Protocol on Economic Relations (Paris Protocol)

The Oslo Accords of September 1993 created the political framework for Palestinian self-governance, while detailed economic arrangements were negotiated separately.[5] Following the signing of the Declaration of Principles, Israeli and PLO teams met weekly from November 1993 through March 1994 in Paris to draft the economic terms.[6] The Israeli delegation was headed by Finance Minister Avraham "Beiga" Shochat; the Palestinian delegation was led by Ahmed Qurei (Abu Ala), the PLO's director of finance.[6]

The broader economic context was shaped by the integration of the Palestinian territories with Israel since 1967 and by the passage of most Palestinian foreign trade through Israeli customs infrastructure.[7][8] Because the Oslo arrangements left control of surrounding air and sea crossings in Israeli hands, the agreement had to address Israel's central role in customs and tax collection for the emerging Palestinian Authority.[6] The resulting document presented itself as a foundation for Palestinian economic development: its preamble states that the protocol "lays the groundwork for strengthening the economic base of the Palestinian side and for exercising its right of economic decision-making in accordance with its own development plan and priorities."[1]

The protocol was signed in Paris on April 29, 1994.[2] Its signatories were Israeli Finance Minister Avraham Shohat and Abu Ala (Ahmed Qurei) for the PLO.[2] Five days later, on May 4, 1994, Prime Minister Yitzhak Rabin and PLO Chairman Yasser Arafat signed the Gaza Strip and Jericho Area agreement in Cairo; that agreement included an annex on economic relations.[5] The protocol was subsequently incorporated as Annex V of the Israeli-Palestinian Interim Agreement of September 28, 1995, with two of its articles completed and replaced by provisions attached to the Interim Agreement.[9] The Interim Agreement stipulated that economic relations would be governed by the protocol and the relevant provisions of the agreement and its annexes.[3]

A minor discrepancy exists within the reproduced text: the protocol's heading gives the date as April 9, 1994, while its signature block states that it was completed in Paris on April 29, 1994. The latter date is also used in the Interim Agreement's incorporation provision.[2]

The protocol's stated purpose was to make economic relations a foundation for mutual relations and for achieving peace.[3] Its preamble calls for cooperation to establish a sound economic base, guided by mutual respect for each side's economic interests, reciprocity, equity, and fairness; it also recognizes each side's economic ties with other markets and the need to create a better economic environment for their peoples and individuals.[1]

The agreement established a Palestinian-Israeli Joint Economic Committee with equal representation, tasked with following implementation, addressing problems arising from the protocol, and making decisions by agreement.[2] An Israeli government report states that the committee resumed regular meetings in December 2007 after a period of suspension; its agenda covered investments, crossings, Palestinian workers in Israel, cash transfers to Gaza, and obstacles to economic development. Its first ministerial-level meeting took place on September 2, 2009.[10]

The protocol covers taxation, monetary and financial issues, labor, agriculture, industry, tourism, and insurance.[1] Its implementation was to begin in Gaza and Jericho and later extend to the rest of Judea and Samaria.[2]

The protocol's central trade mechanism has been described as a "single customs envelope" and as a customs union, under which the sides jointly administered indirect-tax arrangements and goods could be sold between them without customs duties.[6][11] Because no customs border separated the sides, customs procedures took place at ports of entry. Once goods left a port, they could circulate without additional customs formalities, while Israel transferred import taxes on goods destined for Palestinian-controlled areas.[10]

The protocol gave the Palestinian Authority authority over import and customs policy for specified categories of goods. List A1 covered goods produced in Jordan, Egypt, and other Arab countries; List A2 covered goods from Arab, Islamic, and other countries; and List B comprised basic food items and other goods for Palestinian economic development. For Lists A1 and A2, the PA could set customs rates, purchase taxes, levies, excise duties, licensing procedures, and standards, subject to agreed quantities and Palestinian market needs.[2] For other goods, the protocol generally aligned Palestinian import procedures with those applied by Israel, while permitting the PA to impose charges above the Israeli rates used as a minimum basis.[2]

Rules of origin for Lists A1 and A2 required that the value or costs of materials produced in the relevant country, plus direct processing costs there, amount to at least 30 percent of the goods' export value; goods also had to be imported directly and accompanied by an internationally recognized certificate of origin.[2] Palestinian agricultural and industrial produce could be exported to external markets without restriction under Palestinian certificates of origin.[2]

Agricultural produce was to move between the parties free of customs and import taxes, subject to temporary exceptions for poultry, eggs, potatoes, cucumbers, tomatoes, and melons, with restrictions to be phased out by 1998.[2] Industrial goods were to move between the sides without restrictions, customs, or import taxes, subject to each side's legislation.[2]

The protocol established four principal categories of revenue to be collected by Israel and transferred to the PA: import taxes on goods ordered from abroad, excise duties on imported fuel, VAT on goods ordered from Israel, and income tax on employment income.[3] The arrangement was intended to provide income for the newly created PA as civil powers and responsibilities were transferred to it.[3]

For import-tax clearance, the protocol applied a "principle of final destination": Israel collected taxes on goods whose stated final destination was in PA-controlled areas — including specified cases where an Israeli importer brought in goods destined for a PA-registered business — and transferred the revenues within six working days of collection.[2] The protocol set a Palestinian VAT rate of 15 to 16 percent; its supplement specifies that the Palestinian rate may not be more than two percentage points below the Israeli rate.[2] Because Palestinians bought more goods and services from Israelis than Israelis bought from Palestinians, Israel transferred the difference in VAT to the Palestinian side; a similar purchase-tax clearance procedure followed, with monthly preparatory and final clearance meetings.[10]

Direct-tax policy — including income tax on individuals and corporations, property taxes, municipal taxes, and fees — was to be determined independently by each side.[3] The original protocol provided that 75 percent of income taxes collected from Palestinians from Gaza and the Jericho Area employed in Israel would be transferred to the PA, while the full amount would be transferred for those employed in Israeli settlements. The 1995 replacement provision applied the arrangement to Palestinians from the West Bank and Gaza Strip.[2][3]

The protocol's supplement allowed Israel to deduct a three-percent handling and administrative fee from transfers of import taxes and other indirect taxes to cover collection and handling costs.[3] From July 2007 through July 30, 2009, approximately NIS 10.4 billion in tax-clearance revenues was credited to the Palestinians. Approximately NIS 2.2 billion was deducted for payments to Israeli companies for utilities and healthcare, leaving NIS 8.2 billion transferred to the PA; roughly NIS 2 billion of the credited sum covered taxes collected in 2006–2007 that had not previously been transferred.[10] A 2024 Jerusalem Center for Public Affairs article reports that Israel collected more than NIS 107.5 billion on the PA's behalf from 2010 onward.[3]

The U.S. Department of State reported that clearance revenues — customs duties collected by Israel on imports on the PA's behalf — accounted for 69 percent of all PA revenues in 2024, with the Israeli Ministry of Finance making deductions for services and other stated purposes.[4]

The protocol established a Palestinian Monetary Authority to regulate and implement monetary policy within its defined functions, advise the PA on economic and financial matters, manage its foreign-currency reserves, act as lender of last resort for banks in the areas, and supervise banks and foreign-exchange activity.[2] It provided that the New Israeli Shekel would circulate in the areas and be legally accepted for all purposes, including official transactions, while the parties continued discussions about a mutually agreed Palestinian currency or temporary alternatives.[2] The protocol also provided for cooperation and information exchange between the Palestinian Monetary Authority and the Bank of Israel.[2]

The PA's continued use of the Israeli shekel and its purchase of water, electricity, and fuel from Israel were also addressed in the arrangement. Former Finance Minister Avraham Shochat emphasized that these were paid-for supplies, not subsidies or favors, and that Israel charged a fee for handling money transfers.[6]

On labor, the protocol states that both sides will attempt to maintain normal labor movement, while allowing each side to determine the extent and conditions of movement into its area; a side temporarily suspending normal movement must notify the other.[2] Employment for workers from one side in the area of the other was to be handled through the receiving side's employment service and legislation, with provision for the Palestinian side to regulate Palestinian labor in Israel through its employment service in coordination with Israel's.[2] The protocol also provided for monthly transfers of specified social-security equalization and pension deductions on behalf of Palestinian workers in Israel.[2]

For agriculture, produce was to move between the parties free of customs and import taxes, with exceptions for specified products phased out by 1998.[2] Industrial goods were to move between the sides without restrictions or customs duties, subject to each side's legislation.[2] The Palestinian Authority was assigned responsibilities in PA areas for tourism administration and for licensing and supervising the insurance sector.[2]

The protocol was designed as a five-year temporary arrangement pending a final peace agreement.[4] When no final-status agreement materialized, it remained the governing framework for PA–Israeli trade relations, although the U.S. Department of State reported in 2025 that many provisions were outdated or not fully implemented.[4]

Implementation proved uneven. A 2007 PLO Negotiations Affairs Department document describes revenues collected by Israel as representing about 60 percent of PA tax income at that time and notes that the protocol called for monthly remittances. It alleges that Israel refused to transfer collected import taxes from February 2006 and links the withholding to the PA's difficulty financing public services and paying civil servants.[12] An Israeli government report states that roughly NIS 2 billion of the NIS 10.4 billion credited between 2007 and 2009 covered taxes from 2006–2007 that had not previously been transferred.[10]

In July 2012, Finance Minister Yuval Steinitz and PA Prime Minister Salam Fayyad signed a mainly technical revision concerning information transfers between Israeli tax and supervisory authorities and the PA, aimed at preventing tax evasion and circumvention.[13]

The Joint Economic Committee, established as the forum for addressing implementation issues, met only a limited number of times after its creation. Globes reported in 2019 that its latest meeting at that point had occurred in 2009.[13] Palestinian demands for revision aired in 2019 included reducing or eliminating Israel's collection commission, granting the PA greater independence over tax rates, removing barriers to Palestinian goods and agricultural products entering Israel, easing trade with Jordan and Gulf states, and ending Israeli deductions from tax revenues.[13]

Evaluations of the protocol's economic effects and degree of implementation diverge significantly across sources.

A 2004 Globes report characterizes the protocol as only partly implemented and quotes economist Arie Arnon saying that in practice the agreement "was never implemented" and was de jure rather than de facto, attributing this to increasing restrictions on labor and goods movement rather than the expected near-free movement.[14] The Encyclopaedia Judaica entry on the Palestinian Authority likewise describes the 1994 Paris economic agreement as having "remained mostly unimplemented."[15] By contrast, a 2011 Ynet account characterizes the protocol as fully implemented except for the Palestinian-worker provision, which it says was not carried out because terrorist attacks continued and worsened during the 1990s. It also reports that Israel delayed tax-revenue transfers during the intifada, sometimes for extended periods, but that the funds were ultimately paid.[6]

On trade structure, a 2015 RAND Corporation study describes the protocol as creating a formal customs union and notes that Israeli products were exempt from duties in the Palestinian territories, unlike goods from other countries, making the West Bank and Gaza effectively a preferential market for Israeli exports.[7] RAND argues that the protocol, designed to facilitate trade, "instead fomented a 'closure regime'" involving checkpoints, back-to-back transport arrangements, licensing restrictions, and dual-use import procedures, with the burden of restrictions increasing after the failure of the Camp David negotiations in 2000 and the effects of the Second Intifada.[7] For 2013, the study reports Palestinian imports of $5.2 billion, with Israel supplying approximately 75 percent of those imports; Israel was the destination for about 90 percent of Palestinian exports, while the West Bank and Gaza supplied less than one percent of Israeli imports.[7]

A 2019 Calcalist analysis characterizes the protocol's model as a customs union rather than the free-trade area the Palestinians had sought during negotiations and states that Israel could set or change import-tax rates without Palestinian coordination.[11] A 2011 Calcalist report, noting that most Palestinian foreign trade passed through Israeli customs, estimates that Israel was responsible for about 75 percent of PA tax revenues. It also quotes former Israeli tax official Yoram Gabai arguing that unilateral cancellation without physical borders was impracticable, saying it would make every product contraband for both sides, and quotes Bank of Israel Governor Stanley Fischer saying trade with the PA was not very important from Israel's macroeconomic standpoint.[8]

A 2025 Jerusalem Post report quotes Israeli and Palestinian economists who argue that the arrangement reinforced Palestinian economic dependence on Israel, with one economist characterizing the structure as asymmetrical and leaving Palestinian imports, exports, and financial flows under Israeli jurisdiction.[16] Palestinian officials, including Fatah Central Committee member Mohammed Ashtiya, have called for freeing the Palestinians from the Paris Protocol, arguing that it had no horizon for Palestinian welfare and objecting to the treatment of the Palestinian territories as part of a single tax zone with Israel.[17]

An Israeli-oriented assessment published by the Jerusalem Center describes the agreement as providing a common tax structure intended to facilitate Palestinian access to international markets, stable currency and trade relations, and international standardization.[18] Sources variously label the arrangement a "single customs envelope," a "single economic unit," and a "customs union."[6][11]