Salah ‘Abd al-Shafi directs the Economic Development Group in Gaza. Graham Usher, a journalist currently working in the Gaza Strip, interviewed him in September and October 1993.

What do you think the agreement means economically?

Gaza is where the initial phase of the accords is going to be implemented. The agreement means that the incorporation of the Strip’s economy in Israel’s will be formalized and solidified. After the Gulf war, the Israelis initiated a new economic policy vis-a-vis Gaza, based on a report by Israeli economist Ezra Sadan. The new line became particularly visible after Rabin imposed the closure of the territories in April. The feature of this new dependency was not, as had been the case historically during the occupation, via the daily migration of Palestinian labor inside the Green Line. The new vehicle for incorporation was a system of subcontracting between Palestinian capital and sectors of Israeli capital. With the Declaration of Principles, we will be working for Israel in Gaza rather than in Tel Aviv, but we will be working for them nonetheless.

Let me explain what I mean. In August 1991, the Israeli military governor issued order 1055, which aims to “encourage investment in the Gaza Strip.” This liberalized the licensing of firms so that it became much easier for Palestinians to invest. Sadan argued that the traditional reasons given by the authorities against licensing -- that they create competition with Israeli firms inside the Green Line -- were nonsense given the difference in scale between the two economies. While such competition may threaten certain companies in Israel, it certainly couldn’t challenge entire sectors.

Secondly, he advocated the establishment of “industrial parks” modeled on similar projects that have been set up in countries like Taiwan and Mexico. They amount to pockets of infrastructure. The task of developing an economic infrastructure for the whole of the Strip would cost billions, so Israel should instead concentrate on providing facilities like electrification and telecommunications for small parks made up of Palestinian and Israeli subcontracting outfits. The World Bank’s infrastructural prescriptions for the Strip fit Sadan’s exactly.

Finally, Sadan proposed that Gaza’s traditional agricultural base should be allowed to “degenerate,” and be replaced with what he calls an “industrialized agriculture” sector. The last two years have seen a concerted effort by the authorities to thwart citrus and vegetable production in favor of the production of ornamentals or flowers. Why? Because flower production is labor-intensive. Israel is a major exporter of flowers to Europe, but production costs in Israel are high. By shifting production to Gaza they reduce substantially their labor costs while maintaining their market share in Europe because all of the export routes open to Gaza’s flower producers are in Israeli hands. While Palestinian workers are paid in shekels, the flowers are sold for hard currency. Today there are 140 greenhouses in the Strip whose production is entirely geared to ornamentals.

But not all of Sadan’s recommendations were implemented, particularly his view that there should be a free movement of labor and goods between Israel and the Occupied Territories.

Israel has wanted to create more jobs in Gaza for a long time now, precisely to reduce the labor flow into Israel. But Israel cannot depress wages in Gaza very much further than they are already, because of the unique colonial relationship. While Gaza is unquestionably very underdeveloped, wages here, and even more so in the West Bank, are high. The Occupied Territories are also one of Israel’s main consumer markets. A Palestinian worker in Israel earns about a third less than an Israeli worker, but his or her income still reflects Israeli wage levels rather than Third World levels.

Secondly, over 50 percent of the population here is under 16. Each year we have thousands of new entrants into the labor market. It is not so much a question of relocating Palestinian labor from the Israeli to the Gazan economy, but of redistributing it. Even thousands of new jobs in Gaza will never be enough to compensate for the size of our work force, which is about 130,000 now and will increase dramatically. Both the PLO and certain Israeli economists are saying that Israel should take back at least 100,000 from both Gaza and the West Bank. I think this is an accurate projection.

Israel has learned that it is very difficult to substitute Jewish for Palestinian labor, not just because we are cheap but also because we are educated by and for their economy. Israel is about to embark on a major expansion of the construction sector, particularly road and highway construction, itself tied to the vistas opened up by the peace agreement. So there is no way they are going to ignore this mass of cheap Palestinian labor currently sitting on their doorstep.

How will the political economy of the Occupied Territories be changed by the agreement?

It will still be a dependent economy, but the relations of that dependency will be restructured. If international donors really do intend to invest over $2 billion here over the next five years, this money will be spent on infrastructure and construction, both labor-intensive sectors. Secondly, Israel will still want to absorb around 100,000 workers from the territories into its economy, with about 40,000 from Gaza. Thirdly, there will be jobs born of the new subcontracting relationship between sectors of Palestinian and Israeli capital. The kind of industries planned for the industrial parks are furniture, food processing and textiles.

What will be the future size and shape of Gaza&rsuqo;s labor market?

Let’s say that the agricultural sector would employ between 10,000 and 15,000 workers. Jobs in infrastructure and construction would create a further 20,000 to 30,000 jobs. And Israel takes back another 40,000 into its economy. This leaves Gaza with an unemployment rate of between 10 and 20 percent from which both Palestinian and Israeli subcontractors could draw. Given that current unemployment in Gaza is about 40 percent overall and nearer 60 percent in the refugee camps, this marks a major change.

They drove us down economically for 20 years, and the only thing they got was the uprising. This new dispensation strengthens our economic dependency but removes some of our political, “national” grievances. It’s smart.

Is there something the Palestinians can do to wrest some control over their economy?

Only if the Palestinian leadership starts to work on the Arab front now. Potentially there are huge markets open to us in the Arab world. In the West Bank, there are trade relations with Jordan which have endured throughout the occupation.

In Gaza, the situation is far less promising. I don’t see any choice but to be inside the Israeli economy. Arab markets are currently awash with cheap imports from Taiwan and Thailand. While we have a common border with Egypt, it is hard to imagine what kind of alternative Egypt can offer compared to Israel, especially if you compare the difference in scale and access to other markets that the two economies provide.

Both of these eventualities would depend on our controlling the border, and Israel has repeatedly said that questions of tariffs and customs are not up for negotiation. Indeed, if there is one point that unites all sectors of Israeli capital about the agreement, it is that there must be &lduqo;open borders” between Israel and the new Palestinian entity. While direct taxation can be in the hands of the PLO authority, indirect taxation will have to be standardized. Otherwise, given that our VAT rates would be much lower than Israel's, Israelis would flood into Gaza to buy their TVs, videos and everything else.

So if -- by dint of the agreement -- we are made to buy and sell at Israeli prices, we may as well forget Egypt or any other Arab market for that matter. And this trade disadvantage would be reinforced if there is peace between Israel and the Arabs.

You see the problem. By accepting “Gaza-Jericho first,” the PLO has given up any notion of developing a genuinely independent Palestinian economic sector. We assumed that come the &lduqo;peace” we would have very close economic relations with Jordan, and that Jordan would act as our conduit to other Arab markets. These scenarios have been completely overturned. Under previously held notions of, say, a Palestinian-Jordanian confederation, Jordan would have gotten a share of any international funds redounding to us. Under the Oslo agreement, it will be the Israelis who will get the major slice.

Critics of the accord say that what it prefigures is not so much a Palestinian-Jordanian confederation, but an Israeli-Palestinian confederation.

What the Israelis want from the agreement is to create a coalition between Israeli and Palestinian capital, with the Palestinians then acting as a bridge for the Israelis to enter Arab markets. Such integration is a precondition if Israel is to in any way become an economic as much as a military power in the region. Nearly two thirds of the Declaration consists of describing the functions of eight joint PLO-Israeli liaison committees that will be established to oversee economic development. These committees will allow an effective Israeli veto on or at least interference in every facet of our economic life. You don’t sign a document like this if you’re serious about economic self-determination.

What is the PLO strategy behind the Oslo agreement?

The agreement was born out of a gamble, a tactic, rather than a strategy. I do see positive things in Israel’s unequivocal recognition of the PLO. The PLO remains the national representative of the entire Palestinian people, even if the leadership’s current tack hardly enjoys consensus. However, the price we have been asked to pay for this is very high.

You sound pessimistic about the agreement.

Given the current balance of forces between us and the Israelis, the Arab world and the international community generally, perhaps Arafat is right -- that the only thing on the table for us at this juncture is “Gaza-Jericho first.”

If the PLO leadership sets about creating genuine democratic structures in the new authority, structures which should be staffed by and utilize Palestinian expertise and professionals, then maybe something can be salvaged. If, on the other hand, its aim is simply to duplicate the structures that exist in Tunis or existed in Lebanon, then the agreement will be a disaster.

Development, any development, needs a legal framework to encourage and facilitate investment. Given that the motor for Palestinian economic development is going to be the private sector, then no investor in their right mind, Palestinian or otherwise, would invest here without clear legal bases and regulations. And these bases can only be independent, by definition, if they are democratically grounded.