ECONOMIC SURVEY - 17-Feb-94

Jerusalem, 17 February 1994

(COMMUNICATED BY GPO)

PEACE ECONOMY

* ISRAELI AND PALESTINIAN REPRESENTATIVES: 'POSSIBLE TO SIGN ECONOMIC AGREEMENT WITHIN TWO WEEKS'. ECONOMIC AGREEMENT WILL BE VALID FOR ONE YEAR, AS A PART OF THE GAZA AND JERICHO AGREEMENT, AND NOT FOR FIVE YEARS, ACCORDING TO FINANCE MINISTRY ASSESSMENT.

In the wake of the signature on the principles of the Gaza and Jericho agreement, senior Finance Ministry officials estimated that the economic talks with the PLO, being held in Paris, will resume next week and will accelerate. 'We are returning to the talks on the basis of the understandings from before the mini-crisis with the PLO, which occurred at the end of the last round of talks; and if the atmosphere will be business-like, it will be possible to conclude the talks within two weeks,' according to Finance Ministry Budget Department Director David Brodet.

Prime Minister Rabin emphasized that the economic agreement will be part of the Gaza and Jericho agreement. Thus, the economic agreements being discussed with the Palestinians will be valid for one year only, and not for five years. A Palestinian source said to 'Globes' that the Palestinians are intending to bring the agreements up for ratification before the official Palestinian governing bodies that will be chosen this summer.

Another senior Finance Ministry source suggested that it will be possible to reach an economic agreement with the Palestinians that will be based on open borders and close coordination of import policies, the main features of which are uniformity for most products and a limited list of special arrangements for some products. Regarding the gap between the sides on the questions of currency and the Palestinian central bank, the source pointed out that, 'From an economic perspective, we have no problem with giving them a central bank, and even on the question of the currency, it is symbolic more than economic.' In his words, if the Palestinians will be allowed to issue their own currency, there will be a tendency to create deficits and to increase the money supply, which is liable to endanger economic stability in the territories.

The source emphasized that from Israel's perspective, the most important issues at the talks are coordination on import policies and the principle of open borders which necessitates some level of coordination on certain tax policies, such as VAT. The source said that issues such as the free trade zone which the Palestinians are planning with Jordan in the Jordan Valley area will need to be coordinated with Israel. 'We are in favor of free trade with Jordan, however, on the basis of reciprocity, and if Jordanian products will be able to arrive in Tel Aviv via the autonomous territories, Israeli products need to be able to reach Amaan,' said the source. ('Globes', 11.02.94)

* HANNA SINIORA TO HEAD BANK TO BE SET UP BY BANK LEUMI AND PALESTINIANS.
East Jerusalem businessman Hanna Siniora is to head a new bank which Bank Leumi, along with Spanish and Moroccan banks, decided to set up about two months ago. The new bank will be called the International Palestinian Bank (IPB). In addition to Bank Leumi and Palestinian businessmen, Spain's Banco Central Hispano and the Commercial Bank of Morocco will also be partners in the bank. At a meeting held last weekend in Madrid, attended by the chairman of Bank Leumi's board of directors, Moshe Zanbar, the decision was made to apply for Bank of Israel approval this week to establish the new bank in the territories. At first, IPB will open only two branches, one in the Gaza Strip and the second in the West Bank. The bank will have an initial capitalization of about $40 million. Each of the bank's partners is to contribute $10 million of this sum. The new bank is intended to serve as a central financial institution which will provide capital for developing the territories' economy after the peace agreements are signed. In addition to IPB, branches of Jordanian banks are also supposed to open in the West Bank. The Israel banking system does not currently have financial representation in the territories, except for [one] branch maintained by Mercantile Discount Bank in Bethlehem. ('Ma'ariv', 14.2.94)

* ABU ALA TO COME TO ISRAEL AT THE END OF THE MONTH.
Abu Ala, Director of the PLO's Economics and Planning Department, and one of those who conducted the negotiations that led to the Oslo agreement, will visit Israel for the first time at the end of the month. He will participate in the Israeli Forum's Business Forum Conference in Jerusalem. It is possible that he will meet with Prime Minister Yitzhak Rabin and Foreign Minister Shimon Peres. Abu ala was invited to the Business Forum Conference by by Nimrod Novick, Peres's former aide, and today Deputy Managing Director of the Merhav company, which is organizing one of the Forum's two plenum meetings. ('Ha'aretz', 15.02.94)

FOREIGN TRADE

* EUROPEAN UNION VICE PRESIDENT TO VISIT ISRAEL; WILL ANNOUNCE OPENING OF TALKS ON NEW AGREEMENT.
Mr. Manuel Marin, Vice President of the European Community Commission, will be in Israel Thursday, 17.02.94, to announce the opening of negotiations on a new EU-Israel Cooperation Agreement. The agreement will reflect the different aspects of the EU-Israel economic relationship in keeping with Israel's status as a neighboring country with which the EU wishes to maintain particularly close relations. The EU, like Israel, has declared that it will endeavor to conclude the negotiations by the end of 1994. Mr. Marin will also confirm to the Israeli government the EU's continued support for the peace process. EC Delegation to Israel - (03)-6964166

* ISRAEL CONSIDERING PROFITABILITY OF PARTICIPATION IN RESEARCH AND DEVELOPMENT AND EXAMINING GOALS FOR FINANCIAL COOPERATION WITH EUROPE.
This week, negotiations between Israel and the European Union will begin on the renewal of the trade agreement. To mark the opening, the Vice President of the Union and other figures connected with the negotiations will come to Israel. The practical negotiations will commence on 21 February in Brussels. Israel has yet to formulate a final position regarding its full integration in European Community research and development programs. In unofficial talks conducted last year with the European Union, in preparation of the official negotiations, there was a European willingness to integrate Israel into the research and development programs but the financial investment required for participation amounts to $40 million. The Ministries of Finance and of Industry and Trade are currently investigating whether the utility of such cooperation in research and development would justify the investment.

A second issue now being studied by the 'economic' ministries is the relations of financial services between states of the European Union and external states. In preparatory talks between the Union and Israel, an understanding was reached concerning different levels of cooperation in banking, and in capital markets and stock exchanges. The Directors- General Committee concluded that preparatory work is still required to examine the technical aspects of this cooperation.

Except for these two issues, Israeli policy has been formulated on other topics of negotiation, the primary thrust of which is the expansion of trade with an emphasis on improving the situation regarding the rules of origin, the expansion of competition into as many fields as possible, full willingness for reciprocity (except in agriculture), reciprocal procurements in accordance with GATT; government procurements beyond GATT, and; coordination in standards, customs fees, work and national insurance. Since communications is 'closed' to Israel, according to the GATT agreements, efforts will be made to open this area to cooperation which will apparently involve a European demand for eased restrictions in the area of government imports. ('Globes', 14.2.94)

* 20 ISRAELI COMPANIES TO PARTICIPATE IN SINGAPORE EXHIBITION.
20 Israeli companies will participate in the Israeli pavillion at an exhibition in Singapore; the pavillion is being organized by the Israel Export Institute. The exhibition is considered to be one of the most important in the world in the fields of military equipment, aircraft manufacturing, engines, radar systems, communications equipment, air defense systems, missiles and munitions, flight control, etc. The exhibition, which will open on 22.02.94, is being held at the Singapore airport. The size of the Israeli pavillion will be 775 square meters. Participating companies include: Elisra, Elbit, IDI, IAI, Rada, Rafael, Tadiran, Opgal, Sibet, El-Op, Scitex, Rotem, and Tamor. The pavillion will be managed by Dita Gorovitz and Shlomo Warshavsky from the Industry and Trade Ministry. Israel Export Institute - (03)-5101929

* CHINA WANTS TO CONSTRUCT TOURIST SITE ON DEAD SEA COAST.
China intends to participate in the construction of a large Chinese-style tourist complex on the Dead Sea coast at Ein-Bokek, the Housing Ministry spokesman has announced. The Chinese housing minister discussed the project with Housing Minister Binyamin Ben-Eliezer during his visit to China in October. The complex will include Chinese restaurants, which will be staffed by Chinese persons in traditional dress, and a 'village' where visitors will be able to become acquainted with the music, popular art and various aspects of Chinese folklore. 'The chances of peace in the Middle East has enticed Chinese businessmen who intend to invest close to $350 million in the project,' the spokesman added. The Chinese housing minister is scheduled to visit Israel in late-April. ('Globes', 14.2.94)

* EGYPT AND ISRAEL TO CREATE JOINT FARM PROJECT.
Israel and Egypt will together construct an agricultural farm in western Egypt this was decided in discussions of the joint Israel-Egypt agricultural commission, held last week in Cairo. The farm will be built by 'Agridev' and the parallel Egyptian company, and it will extend over 2,000 dunam. Agricultural processing methods and irrigation equipment will be displayed at the farm, as will fertilizers and seeds (o be supplied by Israeli factories). The cost of the construction will be about $1 million, and it will be funded by American concerns. According to the agreement, the farm will be built between Alexandria and El- Alamein an area which has been designated by the Egyptian government for accelerated development.