Israel and PLO Sign Crucial Economic Pact

Israel and the Palestine Liberation Organization, accelerating their drive toward Palestinian self-government, agreed Friday on the framework for future economic relations between Israel and the West Bank and Gaza Strip as the two territories emerge from 27 years of occupation.

Signed in Paris after nearly six months of negotiations, the accord is intended to preserve most economic links between Israel and the Palestinian territories but assure the Palestinians extensive opportunity to plan and manage their own economic development for the first time.

The pact was hailed by both sides as a major step toward the cooperative relationship envisioned in the basic accord on Palestinian autonomy reached in September. French Foreign Minister Alain Juppe called it “a major step on the road to peace.”

Breaking a long stalemate in the talks with a series of compromises reached in a final, 48-hour marathon session that ended at 7:30 a.m. Friday, negotiators were under pressure from Israeli and PLO leaders to conclude the agreement in time for the start of Palestinian autonomy next week.

Some of the compromises had been painful, said Israeli Finance Minister Abraham Shohat, because Israeli agricultural and industrial interests would be hurt, but those were necessary costs for peace.

“There will be people in Israel who will be adversely affected by this agreement, and there will be Palestinians who will not be completely and fully satisfied,” Shohat said in Paris. “I call on all of them to give peace a chance, to give the economic process the chance to benefit every individual. . . . Peace and compromise come at a price, but the alternative is more costly, destructive and painful.”

Ahmed Suleiman Khoury, the PLO chief negotiator also known as Abu Alaa, described the economic agreement as a vital underpinning, as necessary as the security agreement to be signed next week, for the success of the overall accord on Palestinian autonomy.

“This is the first time Palestinians have the possibility to establish their own (governmental) institutions, to control their economy, to plan and manage the development of what have been occupied territories,” Khoury said in Paris. “We look forward to a relationship based on common interest and mutual benefit rather than dependency through occupation.”

The fundamental thrust of the new agreement is to maintain a high level of economic integration of Israel and the Palestinian autonomous region through open markets, allowing continued movement of labor and products between them with a minimum of regulation.

But negotiators loosened the present linkage, as the PLO had requested, by allowing the Palestinian Authority, the region’s future government, to set lower tax rates for its residents and businesses and to import goods needed for economic development there at lower customs duties than in Israel.

Israeli negotiators, in turn, won protection for some weak sectors of the Israeli economy, notably agriculture, from Palestinian competition. Shohat promised government compensation to Israeli farmers and businesses hurt by the agreement.

Although Israel’s current closure of the territories as a security measure prevents most Palestinian workers from getting to jobs here, the agreement recognizes that employment in Israel is necessary for the expanding Palestinian work force.

While the agreement provides for a Palestinian monetary agency to regulate banks on the West Bank and Gaza Strip, and to manage the region’s foreign currency reserves, negotiators postponed the politically and economically difficult question of creating a Palestinian currency. The Israeli shekel and the Jordanian dinar will continue to circulate.

“I am happy with the result,” Shohat said. “I think it is a fair agreement, fair to the Israelis and to the Palestinians as well.”

With the PLO’s commitment to a “liberal market economy” reiterated in the agreement and economic relations with Israel now settled, Western donors are expected to begin releasing the $2 billion in assistance for economic development that they promised the Palestinians last year.

The economic pact will apply initially to the Gaza Strip and the Jericho District on the West Bank. It will cover other West Bank areas after Israeli troops withdraw from them.

Israeli and Palestinian negotiators are scheduled to begin final discussions Sunday in Cairo on the unresolved security aspects of the Gaza-Jericho autonomy agreement, which is to be signed in Cairo on Wednesday. Among the open issues is control of the beachfront near a group of Israeli settlements in the Gaza Strip. A timetable for the release of most of the 9,000 Palestinian security prisoners held by Israel was reportedly agreed upon Friday.

Israeli Prime Minister Yitzhak Rabin and PLO Chairman Yasser Arafat themselves will discuss the size of the Jericho District--Israel has proposed 22 square miles, the PLO wants 93--and whether a Palestinian police officer will be stationed on the Allenby Bridge across the Jordan River at the entry to the district.

“There is still not a complete formula for this agreement,” Rabin said Friday. “A date has been set (for signing it), but there are still issues needing agreement, conclusion and incorporation in the written accord.”

Meanwhile, the agreement came under sharp attack from the opposition Likud Party here.

“The PLO is getting everything it wants,” former Foreign Minister David Levy said, criticizing the elements of sovereignty contained in the agreement. “For us, it is recognition by the Israeli government of the establishment of a Palestinian state.”