreign Affairs and Security Policy/Vice President of the
Commission Catherine Ashton hosted the spring AHLC in Brussels. On 11 December 2013, the
European Court of Auditors published a report which concluded that the
Commission services and EEAS had successfully implemented direct financial
support to the PA in difficult circumstances, but also stated that the
sustainability of the PEGASE[3]
mechanism was in doubt if major revisions to the current approach do not take
place.

Human rights
issues continued to be a matter of concern, despite some limited progress with
regard to respect for basic freedoms. In the West Bank, journalists continued
to face restrictions on various occasions. No significant steps were taken to
enhance the protection of journalists, for example by strengthening the legal
framework governing their work. In Gaza, the situation further deteriorated,
with the media and civil society actors under severe scrutiny and subject to
arbitrary arrests. Detention conditions in Palestinian prisons in both the West Bank and the Gaza Strip continued to be a cause of serious concern, with the
Independent Commission for Human Rights (ICHR) reporting on ongoing serious
violations of detainees’ rights and patterns of ill-treatment and torture in
detention centres. Limited progress on the reform of the justice and security
sectors was made and efforts to increase transparency and public accountability
remained necessary. The EU condemned the issuing and execution of several death
sentences in the Gaza Strip in 2013. Violence against women and women’s
socio-economic vulnerability remained significant challenges.

Figures on
economic data indicate a decline in West Bank growth. By the end of 2013, the
PA’s financing gap was estimated at USD 330 million[4] and the investment
climate continued to be hampered by restrictions on movement and access,
particularly in Area C. The ousting of President Mohamed Morsi in Egypt, and the subsequent clampdown on the Gaza tunnels, was a major blow to the de facto
authorities in Gaza. Israel’s continuing closure of access to the Gaza Strip
and increased access problems from Egypt have had an increasingly negative
impact on living conditions in the Gaza Strip itself.

In 2013, the PA
continued to successfully implement measures to enhance the national cash
transfer programme and finalised the national export strategy. Both projects
are supported by the EU. A public expenditure and financial accountability
assessment was also finalised in June 2013. The Anti-Corruption Commission
continued to function effectively, with an increasing number of cases being
investigated and referred to the judiciary. The latter should ensure timelier
handling of referred cases. In 2013, the PA also signed the regional Convention
on pan-Euro-Mediterranean preferential rules of origin, thus fulfilling one of
the recommendations in last year’s progress report. Most of the key
recommendations contained in last year’s ENP progress report have yet to be
addressed, and remain valid. On the basis of this year’s report and with a view
to sustained implementation of the ENP Action Plan in 2014, the Palestinian
Authority is invited to:

continue its
commendable efforts to take bold and concrete steps towards a just and
lasting solution to the Israeli-Palestinian conflict in the ongoing
negotiation process; 
advance
intra-Palestinian reconciliation in line with the principles set out in
President Abbas’ speech of 4 May 2011, based on a commitment to the
two-state solution;
hold genuine
democratic presidential and legislative elections throughout Palestine;
increase
transparency and accountability of the justice and security sectors;
adopt a
unified penal code which adheres to international human rights standards
and strengthens legal guarantees for all fundamental freedoms including
the abolition of the death penalty; meanwhile, fully abide by the de
facto moratorium on the death penalty that is in place in the West Bank.
develop and
implement a policy to address violence against women and women’s socio-economic
vulnerability;
clarify the
responsibilities of the three main judicial institutions namely the
Ministry of Justice, the Attorney General’s Office and the High Judicial
Council;
take steps
towards civil service and pension reform and rationalise recurring
expenditure, in particular reducing non-wage costs, to ensure better
targeting and sustainability over time of social protection spending;
continue
developing the necessary legal and institutional framework for an
integrated water and waste-water management system, to ensure equitable
service delivery and resource sustainability throughout Palestine;
ratify the
Regional Convention on pan-Euro-Mediterranean preferential rules of origin.

2. POLITICAL
DIALOGUE AND REFORM

Towards deep and sustainable democracy

Throughout 2013, there was no progress in implementing the
Palestinian reconciliation agreements of May 2011 and February 2012,
which aimed to bridge the internal Palestinian split. The planned elections
were therefore not held. As a result, the Palestinian Legislative Council
remained paralysed and laws continued to be issued by presidential decree.
Despite public statements calling for the formation of a national unity government,
following the resignation of former Prime Minister Salam Fayyad, President
Abbas appointed Rami Hamdallah. Prime Minister Hamdallah resigned a few weeks
after his appointment in June. He was subsequently sworn in again as Prime
Minister in September 2013. In this context, the EU has emphasised that full
democratic legitimacy, and institutional sustainability can only be restored
through genuine democratic legislative and presidential elections throughout Palestine. In the meantime, the ongoing situation increases the importance of ensuring
transparency of decision-making and proper consultative processes with civil
society representatives to further democratic governance. The PA made progress
in public finance management reforms in 2013.

Although a
relatively positive environment continued to exist in the West Bank regarding respect for freedom of
expression, freedom of assembly and freedom of the media, there remained cause
for concern. Social media activists and journalists were summoned for
investigation on various occasions. There was no change in the prevention of
printing and distribution of banned papers, despite the decision taken the
previous year to allow their distribution. There was no development on the
legal framework for the press. The Presidential decision to pardon journalist
Mamdouh Hamamreh — who was sentenced on a charge of insulting President Abbas —
was nevertheless a welcome step.

Regarding freedom of association, while civil society
organisations can generally operate freely in the West Bank, NGOs expressed
serious concern following the publication of a presidential decree establishing
an ‘NGO Affairs Committee’ to oversee relations between the authorities and
civil society organisations. To date, no further steps have been taken to
establish the Committee itself. Meanwhile, the ICHR officially requested that President
Abbas cancel the decree.

In Gaza, the right to freedom of expression continued to
deteriorate, with journalists being attacked by security forces, severe
restrictions being imposed on journalists’ movements and the Palestinian Journalists’
Union still being prevented from carrying out activities. The offices of
al-Arabiya Satellite Channel, Ma’an News Agency and Lines Media Company were
closed in July, following a decision by the de facto Attorney General in
Gaza. However, in November, all three offices were allowed to reopen.

In Gaza, the de facto authorities imposed increasing
restrictions on the operation of civil society organisations. NGOs have been
asked to provide more detailed financial information, including staff salaries
and the names of those paid in cash and to apply taxation at source. A number
of NGOs received a three-month deadline to fulfil these requirements. Some
civil society organisations have received a ‘dissolution’ order from the de
facto Ministry of Interior due to their refusal to present audit reports or
to allow auditors from the de facto authorities to examine their
accounts. In addition, the de facto authorities have sought to impose a
requirement for exit permits for national staff working for civil society
organisations and international organisations. These actions also risk
exacerbating the restrictions on freedom of movement currently faced by
Palestinians in Gaza and impeding assistance programmes being implemented by
international partners there.

Other human rights and governance-related issues

In December 2012
the PA announced that a national action plan for human rights would be drafted,
with a view to incorporating it into the new Palestinian National Development
Plan. A first draft of the action plan is still being prepared by the Ministry
of Justice and the UN Office of the High Commissioner for Human Rights.

In the West Bank the de facto moratorium on the death penalty has been in place
since 2005. The new draft penal code, which would abolish the death penalty,
has still not been adopted partly due to concerns about the legality of
adopting substantial legislation by decree in the absence of a functioning
legislative body. However, the draft penal code still contains a number of
provisions which, if adopted, would be a cause for concern. In a number of
local statements, the EU condemned death sentences issued and carried out in
the Gaza Strip. In the course of 2013, ten death sentences were handed down:
nine in Gaza and one in the West Bank (where a moratorium on executions is in
place). Two people were executed in Gaza, in June and October.

As regards the prison system, detention conditions in the
West Bank and Gaza continued to be a matter of concern. In its May 2013 report,
the ICHR described ongoing serious violations of detainees’ rights by security
agencies and patterns of ill-treatment and torture in places of
detention across Palestine. The report also noted an increase in the number of
allegations of torture. In response, in the first measure of its kind,
President Abbas issued an order in May confirming the Palestinian authorities’ commitment
to the prohibition of all forms of torture. It also instructed the authorities
to take all necessary measures to ensure respect for domestic legislation and
international standards on this issue, and to improve the monitoring tools
available to ensure the effective application of the order. Since President
Abbas’ decree, the number of complaints of torture and ill-treatment received
by the ICHR has dropped significantly.

Respect for public
freedoms continued to be a cause for concern. The right of peaceful
assembly was compromised on several occasions by the Palestinian security
forces’ use of excessive force, and the arrest and detention of peaceful
protesters. Though there has been a decrease in the number of arbitrary
arrests, there were still some incidents, mostly at times of heightened
tensions between the West Bank and Gaza, when Hamas supporters in the West Bank
and Fatah supporters in Gaza were arrested. Since January 2011, no civilians
have been tried in West Bank military courts. However, 22 civilians sentenced
by a military court prior to that date are still in prison, without being
offered the possibility of a re-trial before a civilian court.

As regards freedom of religion or belief and rights
of people belonging to minority, Christians are
well-represented at the political level. However, many
Christians complain of increasing pressure in
Palestinian society to accommodate conservative Islamic values, especially in Gaza.

Violence against
women and their overall socio-economic vulnerability remained major
challenges for Palestinian society. According to a 2012 domestic violence
survey by the Palestinian Central Bureau of Statistics (PCBS), 37 % of
married women were subject to violence by their husbands (29.9 % in the West Bank compared to 51.1 % in the Gaza Strip). 25 women have been killed so far this
year in Palestine in so-called ‘honour crimes’, according to data collected by
the Women’s Centre for Legal Aid and Counselling. The rate of Palestinian women’s participation in
the labour market remains amongst the lowest in the world (16.6 % against
68.7 % for men for the second quarter of 2013, according to the PCBS) even
though women now comprise the majority of Palestinian university graduates. A
general increase in unemployment and poverty has in turn contributed to an
increase in early marriages for girls and in the number of girls dropping out
of school. Both human security and access to justice remain highly problematic
for women, who often only have recourse to traditional informal justice
systems.

The use of children
in the labour market continued to be a concern, with 3.5 % of all children
aged 10-17 years being employed in Palestine (4.9 % in the West Bank and 1.4 % in Gaza Strip).

People with
disabilities also continued to suffer from
exclusion and access to appropriate care, especially people with mental
disabilities. Following a national conference in May focusing on the rights of people
with disabilities, the Higher Council for People with Disabilities, led by the
Ministry of Social Affairs, committed itself to taking steps to improve the
social integration of people with disabilities.

Cooperation on foreign and security
policy, regional and international issues, conflict prevention and crisis
management

2013 has been marked by effective efforts, led by US Secretary of
State John Kerry, to re-launch direct peace negotiations between the
Palestinians and the Israelis. Meetings between the parties took place from
July onwards, with the aim of reaching an agreement on all final status issues
within nine months. In its Council Conclusions of July 2013, the EU welcomed
the resumption of negotiations as a crucial step towards achieving a lasting
resolution to the conflict. To support this process, it outlined, in its
Council Conclusions of December 2013, the political, economic and security
support it would provide in the context of a final status agreement.

In 2013, the EU
continued to engage with Israel in order to address the critical importance of
Area C of the West Bank for the viability of a future Palestinian state.
Concrete results, however, have been limited and negative trends continued in
demolitions of Palestinian structures, and increased access restrictions
(including access to humanitarian assistance) for Palestinians in Area C. These
restrictions for Palestinians were particularly intense in the Jerusalem area.

In 2013, the EU
issued various statements deploring settlement activity in East Jerusalem and
the rest of the West Bank in line with the EU’s long-standing view that
settlements are illegal under international law. In June, the European
Commission adopted guidelines to ensure that Israeli settlement-based entities
and activities do not benefit from EU funding, in line with existing EU policy
and practice and with the undertaking in the new ENP Action Plan.

On Gaza, the EU reaffirmed its support for consolidating the ceasefire of 21 November
2012 and reiterated its call for an immediate, sustained and unconditional
opening of crossing points for goods and persons to and from the Gaza Strip,
while fully recognising Israel’s legitimate security needs. Sporadic
rocket-fire from Gaza into southern Israel continued in 2013 and was met by
Israeli airstrikes and a temporary reduction of Gaza’s fishing zone,
subsequently lifted. In 2013 a number of factors contributed to a sharp decline
in the general economic and social situation in the Gaza Strip. Following the ousting
of President Morsi in Egypt, there was a clampdown on the Gaza tunnels and
restrictions on the opening of the Rafah crossing. The fall in fuel supplies
led to the closing of the power plant in November and to prolonged power
shortages, which resulted in the closure of sewage pumping operations and
exacerbated existing difficulties in accessing clean water for Gazans. There
were also shortages in the provision of medical supplies. Entry prohibitions on
construction material, coupled with the sharp reduction in allowing the entry
of other goods, resulted in increased unemployment and higher prices for basic
foodstuffs.

3. ECONOMIC
AND SOCIAL REFORM

Macroeconomic
framework[5]

In 2013, real GDP growth declined to an
estimated 1.5% year-on-year (from 5.9 % in 2012) in the West Bank[6] and Gaza. This was mainly due to continuing
Israeli restrictions and delays in clearance revenue transfers to the PA, which
in turn caused corresponding delays in salary payments to civil servants and an
accumulation of arrears to the private sector. Without substantial improvements
in the political context, growth is expected to further decline in the medium
term.

Inflation remained
subdued in 2013 at 1.7% (Palestinian Central Bureau of Statistics). However, in
Gaza prices are expected to increase in 2014, given Egypt’s intensified
clampdown on tunnel trade, which could have socio-political implications.

The fiscal deficit, including development spending, is
estimated at 13.7% of GDP in 2013, an improvement of nearly 3 percentage points
compared to 2012, mainly due to improved revenue performance and commendable
efforts to contain spending. The PA’s fiscal position diverged
substantially from the 2013 budget targets. The IMF estimated a USD 300 million
financial gap for 2013. Shortfalls in donor aid and the incomplete transfer of
clearance revenues from Israel caused difficulties in the government’s
liquidity position. In this challenging economic and social environment,
growth-friendly fiscal consolidation was not sufficiently implemented and more
could have been done to improve the business environment in order to ensure
medium-term stability and promote growth. Public debt grew sharply to
38% at the end of 2013, rapidly approaching the 40 % threshold set by law.

The current
account deficit was projected at 22.4% of GDP for 2013 with the drawdown of
cash and foreign deposits as the main source of current account financing (with
particularly imports of goods outpacing exports).

While the banking sector remained healthy, domestic
banks’ direct and indirect exposure to the PA and its employees was high,[7] making them
highly vulnerable to any severe political or economic shocks.

Social
situation, employment and poverty reduction

The unemployment rate was at 2.5% in 2013, compared to
23.2% during 2012. Unemployment in Gaza Strip was substantially higher than in
the West Bank, and for women as compared to men; highest rates were registered
for youth aged 20-24.

To help boost employment, a technical and vocational
education and training strategy and a one-stop-shop system of employment
services at local level were being developed. A labour market information
system was put in place, to match labour market demand and supply. Work began
on developing a Palestinian jobs classification and qualifications system. An
Employment and Social Protection Fund was established but remained underfunded.

The Ministry of
Social Affairs continued to implement measures to enhance the national cash
transfer programme. The programme witnessed an increase in its coverage to
approximately 105 000 households, for a total annual cost of about EUR 88
million (corresponding to a 1 % increase compared to 2012). The EU annual
contribution of EUR 40 million, earmarked for support to families living in
extreme poverty, covered less than 50 % of the total cost of the programme.
The PA covered the other half from its own budget, and the World Bank covered just
under 3 % of the total cost. Evaluations of the programme continued to be
carried out on an ongoing basis.

Efforts were made
to facilitate coherence and convergence in the targeting, delivery and
monitoring of social services, with the support of EU-funded technical
assistance. A national exercise to map pockets of poverty in the West Bank and Gaza was completed in close cooperation with the PCBS, with the support of the World Bank
(‘the Atlas of poverty in Palestine’, PCBS 2013). The results show key poverty
indicators at the local level, in support of policy development and
decision-making.

4. TRADE-RELATED
ISSUES, MARKET AND REGULATORY REFORM

Palestine is the EU’S smallest trading partner in
the Euro-Mediterranean region and almost worldwide. Bilateral trade
flows in 2012[8]
increased compared to 2011 and amounted to EUR 118.8 million. EU imports from Palestine remained extremely small and consisted mainly of agricultural products and
processed agricultural products. One of the main reasons for this lack
of performance continues to be the Israeli-imposed ‘closure system’. The
US-brokered Israel-Palestinian
Authority Agreement on movement and access, signed in 2005, has not been
implemented. The border-crossing regime has become a major factor contributing
to the Palestinian economic crisis.

A major achievement in the course of 2013 was the finalisation of
the comprehensive national export strategy, formulated in partnership between
the private and public sectors through an EU-funded project. The strategy is
expected to be formally adopted within the Palestinian National Development
Plan for 2014-2016. It proposes comprehensive measures for export development
and the competitiveness of Palestinian products in twelve key sectors.

Regarding sanitary and phytosanitary issues, a food safety
strategy and a food safety law remained in draft only. Various gaps in legislation
and institutional capacity (administration, training for farmers and business
operators, infrastructure) need to be addressed.

In the area of free
movement of goods and technical regulations, very limited progress
occurred since the last report in preparation for the Agreement on Conformity
Assessment and Acceptance of Industrial Products (ACAA). After some years of
delay, an EU-funded project to restructure and reform the Palestinian Standards
Institute was launched in September. It will contribute to the preparation for
WTO accession and for ACAA negotiations.

In 2009, the PA requested membership of the Agadir agreement
(a Free Trade Agreement between Morocco, Tunisia, Egypt and Jordan). No final decision on membership has been taken by Agadir Ministers yet.

In the area of customs,
in September the PA signed the Regional Convention on pan-Euro-Mediterranean
preferential rules of origin. Customs and VAT administrations were
merged in 2013, as part of the implementation of a wider revenue action plan. A
data interface between customs information systems in Palestine and Israel began to be officially implemented in September 2013.

The business climate continues to be
hampered by the restrictions on movement and access imposed by Israel on both the West Bank and Gaza and the continued closure of access to the latter territory,
severely limiting the effectiveness of EU measures to stimulate the private
sector. Restrictions on the movement of goods and people both within and across
borders increase transaction costs, affect business competitiveness and
strongly discourage domestic and foreign investment. The continued inability of
the PA to access Area C cripples economic development and, in particular,
agriculture. Compared to the previous year, Palestine advanced
to 138th place[9]
(out of 189 economies) for ease of doing business in the World Bank’s ‘Doing
Business 2014’ annual report. Significant improvements
were observed in the area of starting a business, while obtaining credit and
resolving insolvency remained problematic areas.

In the area of company
law, a draft law on debt resolution and bankruptcy has yet to be adopted.
Once in force, it aims to protect both lenders and borrowers, thus improving currently
problematic access to finance for small and medium entreprises (SMEs). There
were no substantial regulatory changes in the area of establishment.

As regards financial
services, the Palestinian Monetary Authority continued to apply tight
regulations to supervise the banking sector. However, the increased exposure of
banks to the PA and its employees’ debt increased risks for the banking sector
including the danger of crowding out credit to the private sector.

Other key areas

In the area of taxation,
in February the PA began to implement a three-year Revenue action plan, aiming
to expand the tax base and improve compliance by establishing a fully
integrated revenue service bringing together income tax, VAT, customs, and
other direct and indirect taxes.

The PA submitted a draft law on intellectual
property rights to the Prime Minister’s Office.

In early 2013,
the PA prepared a set of draft implementing regulations for the public
procurement law which was adopted in December 2011.

The PCBS
continued to provide relevant statistical data for policy-making. The
PCBS now works according to the IMF Special Data Dissemination Standard, which
it adhered to in early 2012. The PCBS has begun developing its quality
assurance framework, based on European good practice. In August, the PA Cabinet
adopted a national strategy for the development of statistics for 2014-2018.

In the area of
enterprise policy, an assessment of the SME policy environment was carried
out, with reference to the Euro-Mediterranean Charter for Enterprise and the
Small Business Act for Europe. Preliminary findings showed that Palestine made incremental progress in a number of policy areas, particularly access to
finance, but that the support of public policy for private enterprise remains weak
compared with other economies in the region. Palestine contributed to the
implementation of the 2013-2014 work programme on Euro-Mediterranean industrial
cooperation and exchanged good practice on SME development and in the textiles
and clothing sector. Palestine coordinated the preparation by the Southern Mediterranean partners of a strategic paper on the future of Euro-Mediterranean
industrial cooperation. This paper contributed to the conclusions of the ninth
ministerial meeting on Euro-Mediterranean industrial cooperation held in
February 2014 in Brussels.

There were no
significant legislative developments in the area of public internal
financial control. A public expenditure and financial
accountability assessment of the PA’s public financial management system was
finalised in June. It concluded that impressive steps had been taken in a short
time to develop internal audit capacity in line ministries and increase
capacity for and the role of external audits. As
regards internal audit, the PA continued working on the establishment of
internal audit units in line ministries. This process has been coordinated by
an Internal Audit Central Harmonisation Unit in the Ministry of Finance. A
draft of the external audit law was still under revision, in order to
incorporate elements ensuring better harmonisation with international standards
and best practice. The draft law includes provisions to enable the State Audit
and Administrative Control Bureau to become fully independent. All these measures were supported by
EU-funded technical assistance.

Areas of competition policy, state aid, consumer protection and tourism did not undergo substantial regulatory changes.

5.
COOPERATION ON JUSTICE, FREEDOM AND SECURITY

In the second part of the year, in order to address concerns in both
the security and justice sectors, the EU Delegation actively sought to bring
together key international stakeholders to promote reform at the highest
political level. During the
reporting period, no significant progress was made on reform of the security
sector, despite efforts made to strengthen the transparency and public
accountability of the security services, following concerns about human rights
violations by the security forces. A joint UNDP-EUPOL COPPS programme, ‘Ensuring
police internal accountability, enhancing national anti-corruption efforts,
promoting civil society oversight’ continued. In addition, the Palestinian
Civil Police (PCP) met together with civil society organisations to discuss a
draft police code of conduct. In parallel, a two-year programme with the Geneva
Centre for the Democratic Control of Armed Forces (DCAF) progressed with DCAF’s
engagement in a consultation process with civil society organisations and with
key Palestinian stakeholders within the security and justice sectors.

The operational capacities of the PCP are still developing, and new
infrastructures are being constructed, many with EU funding, such as district
police stations and prisons. A two-year capacity-building programme to
strengthen the institutional and organisational capacity of the PCP started in
May. The PCP also engaged with EUPOL COPPS on a district
action plan designed to assess current needs at the operational level.

With regards to
the justice sector, the three main justice institutions, namely the
Ministry of Justice, the High Judicial Council and the Attorney General's
Office engaged in a review of the 2011-2013 strategic plan for the justice and rule
of law sector, as a first step in defining the justice sector component of the
Palestinian National Development Plan for 2014-2016. The review was
comprehensive and reflected a balanced evaluation of the achievements in the
justice sector, whilst acknowledging the challenges and difficulties that
impeded progress with respect to certain strategic objectives. A positive step
was the consultation with civil society representatives in the elaboration of
this review.

Nevertheless,
challenges remained in this field, such as the lack of a clear delineation
between the roles and responsibilities of the three main justice institutions. Within the criminal justice sector, agreement was reached with the
various institutions to cooperate more closely with the EU’s mission EUPOL COPPS
to help address these concerns. No progress was made in the area of reform of
the Palestinian Judicial Institute, responsible for the training of the
judiciary and the prosecution, since the High Judicial Council and the Attorney
General’s Office still conduct training programmes without coordination with
the Institute.

On the
legislative front, the new penal code remained as a draft despite reaching the
last stages of scrutiny in 2011. The new penal code contains important
progressive positions with regards to death penalty and ‘honour crimes’, among
others. The draft legal aid law is also stalled, despite an increasing need for
citizens to access legal assistance and protection. The Anti-Corruption
Commission continued to function effectively in pursuing corruption cases, with
an increasing number of cases being investigated and referred to the judiciary.
There is, however, a need to ensure that referred cases are treated in a timely
and due manner. The Anti-Corruption Commission signed an administrative
cooperation arrangement with the European Anti-Fraud Office which gives the
possibility for the two offices to cooperate on fraud cases affecting the
financial interests of the EU and Palestine.

Concerning
judicial cooperation in civil matters, Palestine participated in the 1st
training seminar (Component II Resolution of Cross-Border Family Conflicts)
"Resolution of cross-border family conflicts: international EU and
national nlegislation" under the EuroMed Justice III Project, which took
place in Rome in October.

Finally, the limits on the jurisdiction of
the PA over all the territories continued to have a serious negative impact on
both the justice and security sectors, weakening the capacity and effectiveness
of their associated institutions. In addition, the political divide between the
West Bank and Gaza resulted in the establishment of parallel justice and
security systems, leaving the PA unable to exercise its authority effectively
in Gaza.

6. TRANSPORT,
ENERGY, CLIMATE CHANGE, ENVIRONMENT, THE INFORMATION SOCIETY, RESEARCH AND
DEVELOPMENT

The transport sector remains a vital recovery tool for the Palestinian
economy. Nevertheless the quality of infrastructure continued deteriorating, damaging
economic productivity in Gaza and Area C in particular. Under the Facility for
Euro-Mediterranean Investment and Partnership, the European Investment Bank
decided to co-finance a road and transport master plan. At the regional level, Palestine takes actively part in the Euro-Mediterranean transport dialogue and technical
assistance programmes.

In the energy sector, the regulatory
authority, PERC, began functioning fully and issued two licenses for
distributors and guidance for licensing in the context of the Palestinian Solar
Initiative. The EU assisted the PA in reducing the
burden on the national budget of net lending originating from the electricity
sector by implementing the second phase of an ‘Institutional Development and
Electricity Sector Reform’ project which began early in the year. A major
outcome of the project was the launch of operations of the electricity
distribution companies. The Palestinian Electricity Transmission Company Ltd
was also established, following the Cabinet’s nomination of the Board of
Directors in August.

In May, the Cabinet infrastructure committee approved a concept note
on restructuring the energy sector by extending the mandate of the Palestinian
Energy and Natural Resources Authority to the hydrocarbon sector. The
transmission infrastructure is being upgraded, including work started in 2013
(with Neighbourhood Investment Facility co-financing) on four substations in
the West Bank (Hebron, Jenin, Nablus and Ramallah) totalling EUR 45 million,
the on-going negotiations with the Israel Electric Corporation for the
upgrading of the Gaza power plant for natural gas supply and the upgrading of
the North Gaza substation.

Palestine continued to explore the possibility of
becoming a full member of the United Nations’ Framework Convention on Climate
Change (UNFCCC) and participated in the EU-funded Clima South regional
project, which supports mitigation and adaptation in the southern ENP region. Clima South deployed a fact-finding mission
to Palestine, and planned to support Palestine in its efforts to develop a
national policy climate change, including towards accession to the UNFCCC.
Becoming a full member of the UNFCCC would improve Palestine’s access to
funding related to climate change. In May Palestine became an official
beneficiary of the Global Environment Facility (GEF), but continued to face
difficulties in accessing GEF funding because its status hinders it from being
party to the relevant multilateral environmental agreements.

The Ministry of Environment prepared a draft environmental
law and launched the ‘Strengthening the Palestinian Environmental Action Plan
Programme’. However, its operations in the Gaza Strip were hampered by the
continued closure of its local offices there. In July the ministry’s title
reverted to the Environment Quality Authority, a change made for logistical
reasons as its chairman was unable to obtain visas to travel from Gaza to meetings in the West Bank in his ministerial function. However, the Authority
continued to report directly to the Prime Minister.

In September, Palestine adopted its water law, as a result of which
the Palestinian Water Authority will retain ministerial functions and an independent
regulatory body will be established. Construction of large-scale waste-water
treatment plants continued in Nablus West and will start shortly in Nablus
East, as will the construction of the northern Gaza sewage treatment plant. In December Palestine, Jordan and Israel signed a water-sharing
agreement to build a pipeline to carry brine from a desalination plant at the
Red Sea to the Dead Sea, while providing drinking water to the region.

A medical waste bylaw, approved in February 2012, is now being implemented
and both public and private hospitals are now working in accordance with its
requirements.

Palestine was one of the first countries to begin
supplying data to the European Environment Agency (EEA) under the EU’s shared environmental
information system regional project and it is one of five partners that plan to
enhance their cooperation with the EEA. It also participated in EU-funded
regional projects including the sustainable water integrated management
project, projects falling under the Horizon 2020 initiative for the
de-pollution of the Mediterranean, and in the EU-funded project on the Integrated Maritime Policy in the Mediterranean
(IMP-MED).

In the area of civil protection, Palestine took part in the second
phase of the flagship Programme for Prevention of, Preparedness for, and
Response to Natural and Man-Made Disasters (PPRD South II), which was launched
in September. The Programme aims at strengthening systems for the prevention,
mitigation and management of natural and man-made disasters in the region.

No major changes on information society were observed in
2013. The Palestinian Telecoms Ministry participated to
the Southern Mediterranean Dialogue on E-Communications and the Information
Society.

A High
Council for Research was re-launched within the Ministry of Higher
Education, with a budget of about EUR 4.1 million to support research.
Representatives from Palestinian universities, from the Applied Research
Institute Jerusalem and from the private sector are members of the Council.

In 2013 the
Palestinian entities showed a growing interest to participate in the EU 7th
Framework Programme for Research and Technological Development (FP7). They
increased their participation in FP7 reaching 24 projects with a total EU
contribution to the Palestinian partners amounting to EUR 2,8 million. Two new
FP7 projects (R2I-Research to Innovation) involving 2 Palestinian stakeholders
were launched in 2013 for a total EU funding of around EUR 2 million and aiming
at fostering research-industry partnerships, supporting the Palestinian
capacities in the innovation domain and facilitating the commercial
exploitation of research results.

7.
PEOPLE-TO-PEOPLE CONTACTS, EDUCATION AND HEALTH

Following the
formation of a new government, the Ministries of Education and Higher
Education, which had been split in May 2012, were regrouped into a single
Ministry of Education. In 2013, work continued to finalise the third education development
strategic plan (2014-2019). The reunification of the Ministry of Education and
Higher Education was a positive development towards a more integrated
governance system.

A third education
sector annual review was carried out in May, focusing on technical and vocational
education and training (TVET) as well as early childhood, care and development.
The implementation of the national TVET strategy in 2013 continued at a good
pace, with the establishment of the National Qualification Framework, the
approval of the standard process of curriculum development, the adoption of a
human resources development plan, and a national training fund. Nonetheless,
the TVET system has yet to achieve the strategic objective of operating as a
unified, integrated and labour market-oriented training system, and continues
to suffer from a low public image (overall the current participation rate in
TVET programmes remains at under 6 % of total students).

Basic
education continued to suffer from infrastructure issues,
in particular in the Gaza Strip, Area C and East Jerusalem. In the Gaza Strip,
many school buildings damaged during the 2012 November conflict continued to
operate at sub-optimal levels as a result, and restrictions imposed by Israel on movement and access, in particular as regards construction materials, continued
to limit the rehabilitation and development of such facilities. In Area C,
buildings continue to face the threat of demolition, and permits for new constructions
continued to be difficult to obtain.

As regards higher
education, insufficient funding continued to be a major concern, having a
serious negative impact on the quality and relevance of higher education. In
September, the PA transferred approximately EUR 870 000 to the Palestinian
universities to address the situation. Steps towards the modernisation of
higher education were taken: existing curricula were developed significantly
(e.g. to include classes on water, environment, international relations) and
new educational programmes and teaching methods were introduced. There were
also improvements in quality assurance and facilities were upgraded. Progress
was also made on the internationalisation of faculties and on the creation of a
Palestinian inter-university network. Palestinian institutions were more active
in the Tempus Programme. 39 applications were
submitted (the highest number of applications involving Palestine ever
received). Of these applications, eight projects involving Palestinian
institutions were selected, among which three were chosen as coordinators. 145
students and staff from Palestine received scholarships to study at a European
higher education institution through new Erasmus Mundus partnerships. In
addition, 12 masters students were awarded scholarships to take part in Erasmus
Mundus joint programmes of excellence. Palestinian involvement in other EU
global programmes should be enhanced, with only three Palestinian researchers
and three Palestinian institutions having benefited from Marie Curie
funding since 2007.

Palestinian
youth and youth organisations continued to benefit from the opportunities
offered by the Youth in Action programme. 59 projects were selected
reaching 400 beneficiaries. A consultation workshop was
organised in Palestine involving stakeholders from the cultural sector, as part
of the consultation process for the Preparatory Action on Culture in EU
External Relations.

The PA increased
its focus on tackling non-communicable diseases and providing primary healthcare
through the establishment of family medical centres, which should reduce the
cost of referrals. The Health Ministry also made changes to improve the fairness
and efficiency of the referral system. These included expanding the membership
of the medical referral committees to include health experts from outside the
public sector, centralising the billing department, and putting tighter
restrictions on referrals to medical institutions in Israel. Two hospitals in East Jerusalem received international quality accreditation in May.

Implementation
of the health strategy continued to be hampered by a lack of funding (reflecting
the overall budgetary crisis facing the PA). Inadequate funding limited the
provision of drugs and medical supplies as well as limiting referrals of
patients to external healthcare providers, such as the East Jerusalem
hospitals. In September, the Ministry of Health presented an emergency strategy
to secure three months’ drugs and medical supplies for all PA hospitals
(including those in Gaza) and primary healthcare services.

In the Gaza
Strip the provision of healthcare was hampered by restrictions on movement and
access to Gaza and, more recently, by the closure of many of the tunnels
between Gaza and Egypt. The resultant shortages of fuel, electricity, water
supplies and medicines had serious repercussions for the functioning of local
health centres.

Palestine participated in the EU-funded ‘Episouth Plus’ project, which aims
to enhance health security in the Mediterranean region and South-East Europe.
Policy-makers from Palestine attended a multi-country workshop on the EU acquis
on prevention and control of communicable diseases, as well as participating in
the EU-supported Mediterranean programme for intervention epidemiology training
project (MediPIET, which supports training infrastructure and a regional
network of competent field epidemiologists in order to manage cross-border
health threats).

[1]This
designation does not entail any recognition of Palestine as a state and is
without prejudice to positions on the recognition of Palestine as a state.

[2] Area C refers to 62 % of the occupied Palestinian territory in the West Bank which remains under full Israeli military and administrative control.

[3] PEGASE is the French acronym for Mécanisme
Palestino–Européen de Gestion et d’Aide Socio‑Économique. PEGASE is the main instrument used by the EU to channel financial
assistance directly from the European Union budget and from EU Member States to
support recurrent costs under the Palestinian Authority's own budget.

[4] Source: Specific figures retrieved from International Monetary Fund
unless mentioned otherwise.

[5]
Figures on GDP, inflation, trade and employment are generally from Eurostat
based on data supplied by the national statistical offices; or IMF or
Commission Staff estimates, as indicated in the Statistical Annex. When other
data sources are used these are then indicated.

[6]
The West Bank generates about three quarters of GDP of the Palestinian economy.

[7]
Government debt to banks declined from 112 % of banks’ equity at the end
of 2012 to 105 % at the end of June 2013.

[8] Data for 2013 was not available at the time of writing.

[9]
Comparison is made with the ‘Doing Business 2013’ ranking, which was adjusted
for changes in methodology and any revision of data due to corrections. For
more information, see http://www.doingbusiness.org.

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