Movement of Goods from West

Bank to East Jerusalem and Israel

January
2010
This publication was developed as part of:
"Commercial Crossings Monitoring Program—
Cargo Movement and Access
Monitoring and Reporting Program

Financed by: Under the supervision of:

Norwegian The World Bank
Consultant Trust (MNSED) Finance and Private
Sector Unit
Fund

For more information, please contact PalTrade at:

Headquarter Office Gaza Office

P.O Box 883Ramallah, Palestine P.O Box 5180Gaza, Palestine
Tel. +970 2 240 8383 Tel. +970 8 283 3539
Fax. +970 2 240 8370 Fax. +970 8 283 3549
info@paltrade.org
www.paltrade.org
 ACRONYMS ANDABBREVIATIONS

CPA Crossing Points Authority

DCO District Coordination Office
ECF Economic Cooperation Foundation
EJ East Jerusalem
EU GMP European Union Good Manufacturing Practice
FDA Food and Drug Administration
GACB General Administration of Crossings and Borders
GDP Gross Domestic Product
GOI Government of Israel
MNE Ministry of National Economy
MOA Ministry of Agriculture
MOH Ministry of Health
PA Palestinian Authority
PalTrade Palestine Trade Center
PCBS Palestinian Central Bureau of Statistics
PFCI Palestinian Federation of Chemical Industries
PFIA The Palestinian Food Industries Association
PLO Palestine Liberation Organization
PSI Palestinian Standards Institute
SII Standards Institution of Israel
SMEs Small and Medium-Sized Enterprises
UPPM The Union of Palestinian Pharmaceutical Manufacturers
USM Union of Stone and Marble
WBG West Bank and Gaza
WTO World Trade Organization

2
 TABLE OF CONTENTS

EXECUTIVE SUMMARY 4

INTRODUCTION
A. Background 7
B. The Survey and Sample 8

OBSTACLES AND CHALLENGES

A. Permissions, Registration, and Standards 10
A1. Meat and Dairy 11
A2. Pharmaceuticals 13
A3. Water 14
A4. Processed Foods 14
A5. Other Industries 14

IMPACT
A. General Impact Affecting Exporters 15
B. Impact on Workforce, EJ Hospitals 15

COPING MECHANISMS AND CHANNELS 16

RECOMMENDATIONS 18

ANNEXES 20
Annex A: Survey Methodology
Annex B: Israeli MoH Permission Meat and Dairy Company
Annex C: Pharmaceutical Medicine Tender Document By an International Aid Organization
Annex D: Israeli Civil Administration Letter to Palestinian Factories and PFIA (Oct 4, 2008)
Annex E: Israeli Civil Administration Letter to Palestinian MoA and PFIA (May 20, 2009)
Annex F: Israeli MOH Ban Notification to Meat and Dairy Factories (May 21, 2009)
Annex G: Israeli Civil Administration Letter to Palestinian MoA and PFIA (Aug 12, 2009)
Annex H: Signed MOU between the Standards Institution of Israel (SII) and the Palestinian Standard
Institute (PSI) In the Area of Product Certification

3
 EXECUTIVE SUMMARY

Despite the Paris Protocol, which was designed to formalize economic relations between the Palestinian
Authority and Israel, Palestinian firms continue to have difficulty accessing the Israeli and East Jerusalem
(EJ) markets. In addition to the Israeli security restrictions such as the new West Bank commercial
crossings, Palestinian products face substantial barriers to entry from Israeli health and safety regulations.
Though their products generally meet international standards, many Palestinian producers are unable to
obtain certification that will allow them to sell into the Israeli market. This is particularly true for producers
in the dairy, meat and pharmaceutical sectors, which are naturally subject to stringent regulations. In
addition, all Palestinian producers have difficulty learning exactly what the requirements for entry are.
Israel is the largest and most lucrative potential market for Palestinian producers. With a population more
than double that of West Bank and Gaza and an average income level nearly five times higher, Israel offers
a tremendous opportunity to Palestinian exporters, if only they can access it. Of particular importance is the
large population of Palestinian Arabs residing in Israel who are a natural market for products from the West
Bank and Gaza. Given importance of the Israeli market for Palestinian producers in West Bank and Gaza,
PalTrade has focused much of its efforts on identifying the major factors impeding the access of Palestinian
goods to Israel. The largest constraint remains the extensive physical restrictions that Israel imposes on
movement and access of Palestinians and their products. But these issues have been dealt with in detail
extensively in previous PalTrade publications. Consequently, this study is focused solely on identifying
regulatory barriers faced by Palestinian goods.

Methodology

To learn more about the issues facing producers in the West Bank trying to access the market in Israel and
East Jerusalem, PalTrade conducted a survey of 43 of its member companies in the West Bank in November
2009. The survey was directed at companies that either export to Israel/EJ or have the potential to do so.
Since it was clear that animal products and pharmaceuticals faced the most difficulties, the survey
specifically targeted them. All six of the pharmaceutical companies were included in the survey. In
addition to the survey, the PalTrade team conducted numerous in person interviews and a number of
meetings with Palestinian business associations including Palestinian Federation of Industry (PFI), the
Palestinian Food Industries Association and the Union of Palestinian Pharmaceutical Manufactures. The
PalTrade team also met extensively with PA government agencies such as the Palestinian Standards
Institute and the Ministry of National Economy. Unfortunately, they were unable to arrange appointments
with officials in the GOI.

Regulatory Obstacles and Challenges

All WBG producing for sale into Israel and EJ are required to meet Israeli standards as called for under the
Paris Protocol. Since the GOI does not accept health and safety certifications from the PA, the goods must
be inspected and certified by Israeli authorities. While, this does pose a significant problem for many
goods, other products, which require extensive health and safety inspections, are effectively banned by this
requirement. The GOI requires Israeli inspectors to visit and certify the plants of all dairy, meat and
pharmaceutical producers. Since it is illegal for Israeli citizens to enter the Palestinian controlled territories,
there is no way for them to be certified for sale in Israel/EJ. It appears that the GOI will accept
Pharmaceuticals if they have international certification such as GMP or FDA certification from the United
States. But these are extremely difficult to obtain.
In the past the GOI gave licenses to five WBG dairy producers to sell in EJ. These licenses were based
upon sample testing and were given without the need for an inspection of the premises. It is unclear why if
the products were eligible for sale in EJ they were not also allowed to enter Israel proper. Many of the
Palestinian producers viewed this as a form of protection for Israeli producers. It also begs the question of
why only a few producers were offered this option. However, the GOI has recently informed the companies
that their licenses would be rescinded and no WBG dairy companies would be allowed to sell in EJ or
Israel.

4
Some products, such as electric appliances and gas heaters, must be certified that they meet quality and
safety requirements under that Taken standard before they can be legally imported into Israel. It is reported
that Taken also requires a facility visit, which would prevent imports from WBG. However, none of the
PalTrade members reported producing projects that required Taken. This may be because they know they
cannot obtain Taken so they don‘t produce products requiring it. Or it may not be a binding constraint for
WBG producers. However, Taken is looked upon as a mark of quality, so even if a product is not required
to have it, doing so would increase its market. Unfortunately, most WBG producers are unable to obtain
Taken. Kosher certification is another factor. Products don‘t have to be Kosher certified to enter Israel, but
most large distributors will not handle non-Kosher certified projects. Again, plants cannot be inspected
because Israeli‘s may not travel to the Palestinian controlled areas, thus this reduces penetration of
Palestinian products in Israel.

All of the Palestinian producers surveyed by this study indicated that one of the major impediments they
faced was merely finding out what exactly is required for entry into Israel/EJ. For example, a number of
dairy producers were under the impression that they could not enter Israel because there was a quota on the
number of WBG dairies allowed to sell into EJ. Pharmaceutical producers reported that they learned that
they could no longer access the EJ market only when their products were turned back at the commercial
crossings. Many companies reported having to spend large sums hiring Israeli lawyers to sort through the
legal requirements to sell their goods into Israel. A process that was much easier to do it they had Israel
partners. In addition, to the lack of clarity on the rules, it is also clear that it takes an unacceptably long time
to have goods from WBG certified for sale in Israel/EJ. For example one bottled water company has had a
permit to sell in EJ for some time. However, it recently expired and he has been waiting for more than three
months to have it renewed. He is sure that it will be, but by then he will have lost many customers.

The Paris Protocol calls for each side to recognize the other‘s certification provided that certifications are
adequate. Currently, the GOI does not believe that the PA is able to assure the required level of quality. The
Palestinian Standards Institute (PSI), the Ministry of Agriculture and the Ministry of Health all indicated
that they are substantially improving their capabilities and are able certify Palestinian firms. The PSI
reports that they have signed a memorandum of understanding with the Israeli Institute of Standards (IIS)
covering a list of products for which they will develop mutual recognition of test reports and factory
inspection reports in order to avoid duplication of tests and inspections and facilitate the issuing of
certificates and Marks of Conformity. However, this agreement has not yet been activated. If MOU were
activated it could be the first step in developing a system to allow PA institutions to issue certifications
recognized by Israel and thereby facilitating entry of goods from WBG into Israel and EJ.

Recommendations

The WBG economy will not be able to grow unless its producers have access to it largest natural markets in
Israel/EJ. In addition to relaxing the movement and access restrictions detailed in other reports, it is vital
that the PA and GOI work together to reduce the administrative and regulatory barriers impeding the entry
of Palestinian goods. The key issue is to develop procedures by which Palestinian producers can receive
health and safety certification that will allow them to enter at an affordable cost.

Recommendations to GOI

 The GOI and its relevant agencies provide clear guideline on health and safety requirements for
Palestinian goods. The GOI should establish contacts and procedures where Palestinian producers
can obtain information.
 Quickly and efficiently respond to request by WBG producers to have their goods inspected and
certified.
 The GOI and its relevant agencies should coordinate with PA agencies to develop procedures and
practices that will allow PA agencies, such as the PSI issue health and safety certifications that are
acceptable to Israel.

5
  Facilitate regular meeting of the Joint Economic Commission were regulatory issues can be
discussed.

Recommendations to the PA

 Improve the capabilities of the PSI and other government agencies to effectively inspect and certify
Palestinian producers.
 Actively pursue the implementation of the MOU between the PSI and IIS. Activation of this MOU
could begin to build trust between the PA and GOI and lead to the PA being allowed to issue more
certifications that are accepted by the GOI.
 Develop MOUs with other agencies such as between the PA and Israeli Ministries of Health and
Agriculture to allow the PA to provide health and safety certifications.
 Facilitate the resumption of regular meeting of the Joint Economic Committee to resolve regulatory
issues.

6
1. INTRODUCTION

A. Background

1.1 Before the signing of Paris Protocol (PP) in 1994, Israel was a major market for Palestinian enterprises
and nearly 60 of West Bank‘s exports went to Israel. The Paris Protocol defined the ―legal framework
for Palestinian economic activity‖1 and formalized economic relations between Israelis and Palestinians
from 1994 onwards.

1.2 The 1994 signing of Paris Protocol was expected to solve many of the problems facing Palestinian
businesses. Palestinian enterprises would no longer be subject to Israeli licensing and they should have
unrestricted access to the Israeli market. The PP was signed on the basis of ―equitable‖ economic
cooperation between the two sides whereby Palestinians can exercise their ―autonomy in economic
decision making‖2and, hence, be able to expand exports, promote growth in different sectors, and to
access regional and international markets. For example, Article III (13) in the agreement states: ―The
import and export of the Palestinians through the points of exit and entry in Israel will be given equal
trade and economic treatment.‖3

1.3 The Protocol also stipulated the creation of a joint economic committee composed of Israelis and
Palestinians that would implement the Protocol‘s articles and resolve any issues that might arise. This
committee was originally intended to convene monthly, but because of the Intifada and the subsequent
deteriorating relations between both sides, these meetings have been sporadic. There are hopes that the
committee will resume meetings more regularly in the near future in order to address and negotiate
solutions to any unnecessary obstacles to trade. Yet, PP has given the Israeli government, through the
established joint economic committee, the power to veto any PNA requests4 to ―review of any issue
related to this agreement…‖5 as well as the power to have free movement of Israeli goods into the
Palestinian territories.

1.4 Article IX, Section (1) emphasizes that ―There will be free movement of industrial goods free of any
restrictions including customs and import taxes between the two sides, subject to each side's
legislation.” 6 Meaning the movement of these goods is subject to the regulatory requirements of each
side.

1.5 Despite the fact that the Paris Protocol was meant to create a framework to facilitate trade, since 1994,
West Bank exporters have coped with multi-faceted difficulties when exporting/selling to, or attempting
to export/sell to what could be lucrative markets within EJ and Israel. These difficulties have been
triggered by both physical restrictions and administrative policies that involve permits, licensing and
certification. The Israeli government has incorporated economic matters into more than 50% of its
military orders.7

1
Roy, 1999: 68. Roy, Sara. 1999 (Spring). ―De-development Revisited: Palestinian Economy and Society since Oslo,‖
Journal of Palestine Studies 28 (3), pp. 64 – 82.
2
Olmsted, 1996: 11. Olmsted, Jennifer. 1996 (October—December). ―Thwarting Palestinian Development,‖ Middle
East Report, No. 201, Israel and Palestine: Two States, Bantustans, pp. 11 – 13 + 18.
3
Jewish Virtual Library, ―Protocol on Economic Relations‖: 6. URL:
<http://www.jewishvirtuallibrary.org/jsource/Peace/iaannex5.html>.
4
Samara, 2000 (Winter): 22. Samara, Adel. 2000 (Winter). ―Globalization, the Palestinian economy, and the ‗Peace
Process‘,‖ Journal of Palestine Studies 29 (2), pp. 20 – 34.
5
Jewish Virtual Library Online, ―Protocol on Economic Relations‖: 2. URL:
<http://www.jewishvirtuallibrary.org/jsource/Peace/iaannex5.html>.
6
Jewish Virtual Library, ―Protocol on Economic Relations‖: 6. URL:
<http://www.jewishvirtuallibrary.org/jsource/Peace/iaannex5.html>.
7
Samara, 2000: 21. Samara, Adel. 2000 (Winter). ―Globalization, the Palestinian economy, and the ‗Peace Process‘,‖
Journal of Palestine Studies 29 (2), pp. 20 – 34.

7
1.6 This paper will provide an overview of the current situation, which affects a range of major industrial
sectors; bring to light Israel‘s current policies and institutions relating to the stated problems; assess the
coping mechanisms that producers are currently using to deal with these problems; and determine how
trade unions and individual businesses might best move towards solutions.

B. The Survey and Sample

1.7 To assess the restrictions and challenges that West Bank ―exporters‖ and potential ―exporters‖ are
faced with, PalTrade surveyed 43 of its member companies in November 2009. The sample
consisted of formal sector enterprises in different West Bank cities including Ramallah, Jerusalem,
Hebron, Jericho, Nablus, and Jenin (Figure 1)

Figure 1

1.8 The sample consisted of enterprises in the manufacturing sector including pharmaceutical, stone and
marble, dairy and meat, chemical, metal and engineering, agricultural and textile (Figure 2).

Figure 2

8
 1.9 The average number of workers of the 43 surveyed companies is approximately 5. 11 companies
employ less than 20 workers, 24 companies employ more than 20 but less than 100 and 8
companies have more than 100 employees (Figure 3). The survey included five sections namely:
company details, market, crossings, standards and permissions, as well as access.

Figure 3

1.10 The survey focuses on the Meat, Dairy, and Pharmaceutical industries because these industries
currently face relatively more challenges in exporting to Israel (which will be discussed in the next
sections).

1.11 In addition to the survey, one on one meetings were held with:

A. Unions including the Palestinian Federation of Industries (PFI), the Palestinian Food Industries
Association (PFIA), the Union of Palestinian Pharmaceutical Manufacturers (UPPM), the
Palestinian Federation of Chemical Industries (PFCI), the Union Of Stone And Marble (USM), the
Palestine Textile And Garments Union, and the Metal Industry & Engineering Union.

Unions of the respective sectors were consulted for lists of companies to survey, at which point it
was discovered that the Meat, Dairy, Agricultural and Pharmaceutical industries are mainly
concentrated in the central and southern regions. This explains the predominance of Ramallah and
Hebron enterprises in the survey. The specific distributions of the enterprises can be found above, in
Figure 1, p9.

B. Government entities including, among others, Palestinian Ministry of Health (MoH) and Palestinian
Ministry of Agriculture, And the Palestinian Standard Institute (PSI).

C. Private Sector including 8 companies of the 43 surveyed companies and a few hospitals in East
Jerusalem including Augusta Victoria and Al Makased hospitals.

9
2. OBSTACLES AND CHALLENGES

Overall, the survey findings indicate that the difficulties faced by WB exporters are on the rise despite the
stipulations of the PP. While the PP is meant to establish a framework to facilitate trade, some of its articles
actually hinder the access of Palestinian goods to EJ/Israel. For example, Article IX (1) that states that
―There will be free movement of industrial goods free of any restrictions including customs and import
taxes between the two sides, subject to each side's legislation.” 8 This article was found to be one of the
biggest contributors to the restriction of movement of goods from the WB into EJ and Israel, since it allows
the imposition of Israeli standards and permissions on imported goods. Requirements of health and safety
inspections effectively prevent the entry of Palestinian Pharmaceuticals and meats into East Jerusalem (EJ)
and Israel. Until recently some Palestinian dairy producers were allowed to sell in EJ, however they have
now been informed that their licenses will soon be revoked

The tightening of restrictions based upon health and safety standards and inspections is clearly indicated in
the survey results that showed a drop in the percentage of enterprises that sell/export to EJ, from 53% to
5%.Enterprises in the food sector including meat and dairy firms, as well as pharmaceutical firms that are no
longer allowed to sell to EJ account for 21% of the surveyed enterprises.

Other sectors, such as the chemical and metal industries that are unable to sell to EJ/and Israel have stated
similar issues pertaining to their inability to obtain proper licensing and permissions. The survey findings
also indentified other obstacles, such as requirements for Kosher certification, that hinder export/sale to EJ
and Israel but do not completely block them.

A. Permissions, Registration, and Standards:

As stated above, PP requires firms that sell to EJ and/or Israel are required to obtain the proper permissions,
licensing and meet the certification standards required for their specific sector‘s products in Israel. WB
producers do not face special requirements, but must meet the same standards that all imports and Israeli
goods do.

Firms that stated that they needed to acquire permissions to access EJ/Israeli markets were the meat, dairy
and water sectors. All of these sectors have to comply with Israeli MoH standards that include product
sample testing (such as Microbiological Testing and analysis testing) as well as facility testing, in order to
obtain permissions. This effectively prevents WB firms from entering the EJ/Israeli market because facility
testing requires a representative from the Israeli MoH to inspect their facilities in the WB and it is against
Israeli law for an Israeli citizen to enter PA territories.

Pharmaceutical firms, on the other hand, need to register their products with the Israeli MoH in order to be
able to sell/export to EJ/Israel. To register, they need to go through a process of product testing to ensure the
compliance of the products with the required standards, as well as facility inspections. This means, as in the
case of meat and dairy sectors, that Palestinian pharmaceuticals are effectively barred from Israel/EJ
because no Israeli representatives would be sent to the WB to perform facility checks. Thus, even if
Palestinian firms do comply with the required standards there is no way they can be certified.

Other sectors such as the textile, metal, chemical and plastic sectors are faced with Taken standard
compliance issues depending on the type of products they manufacture. Most of the products that are listed
in the compulsory list are related to gas, heating systems, and electrical appliances. If products fall under the
Taken compulsory list, then the failure of the manufacturing firms to obtain the Taken standard means the

8
Jewish Virtual Library, ―Protocol on Economic Relations‖ URL:
<http://www.jewishvirtuallibrary.org/jsource/Peace/iaannex5.html>.

10
products will not be allowed to pass through crossings into EJ and Israel, making it physically impossible
for these products to reach EJ and Israel markets. Since the process of obtaining the Taken standard requires
a facility inspection, it also inhibits Palestinian firms from selling their products in EJ/Israel.

If the products do not fall under the compulsory list, then they do not need to obtain the Taken standard in
order to move through crossings and into EJ/Israel. However, once in the market, it becomes difficult for
these products to be sold since distributors recognize Taken as a needed assurance for the quality of the
product. Therefore, even if the lack of a Taken standard does not prevent the entry of a product into
EJ/Israel it does affect its marketability.

Processed food manufactures face a similar constraint. The producers interviewed in the survey stated that
even though they do not need permissions or registrations from the Israeli Government to physically enter
EJ/Israel , they do however need to meet a market requirement and most large distributors in Israel require
products they handle to have Kosher certification. This is a serious impediment to these firms since it
would require them to bring a Jewish Rabbi to inspect their products and facilities in the WB.

To illustrate these obstacles, it is important to look at case studies within the most affected sectors to gain a
better understanding:

A1. Meat and Dairy

Meat and Dairy firms who desire to export to EJ/Israel must obtain permission from the Israeli MoH based
on their compliance with Israeli health standards. This is established in PP Article VIII(8) the
―transportation of livestock and poultry, animal products and biological products destined for Israel from the
Areas and vice versa will be subject to veterinary permits issued by the official veterinary services of the
recipient side, in keeping with the OIE standards used in international traffic in this field….‖9

According to the PFIA, there are 18 potential exporters in these sectors but only five of which have obtained
the required permissions from the Israel MoH. These permits were granted by the Israeli MoH (see Annex
B), based on random sample tests done from time to time, either by taking samples from shipments or from
stores, that assure them of the product‘s compliance with the required health and safety standards. These
firms had previously been inspected by Israeli officials but this was many years ago, before the second
Intifada. These five firms indicated that they had also requested permission to sell in the Israeli market,
however, and were only granted permission to sell in EJ.10

Other companies in the meat and dairy sector that were surveyed were under the impression that these five
permits were the maximum number of permits that could be granted to Palestinian factories. However,
officials of the Israeli Civil Administration indicated that this was incorrect. The producers who are
currently allowed to sell in EJ/Israel are the ones that had permits dating back to the time when Israeli
inspectors could still visit their production facilities. An in fact one additional dairy producer has managed
to obtain permission from the Israeli MoH with the aid of an Israeli lawyer, while another one tried to do the
same but failed to achieve similar success.

The Israeli MoH has recently informed the five dairy and meat Palestinian exporters, as of December 31,
200911, of their inability to market their products in East Jerusalem market. This ban order was issued after a
series of meetings that were held between October 2008 and August 2009. From the Palestinian side, MoA,
MoNE, MoH, and PFIA have participated in separate meetings with Israeli Economic and Agricultural
section at the Israeli Civil Administration (Beit Eil).

9
Jewish Virtual Library, ―Protocol on Economic Relations‖ URL:
<http://www.jewishvirtuallibrary.org/jsource/Peace/iaannex5.html>.
10
See Annex B
11
See Annex G

11
The Government of Israel (GOI) has explained the ban as necessary to prevent the spread of animal disease
and to meet the more stringent international health standards. This can be seen in the translation of a letter
from the Public Health Food Control Services of the Israeli MoH, concerning the ban, sent to one of the
companies on May 21, 2009, and in which they cited the Animal Diseases Ordinance [New Version], 1985
(―Law‖): 12

1. The Veterinary Services of the Ministry of Agriculture and Village Development conveyed to us their
opinion that the PNA territories do not constitute a certified "foreign country" according to the Animals
Disease Ordinance 198913. In addition, Art 30A of the same Ordinance specifies that the "bringing" of
goods or products of animal origin, that are regulated by the Ordinance from the PNA territories to Israel,
will be regarded as Import.

2. According to the stated opinion in paragraph 1 as to the raw materials used to produce food products of
animal origin in the PNA territories, we will not allow the entrance of products of animal origin from the
PNA territories to Israel, disregarding any permits that we gave in the past.14

From this, the presumption is that the Israeli MoH considers that the PNA territories are not on its
―certified‖ or safe list of importing foreign countries; and also that any products brought in from the PNA
territories are regarded as imported goods. Therefore, since these goods originate from a non certified
foreign country, then the safety of the raw materials used to manufacture these goods is questionable.
However, the live animals cannot be tested since they are in an area of high security risk, which the Israeli
MoH cannot access to test the animals, products or even facilities. This is their argument for disregarding
any permits they have given in the past.

The meat and dairy firms, however, are disputing this claim, since they consider EJ as an occupied territory,
and state that it is recognized as such even by international law, which therefore means that they should be
able to access EJ to sell and market their products without any Israeli restrictions.
Also, these firms believe that even by taking the Animal Diseases Ordinance [New Version], 1985 (―Law‖)
into consideration, the revocation of the permits are not justified because the PNA territories cannot be
considered as a ―foreign country", since there is an agreement in place between the two parties, which is the
Paris Protocol.

Even in taking PP into consideration to export to Israel, meat and dairy firms state that they should be
allowed access to Israel based on PP Article IX, Section (1) that indicates that ―There will be free movement
of industrial goods free of any restrictions including customs and import taxes between the two sides,
subject to each side's legislation.” 15 Meaning that to obtain permissions they have to comply with Israeli
legislation, which they have been able to comply with regardless of the imminent ban, since they were
already granted permissions by the Israeli MoH (see Annex B), based on their past sample tests as well as
random laboratory testing done from time to time, that assured them of the products‘ compliance with the
required health safety standards.

Meat and dairy firms also argue that according to the PP: they should be given permits to sell/export, based
on Article VIII (6) that allows ―the official veterinary services of each side to issue veterinary import
permits for import of animals, animal products and biological products to the area under its jurisdiction.‖ To
prevent the introduction of animal diseases from third countries both parties agreed to ―strictly follow the
professional veterinary conditions for similar imports to Israel.‖16 And as for the safety of the products, PP
Article VIII, section (2) provides that each side will have the responsibility for ―controlling animal health,

12
See Annex F
13
Israeli Animal Diseases Ordinance (New Version) 1985.http://faolex.fao.org/docs/pdf/isr21179.pdf
14
See Annex F
15
Jewish Virtual Library, ―Protocol on Economic Relations‖ URL:
<http://www.jewishvirtuallibrary.org/jsource/Peace/iaannex5.html>.
16
Jewish Virtual Library, ―Protocol on Economic Relations‖ URL:
<http://www.jewishvirtuallibrary.org/jsource/Peace/iaannex5.html>.

12
animal products and biological products, and plants and parts thereof, as well as their importation and
exportation,‖ 17

Representatives of the Israeli Civil Administration indicated that the firms that are currently selling in EJ
have been allowed to, despite the fact that they no longer meet Israel‘s stringent testing and inspection
standards and that the GOI can no longer allow this for health and safety reasons. The Civil Administration
representatives said that the GOI does not accept Palestinian certification because the PA does not have the
capability to properly conduct inspections and testing. However, they stated that the GOI is willing to help
the PA develop its capabilities and that the ban on sales to EJ has been delayed until June 30, 2010 to
provide time to the PA to begin to make progress on its own inspection regime.

A2. Pharmaceuticals

Palestinian pharmaceutical firms 18 found out that they were not allowed to sell their pharmaceutical
products in EJ based on actual product entry denial at WB commercial crossings. There is no official
document or letter by Israeli MOH or any other Israeli official entity that bans or restricts the entry of these
products into EJ; banning of entry has been communicated only verbally so far.

Some firms believe that this ban is unjustified since EJ is recognized by international law as occupied
territory, and is therefore not under Israeli jurisdiction. They believe that they should not face with any
restrictions when accessing EJ market, since they were able to access the EJ market prior to 2007. On the
other hand, the Israeli MoH considers EJ to be part of its jurisdiction as an Israeli territory and therefore in
accordance to the PP Article IX (1) Palestinian firms are required to comply with Israeli registration and
standards requirements that are imposed on international and Israeli firms.19

However firms believe that they do need to register with the Israeli MoH in order to export to Israel, based
on their understanding of PP Article IX (1): ―There will be free movement of industrial goods free of any
restrictions including customs and import taxes between the two sides, subject to each side's legislation.”
They also accept the Israeli MoH‘s right to regulate entrance of pharmaceutical products by issuing
permissions and licensing based on the testing of the safety of the products as well as inspection of the
manufacturing facilities.20 This also means that without obtaining the proper permissions, pharmaceutical
companies are not allowed to sell or market their products in EJ (which Israel claims is part of its
jurisdiction) or Israel.

Despite some firms‘ belief that they are required to obtain permissions in order to sell in Israel, none of
them initiated the registration process, most likely because of the length and difficulty of the process. Some
firms indicated that even if they initiate and pursue the Israeli MoH medicine registration process, a facility
inspection step would be required, which would be impossible due to the inability of an Israeli MoH
inspector to visit West Bank. Hence, their perception of the difficulty and uncertainty of successfully
registering with the Israeli MoH makes them to be reluctant to initiate the registration process at all.

Some firms indicated that acquiring FDA or EU GMP certification would facilitate their registration process
at the Israeli MoH because it eliminates the need for the physical inspection of the facility. Unfortunately,
three firms who tried to apply for the EU GMP certification indicated that they were unable to initiate the
process due to the international consultant‘s refusal to visit the WB, since it is a danger zone. However,
another firm indicated that they have successfully acquired the EU GMP and will begin the process of
pursuing registration with the Israeli MoH.

19
Roy, 1999: 68. Roy, Sara. 1999 (Spring). ―De-development Revisited: Palestinian Economy and Society
since Oslo,‖ Journal of Palestine Studies 28 (3), pp. 64 – 82.
18
There are 5 pharmaceutical manufacturing companies in West Bank who have been interviewed and/or surveyed.
19
Jewish Virtual Library, ―Protocol on Economic Relations‖ URL:
<http://www.jewishvirtuallibrary.org/jsource/Peace/iaannex5.html>.

13
In addition to the difficulty registering with the Israeli MoH, based on interviews with private sector
and governmental representatives from both sides, pharmaceutical firms could be reluctant to initiate
the registration process due to their inability to comply with international patent law. Some of them
are producing generic versions of drugs that companies in WTO member countries still hold patents
for. Even though the WB and Gaza, as non-members, does not need to comply to the WTO standards ,
Israel as a WTO member, has a responsibility to prohibit the import or sale of these drugs within its
borders.21

A3. Water

The water industry is required to obtain permission from the Israeli MoH to be able to sell /export to Israel
and/or East Jerusalem. One company succeeded in obtaining permission in 1998 and their facility that is
located within an area of Israeli jurisdiction, was inspected by the Israeli MoH. The permission of this
company is now expired and they have been in the renewal process since August 2009.

The other water companies, however, indicated that they do not have the capacity to be able to expand into
the EJ and Israeli market. And even if they had the capacity to expand their market, they would never be
able to obtain the permission since the second part of the requirements (facility inspection by the Israeli
MoH) would be impossible to do.

A4. Processed Foods

Processed food producers (non dairy or meat producers), which made up 14% of the surveyed companies,
stated that they do not face any standard or permission issues, and therefore do not have problems in
physically accessing EJ and Israeli markets. However they did state that in order to sell to Israeli retailers
they need to be Kosher certified. Although Kosher is not an Israeli regulatory requirement by an official
entity, Israeli distributors are the ones that stressed the need of these products to comply with Kosher in
order to sell them. To get Kosher certification, West Bank factories should be inspected by a Jewish Rabbi.
Since it is unlikely that a Jewish Rabbi would accept to go to any West Bank city, Palestinian food factories
will remain unable to widely sell their food products in the Israeli market.

A5. Other Industries

These remaining industries in the survey are : Metal companies, which made up 14% of the companies
surveyed, plastic companies that were 9% of the surveyed companies, chemical companies that made up 7%
of the companies surveyed, and textile companies made up 2% of the companies surveyed. These sectors
face issues in obtaining the Taken standard, and these issues differ according to whether or not these
sector‘s products fall into the SII‘s list of compulsory products that require Taken standard or not.

However, none of the firms in our survey sample manufactured products within the compulsory list, which
means that they are able to move their products through crossings and into their markets in EJ and Israel.
However as mentioned above, most distributors require Taken as an assurance to quality, so, even if they
can physically reach their market, the lack of Taken standard of their products limits their sales.

21
The Israel-Palestine Protocol on Economic Relations and the Law of the World Trade Organization, Economic Policy
Programme, http://www.met.gov.ps/epp/EPPI/EPP_WYO_Work/1.pdf

14
3. IMPACT

A. General Impact Affecting Exporters:

A1 Extra costs are imposed on Palestinian producers in finding and funding means to cope with Israeli
requirements and acquiring legal counsel or representation to overcome regulatory obstacles. As per the
survey and research findings, a majority of firms indicated that they utilized different channels in
facilitating access of their products to Israeli markets. Utilizing the industry union or a representing
organization is usually less expensive and is part of the membership fee; however, those who have no
choice but to utilize their own channel incur an extra cost.

A2 Loss of potential, proximate, and lucrative market; 208,000 Palestinians are living in Jerusalem and 1.2
million Palestinians are living in Israel22. According to Palestinian Central Bureau of Statistics (PCBS),
the average wage of Palestinians living inside Israel is 2.8 times more than the average wage for
Palestinians living in West Bank. In other words, the purchasing power of Palestinians living in Israel
is 6 to 7 times higher23 than the purchasing power of those living in WB.

As an example, pharmaceutical companies are unable to bid on international organization tenders due to
their inability to deliver their products to East Jerusalem. Requirement by international organizations is
clearly stated in their tenders for the necessity to obtain necessary permissions from Israeli authorities as
part of the qualification process. Taking this into consideration, a significant loss of business in EJ
market has occurred.

B. Impact on Workforce, EJ Hospitals:

B1 A few meat enterprises highlighted their intention to open a parallel manufacturing facility in EJ to
cover the Israeli and EJ markets. As indicated, this was based on their fear that they would be unable
to renew their permission due to the inability of the Israeli inspectors to inspect their facility in the
WB, as well as to overcome the high cost of transportation and procedural issues related to commercial
crossings. Such a decision would in turn lead to the downsizing of both skilled and unskilled labor in
their West Bank facilities and an overall decrease of their investments in West Bank.

B2 Three main hospitals in East Jerusalem stated that approximately 65% of their patients are from the
West Bank; most of whom are under a PA health insurance coverage program. The PA reimburses EJ
hospitals based on the average price that they pay in the West Bank. The inability of EJ hospitals to
―import‖ and use Palestinian manufactured drugs lead them to use Israeli and international drugs that
are more expensive. This in turn result in a major loss taking into consideration that medicine is a
major part of a hospital‘s cost. Moreover, EJ pharmacies indicated that even if they receive Palestinian
Pharmaceutical products, they would be reluctant to sell these products, since Israeli Health Insurance
companies will stop dealing with them if they learn that they are selling uncertified Palestinian
pharmaceutical products.

22
The Arab Population in Israel, Central Bureau of Statistics in Israel, http://www.cbs.gov.il/statistical/arabju.pdf
23
Jalameh Vehicle Crossing Survey Report Nov09. TRADE FACILITATION PROJECT, http://www.wbg-
tfp.com

15
4. COPING MECHANISMS AND CHANNELS

Following the signing of Paris Protocol (PP) in 1994, the Protocol stipulated the creation of a joint
economic committee composed of Israelis and Palestinians (JEC) that would implement the Protocol’s
articles and resolve any issues that might arise.24 This committee was originally intended to convene
monthly, but since the Intifada meetings have been sporadic. There are hopes that the committee will
resume meetings more regularly in the near future in order to address and negotiate solutions to any
obstacles to trade. Meanwhile, Palestinian firms have been using various coping mechanisms and channels
including the following. 25

A. The Palestinian Authority

According to survey and research findings, PA related ministries such as MoH, MoA and MoNE have been
assisting local unions and firms in communicating and resolving issues with the Israeli side. For example,
the Palestinian MoNE, held recently a meeting with affected firms from the food and pharmaceutical sectors
to unite their efforts and to gather all available documents related to the compliance of all firms with the
most recent quality production standards. In addition, PA held a few meetings with the Israeli officials at
Israeli Civil Administration to discuss the banning order of dairy and meat. As a result of these meetings,
the banning has been delayed from May 2009 to August 2009 and then to December 31, 2009 and finally
until June 30, 2010. Annex E and G includes extension letters from Israeli Civil Administration.

B. Palestinian Standard Institute

Currently the Palestinian Standards Institute (PSI) is responsible for providing all certification, testing,
inspection needs concerning all sectors excluding the pharmaceutical sector, whose technicalities are mainly
managed by the Palestinian MoH.

In the case of the food sector, including meat and dairy, the PSI indicated that they currently have the
required facilities to be able to provide all needed laboratory testing (such as Microbiological Testing and
analysis test) and facility inspections that are identical to the process required by the Israeli side. The PSI
also stated that it currently conducts such procedures quarterly, annually and randomly on local meat and
dairy firms as well as other food sector companies. However, as noted above the GOI does not believe that
the PSI has the ability to conduct the inspections and testing programs required by the most stringent
international standards. They also do not feel that the PA is moving quickly to improve its capabilities.

As for other sectors such as metal, chemical and textile the PSI has also indicated that they have the proper
testing facilities (some facilities are PSI facilities while others are privately owned labs that have contracts
with the PSI) as well as the know how to conduct necessary testing and certification. Also the PSI claims
that it is capable of specifically conducting all the facility inspection procedures needed by the Taken
certification.

Finally, as part of PSI’s initiative to help WB producers in their ability to comply with inspections, tests and
standards for the Israeli side that are similar to those required by the Palestinian side, PSI has just signed an
MOU with the Standards Institution of Israel (SII) concerning a specific list of product certification. The
purpose of this agreement is to “to develop mutual recognition of test reports and factory inspection reports,
in order to avoid duplication of tests and inspections in facilitating the issue of Certificates and/or Marks of
Conformity”.

24
Roy, 1999: 68. Roy, Sara. 1999 (Spring). ―De-development Revisited: Palestinian Economy and Society since
Oslo,‖ Journal of Palestine Studies 28 (3), pp. 64 – 82.
25
Samara, 2000: 23. Samara, Adel. 2000 (Winter). ―Globalization, the Palestinian economy, and the ‗Peace Process‘,‖
Journal of Palestine Studies 29 (2), pp. 20 – 34.

16
However, despite the PSI’s claim that they are able to implement the agreement, the PSI stressed that it is
not yet effective because the SII claims that the agreement has not been activated. Though this agreement
only covers a few products, the implementation of this agreement could lead to the building of trust between
PSI and SII in recognizing each other’s procedures that could lead to the expansion of the agreement to
cover other sectors and products.

C. The Palestinian MoH

The Palestinian MoH currently conducts all testing, inspection and certification for Palestinian
Pharmaceutical producers, and has indicated that they implement pharmaceutical testing such as Batch
Testing as well as facility inspections that are similar in procedure as that of the Israeli MoH testing and
inspections.

The MoH has also recently been able to certify local pharmaceutical producers with the Palestinian Good
Manufacturing Practices certification (GMP), and have approached their Israeli counterparts to recognize
Palestinian inspection and testing. However, so far all attempts at reaching an agreement have failed.

D. Unions and Associations

According to the survey and research findings, most Palestinian producers utilize their relevant unions and
associations to help them resolve disputes with the Israeli side. Thus far, the associations have led
unsystematic, unplanned meetings with Israeli officials, particularly with the DCO (District Coordination
Office) in Beit El as well as civil administrations in other WB areas. These meetings’ purpose is usually to
discuss and understand a specific issue that relates to the members of the specific union or association. As
an example, the Union of Stone and Marble (USM) met with the Israeli civil administration in the
Bethlehem area regarding the ability of Stone and Marble firms based in the Bethlehem to use the Tunnel
checkpoint. Initially this agreement permitted yellow plated trucks to pass through the Tunnel checkpoint
with no limitations of any kind. In December 2008, another agreement was reached in which 75 palletized
trucks per day of registered exporters from Bethlehem governorate have been allowed to do door-to-door
shipments through the Tunnel checkpoint between 11 am and 4 pm during weekdays (Sunday through
Thursday).26

E. Firm-by-Firm Channels

In addition to the PA and business membership organizations, a few exporters stated that they utilized their
own channels of communication to:

 Comply with a specific requirement. For, instance in the water and alcohol industry sector few firms
stated that they utilized the service of an Israeli lawyer to acquire a specific Israeli MOH and Israeli
MOA permission to allow the distribution of their products in East Jerusalem as well as in Israel.
The same firms indicated that they will utilize similar channels when a renewal of the permission is
needed.
 To acquire a specific permission or license For example, in the meat and dairy sector, a WB
producer indicated that they obtained permission to sell in East Jerusalem on their own by utilizing
the service of an Israeli lawyer. Another example from the same sector, a producer that partnered
with an Arab Israeli firm in order to use the Israeli firm in obtaining an importing license for their
products. The Arab Israeli firm pursued the permission for the last six months; however, they
mentioned that no success was reached in doing so.
 To overcome permission and licensing issues. For instance, in the meat and dairy sector a few firms
indicated that they initiated a new manufacturing facility inside Israel or East Jerusalem to sell in
East Jerusalem/Israeli markets. Others indicated that they partnered with an Arab Israeli, East
Jerusalemite or Israeli firm in initiating a storage facility inside Israel or East Jerusalem to
circumvent an inspection requirement.

26
PalTrade Monthly Crossings Monitoring Report, June 2009

17
5. RECOMMENDATIONS

The obstacles facing Palestinian businesses in selling to EJ/Israel require prompt actions by different
stakeholders including the Palestinian Authority, Palestinian private sector institutions, and Israeli
Government with International community assistance.

Recommendations for the Israeli Government:

 The relevant Israeli ministries and Institutions should coordinate and communicate with their
Palestinian counterparts with regard to disclosing of all requirements for entry of all types of goods,
especially dairy and meat products. They should also ensure that all standards and compliance
updates are disseminated on regular bases to the Palestinian side to ensure proper and timely
compliance by the Palestinian firms. For example, the Israeli MoH‘s food control sector should
disclose meat and dairy standards and compliance updates on regularly bases to allow Palestinian
firms to conduct the needed updates.

 The Israeli MoH should coordinate with PSI to review PSI food safety and health inspections that
are currently conducted on local Palestinian Meat and Dairy sector as well other food sectors, in
order to move toward a mutual recognition of inspections and testing.

 The Israeli MoH should coordinate with Palestine MoH to review their current pharmaceutical
firms’ certification process and develop a action plan that will lead to mutual recognition of
inspections and testing

 Reasons for banning entry of Palestinian goods should be clearly communicated to the Palestinian
producers and PA in writing. Ambiguity on the reasons discourages some firms from trying to
export their products or develop new products.

 The GOI should facilitate the resumption of the meetings of the established Joint Economic
Committee as per the Paris Protocol agreement

Recommendations for the Palestinian side:

 The relevant PA ministries and institutions should coordinate with their Israeli counterparts with
regard to the implementation of the signed MoU between PSI and Standards Institute of Israel (SII).
―The agreement focused on developing mutual recognition of test reports and factory inspection
reports, in order to avoid duplication of tests and inspections in facilitating the issue of Certificates
and/or Marks of Conformity.‖ PSI indicated that they have the ability to implement this agreement
since they have the proper facilities and know how. However the MoU covers specific items and the
PSI is keen to expand the list to cover Taken certification inspection requirements.

 PSI and other relevant PA agencies should take steps to develop their capabilities to conduct testing
and inspection programs that meet current international standards. The PA should work with Israel
to develop an action plan that will lead to mutual recognition of certifications and inspections.

 The PFI, PFIA, UPPM, MoA, MNE, MoH and other relevant Palestinian representative institutions
should formally work together to support Palestinian businesses in their efforts to access the EJ and

18
 Israeli markets. Palestinians should coordinate with the relevant Israeli authorities in a collective
manner.

 The PA should facilitate the resumption of the meetings of the established Joint Economic
Committee as per the Paris Protocol agreement

Recommendations for the International community:

 The international community should push for the resumption of effective meetings by the
established Joint Economic Committee, and in which the international community should play an
observatory role.

19
 ANNEXES

Annex A: Survey Methodology

Annex B: Israeli MoH (food control administration) permission to a meat and dairy company in 1996. This
permission allows the company to sell and distribute in East Jerusalem. (The permission is in Hebrew)

Annex C: A copy of a pharmaceutical medicine tender document by an international aid organization

specifying that ―Pharmaceuticals are to be delivered to Hospitals operation inside Jerusalem. Vendors with
stocks inside the West Bank and Gaza need permission from the relevant Israeli Authorities to deliver inside
Jerusalem. The ability of the interested vendors to obtain this permission should be clearly stated in their
submitted offers‖

Annex D: Oct 4,2008, the Israeli Civil Administration sent a letter to various Palestinian factories and PFIA
informing them that the Israeli MOH requesting Palestinian dairy and meat producers who have current
permits to distribute their products in East Jerusalem to renew their permits before March 31, 2009.

Annex E: May 20, 2009, the Israeli Civil Administration sent a letter to Mr. Hani Al-Bizreh (Palestinian
MOA) and the PFIA informing them that Israel‘s Ministry of Health has extended the current permits given
to Palestinian dairy businesses to distribute their products in East Jerusalem until August 15, 2009.

Annex F: on May 21, 2009 the Israeli MOH notified various meat and dairy factories that it was going to
prevent meat and dairy products, from entering Israel, regardless of previously issued permits, and allowed
them to present counter arguments by the July 1, 2009. However, we found that this in fact was in reference
to a document that was based on an Israeli law from 1985. The Animal Diseases Ordinance [New Version],
1985 (―Law‖) which aimed at preventing the spread of animal disease.\

Annex G: August 12, 2009, the Israeli Civil Administration sent a letter to Mr. Hani Al-Bizreh (Palestinian
MOA) and PFIA informing them that the Israel‘s Ministry of Health has extended the period given to
Palestinian dairy businesses to distribute their products in East Jerusalem until December 31, 2009.

Annex H: an MOU signed between the Standards Institution of Israel (SII) and the Palestinian Standard
Institute (PSI) in the area of product certification. ―General Agreement for Cooperation; the Parties to this
Memorandum of Understanding wish to develop mutual recognition of test reports and factory inspection
reports, in order to avoid duplication of tests and inspections in facilitating the issue of Certificates and/or
Marks of Conformity, and to advance the trade between the Palestinian Authority and Israel‖ PSI.

20
Annex A: Sample Selection Methodology

1.1 PalTrade surveyed 43 of its member companies in November 2009. The sample consisted of formal
sector enterprises in different West Bank cities including Ramallah, Jerusalem, Hebron, Jericho, Nablus,
and Jenin (Figure 1)

Figure 1

1.2 The sample consisted of enterprises in the manufacturing sector including pharmaceutical, stone and
marble, dairy and meat, chemical, metal and engineering, agricultural and textile (Figure 2).

Figure 2

1.3 The average number of workers of the 43 surveyed companies is approximately 5. 11 companies employ
less than 20 workers, 24 companies employ more than 20 but less than 100 and 8 companies have more than
100 employees (Figure 3). The survey included five sections namely: company details, market, crossings,
standards and permissions, as well as access.

21
 Figure 3

1.4 The survey focuses on the Meat, Dairy, and Pharmaceutical industries because these industries currently
face relatively more challenges in exporting to Israel (which will be discussed in the next sections).

22