Economic Band-Aids Won’t Bring Peace to the Middle East

Economics will take center stage at the U.S.-sponsored workshop in Bahrain starting Tuesday. The Trump administration hopes that the unveiling of the economic component of its so-called deal of the century will encourage regional and international investment in the Palestinian economy, thus helping to overcome hurdles to a political agreement and advance Israeli-Palestinian peacemaking.

The initiative has faced strong resistance from Palestinians who doubt U.S. intentions. Nevertheless, the Trump administration has sought to enlist a mix of government officials and business leaders from the Middle East, Asia, and Europe. Many international partners have been lukewarm toward the initiative, however, including traditional U.S. allies, such as Egypt and Jordan. Their reticence makes sense: The idea that economic inducements can succeed where diplomacy cannot has had a pretty dismal track record over the last century.

Jared Kushner’s current plan is likely to fail like so many before it—and European leaders should not be lured into supporting a doomed plan that will make things worse. They should only back it if the core political rights of Palestinians and basic provisions of international law are protected.

The U.S. government has itself acknowledged the limits of the economic approach, admitting that it can be successful only if coupled with a strong political vision. Yet so far, the White House has placed only economic issues on the table.

The long-awaited political component may never see the light of day. And while the full details of the Kushner plan remain under wraps, comments by members of the Trump administration and its policies to date suggest that the political part of the plan will ride roughshod over Palestinian rights, ignore fundamental principles of international law (such as the inadmissibility of acquisition of territory by force), and abandon the established parameters underpinning the idea of two sovereign states.

Instead, what will be on offer in Bahrain seems to resemble what Israeli Prime Minister Benjamin Netanyahu has called “economic peace.” This idea is based on the assumption that considerable improvements in Palestinian living conditions could serve as a substitute for a meaningful path toward self-determination and the right of return. This belief has been reflected in recent interviews with Kushner, as well as with President Donald Trump’s former bankruptcy lawyer and now ambassador to Israel, David Friedman.

While economics may not deliver a final peace agreement, the argument has been made in some European capitals (and in these pages) that it could at least help stabilize the situation in the Palestinian territories. And indeed, some European officials will try their best to find positive elements in the U.S. plan with which to engage.

Unfortunately, the complete mishandling of the Palestinian issue by the Trump administration—and its disregard for Palestinian sensitivities—has made any economic stabilization approach a nonstarter.

After having shown Palestinians the stick, Washington is now about to unveil a carrot that looks decidedly unappetizing.

First, after having shown Palestinians the stick—by defunding their institutions, development programs, and the United Nations Relief and Works Agency; closing the PLO mission in the United States; and moving the U.S. Embassy to Jerusalem—the U.S. administration is now about to unveil a carrot that looks decidedly unappetizing.

Second, U.S. attempts to sideline the Palestinian national movement by courting a few marginal figures with ties to Israeli settlers has backfired. Not only has the Palestinian leadership resoundingly rejected the U.S. approach, but so too has the overwhelming majority of the Palestinian business community.

Palestinian public opinion is also firmly against the U.S. initiative with 79 percent of Palestinians in the West Bank and Gaza believing that the Palestinian Authority (PA) should reject the U.S. plan. There will thus not be any relevant Palestinian presence in Manama. The few Palestinian businessmen who are expected to attend the workshop are relatively minor figures who have long been ostracized by fellow Palestinians.

This should not come as a surprise given that this sort of “economics first, politics later” approach has been tried, and has failed, numerous times. Already in 1967, then-Israeli Defense Minister Moshe Dayan attempted to defuse Palestinian political ambitions by offering employment for Palestinians inside Israel and Israeli investment in the West Bank and the Gaza Strip.

This sort of “economics first, politics later” approach has been tried, and has failed, numerous times

From the mid-1970s onward, employment was also offered in the settlements. Under the aegis of former British Prime Minister and Quartet envoy Tony Blair (who will be speaking at the Bahrain workshop), another major international investment effort was drawn up for the West Bank to bolster U.S. peace efforts. None of those efforts led to sustained development and economic growth. And none of it made Palestinians forget their national ambitions.

These experiences do not seem to have perturbed the U.S. peace team led by Kushner. The latter has apparently repeatedly evoked economic development models, in particular that of South Korea, as potential inspiration for Palestinians. The U.S. government has also repeatedly voiced the need for institutional improvements to enable Palestinian economic growth and boost investor confidence—even though the International Monetary Fund and the World Bank have both deemed Palestine to be “statehood ready.” This technical focus totally neglects the underlying political context—namely, the fact that (unlike South Koreans) Palestinians, and their economy, are under military occupation.

Instead of boosting Palestinian economic sovereignty, the workshop will reinforce Palestinian economic dependence on Israel as enshrined in the 1994 Paris Protocol on Israeli-Palestinian economic relations. For example, the protocol prohibits Palestinians from having their own currency and monetary policies. It also makes the PA dependent on Israel to manage Palestinian exports and imports and collect value-added tax and customs payments on its behalf—an arrangement that Israel has used repeatedly to pressure the PA over political issues.

The U.S. desire to put aside the political challenges and focus narrowly on technical aspects mirrors thinking on Gaza put forward by the Trump administration last year during a brainstorming session held with foreign diplomats at the White House. This session minimized the complexities of delivering financial support in Gaza in the face of intra-Palestinian splits between the PA and Hamas and Israeli restrictions on the territory.

Moreover, without a firm political marker to guide international investments, there is no guarantee that the Trump administration will seek to fund and support projects that genuinely help Palestinians or bolster a two-state solution. It could even end up funding Israeli settlement activities that are illegal under international law, given the U.S. push for a deepening of business ties between Israeli settlers and Palestinian businessmen in the occupied West Bank, such as through the settler-affiliated Judea and Samaria Chamber of Commerce and Industry.

The fundamental problem with a purely economic track is that even if there were buy-in from the Palestinian side, restrictions stemming from the Israeli occupation regime would continue to impede economic development and discourage private investors.

Even if there were buy-in from the Palestinian side, restrictions stemming from the Israeli occupation regime would continue to impede economic development

In the West Bank, Israeli restrictions on the use of resources, building and planning, and the free movement of goods and people have impeded growth and created a Palestinian economy that is heavily dependent on aid and slowing down. According to the World Bank, permitting Palestinian development and access to natural resources in Area C (some 60 percent of West Bank territory under full Israeli control) would add as much as $3.4 billion (an additional 35 percent) to annual Palestinian GDP and lead to a 35 percent increase in jobs. Also, according to another World Bank report, the PA is being deprived of a further $285 million (2.2 percent of GDP) a year as a result of the 1994 Paris Protocol.

In Gaza, the 2004-2005 World Bank plan for economic development that the U.S. economist James Wolfensohn championed in the wake of Israel’s withdrawal of settlers ran aground due to Israel’s unwillingness to lift its restrictions on the movement of people and goods to and from Gaza and fully implement the 2005 Agreement on Movement and Access. After the 2006 Hamas election victory and the subsequent takeover of Gaza, Israel and Egypt imposed a comprehensive blockade. As a consequence, Gaza’s export-oriented economy has collapsed, and Gazans have been reduced to being passive aid recipients.

If the U.S. administration were genuine in its desire to improve the Palestinian economy, it would use its close relations and leverage with Israel to reduce Israeli restrictions. It would also spell out the political vision that should guide its economic development plan. The U.S. failure to do either of these things indicates either a profound naivety with regard to what can be achieved under current conditions or that the White House sees the Bahrain workshop mainly as a means of punishing, and internationally isolating, the Palestinian leadership.

Either way, U.S. efforts risk further escalating an already tense situation and providing cover for the Israeli government to annex more West Bank territory and entrench a one-state reality of unequal rights for Palestinians under open-ended Israeli occupation.

The actions of Europeans leaders in the wake of the Bahrain conference may well determine the fate of the U.S. plan and thus could be crucial in determining whether or not it will be accepted as the new reference point for the international community’s approach to the Israeli-Palestinian conflict.

Europeans should engage with the U.S. economic plan only if it is embedded in a deal that fulfills the right to national self-determination of both peoples, guarantees the full rights of Israelis and Palestinians in line with international law, and implements the Palestinian right of return in a form that respects both the individual choice of refugees and the sovereignty of states. If Kushner’s plan falls short, Europeans should refuse to play any part in funding prolonged Israeli occupation or annexation.