Academic journal article Journal of International Affairs

Mideast Economies after the Israel-PLO Handshake

Academic journal article Journal of International Affairs

Mideast Economies after the Israel-PLO Handshake

Article excerpt

The Israel-Palestine Liberation Organization Declaration of Principles has created enthusiasm about the prospects for economic cooperation between Arabs and Israelis. Arab-Israeli economic cooperation is exciting because of its political benefits, not to mention its economic effects. Thus, proposals for economic cooperation should be judged primarily by their promotion of peace, rather than simply by their direct economic effect. In particular, economic cooperation can ease the Israeli sense of regional isolation and promote its acceptance by its neighbors. Furthermore, as each side reaps measurable economic benefits, future agreements may be more feasible in less politically sensitive areas than Palestinian sovereignty.

The strategy of achieving peace through incremental cooperation in areas of mutual advantage, such as trade, is problematic. The strategy itself has long been controversial among Arabs and continues to be rejected by many Arab radicals. For many years, the majority in the Palestine Liberation Organization (PLO) preferred to hold off on any form of cooperation, no matter how profitable, as a means to increase the pressure for a comprehensive political settlement. Today, Arab radicals complain that economic cooperation is Israel's latest strategy in its ongoing campaign to dominate the region. As Aqba Ali Saleh wrote in the leading Saudi daily Asharq al-Awsat, "The merging of technologically backward economies with a high-tech economy necessarily entails domination by the latter and restriction of the former's scope for development."(1)

Despite objections from such radicals, most in the region view economic cooperation as a step towards peace. Unfortunately, some also have the unrealistic expectation that Arab-Israeli economic cooperation is the key to a nation's prosperity. No one is more optimistic than Israeli Foreign Minister Shimon Peres, a longtime advocate of economic cooperation. As he argued, "There are only two alternatives [for the Levant]: Benelux or Yugoslavia." That is, prosperity and peace through cooperation or poverty and war.(2) In his latest book, written with Arye Naor, Peres outlines his vision of a Middle East common market.(3) Crown Prince Hasan of Jordan shares Peres' vision. At an important recent conference on the economic implications of Middle East peace, Hasan spoke of the long-term possibility of Palestinians, Jordanians and Israelis establishing "an arrangement similar to that which exists between Belgium, the Netherlands and Luxembourg." As Hasan has noted:

A free-trade zone across the Middle East would be the ultimate goal. Arrangements for a Middle East Free Trade Agreement -- a MEFTA along the lines of NAFTA [North American Free Trade Agreement] -- would allow the region to play a more creative role in the world economy ... Such a development would provide an impetus for a new relationship of hope in the Middle East.(4)

Peres' and Hasan's vision of the Middle East developing along lines similar to NAFTA is not realistic. The Middle East is just not in the same economic league as either NAFTA or the European Union (E.U.). The 1991 gross domestic product (GDP) of Israel and the Arab states was less than $500 billion, as compared to over $6,000 billion for NAFTA and the E.U. [Table 1]. The merchandise trade of Israel and the Arab states in 1992 was less than $300 billion, as compared to four times that amount within NAFTA and seven times as much within the E.U. The total GDP of the Arab League members is less than the GDP of Belgium and the Netherlands. Even if Israel were to develop as close relations with the Arab states as it now has with those two, the market opportunities would still be limited when compared to the greater possibilities in the larger E.U. market -- the natural market for Israeli, Jordanian, and Palestinian producers. While there are some excellent opportunities for profit from Arab-Israeli economic cooperation, the regional markets are just too small for such an endeavor to have much of a macroeconomic effect on the region. …

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