US embassy cable - 05TELAVIV4819

S E C R E T SECTION 01 OF 02 TEL AVIV 004819 
 
SIPDIS 
 
E.O. 12958: DECL: 08/01/2015 
TAGS: ECON, ETRD, EAID, IS, GAZA DISENGAGEMENT, ECONOMY AND FINANCE 
SUBJECT: DISENGAGEMENT COORDINATION: THE CUSTOMS UNION 
 
Classified By: Ambassador Daniel C. Kurtzer for reasons 1.4 (b) and (d) 
 
This cable was cleared with Consulate General Jerusalem and 
the Wolfensohn team. 
 
(C) Summary.  With only 13 days left before the start of 
disengagement, the GOI intends to propose a modified customs 
enforcement mechanism that incorporates relocating Rafah 
Terminal to Kerem Shalom and gradually utilizing an 
international third party working with the PA as a way to 
maintain the customs union.  Minister of Defense Mofaz will 
present this plan to PA Civil Affairs Minister Dahlan this 
week.  NSC Director Giora Eiland told Quartet Special Envoy 
(QSE) Wolfensohn that three alternative proposals continue to 
receive some attention from the GOI and donors, including 
complete abrogation, and maintenance of the union with 
relocation of Rafah terminal to Kissufim or Erez crossings. 
Eiland linked resolution of the customs union debate to other 
disengagement-related economic issues, including the Gaza 
air- and seaport.  Gabi Bar of the Ministry of Industry, 
Trade, and Labor said that recent working-level EU-GOI-PA 
negotiations on trade issues had been undermined by the lack 
of a GOI political decision on the customs union.  End 
Summary. 
 
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MoD Will Present Official GOI Position: 
Move Rafah to Kerem Shalom 
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2.  (C) In several recent conversations with the Ambassador, 
Ministry of Defense (MoD) officials have emphasized that even 
after the IDF withdraws from the Philidelphi Corridor there 
will be a continuing need to monitor people and materials 
passing from Egypt into Gaza.  Contacts told the Ambassador 
that the GOI will propose to temporarily move the Rafah 
terminal for people and goods to Kerem Shalom on the 
Egypt-Israel-Gaza border, thereby maintaining the customs 
union and addressing Israeli security concerns.  While the PA 
has in the past rejected this proposal, they explained, this 
latest iteration will include the GOI,s offer to accept the 
gradual participation of an  international third party 
working with PA customs on the Gaza side of the Kerem Shalom 
border.  This would enable the GOI to cooperate with the PA 
and the third party on establishing customs clearance 
procedures that could be utilized at the future Gaza airport 
and seaport.  The GOI will also express its intention to 
eventually move the GOI customs point to the Karni or Erez 
crossing on the Gaza-Israeli border, if these other 
arrangements to not gain PA agreement. 
 
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Eiland: Customs Union Is Linked to Passage Improvement 
--------------------------------------------- --------- 
 
3. (S) QSE Wolfensohn shared with the Ambassador and the 
Consul General NSC Director Giora Eiland,s views on the 
resolution of issues related to the passages and on Gaza 
disengagement overall.  According to Wolfensohn, Eiland 
detailed the following alternative proposals for a 
post-disengagement customs system.  (Note and comment: The 
first three of these proposals have received very little 
attention in recent weeks, as the GOI has moved more 
decisively towards the Kerem Shalom option.  End note.) 
 
-- Abrogation of the customs union and immediate relocation 
of the Israeli customs terminal from Rafah to Karni or 
Kissufim crossings. 
-- Maintenance of the customs union and relocation of the 
customs terminal from Rafah to Nitzana crossing, in the 
center of Gaza,s eastern border with Israel.  Vice Premier 
Peres is supporting this proposal. 
-- Maintenance of the customs union, with Rafah remaining in 
place under Palestinian control, the Israeli customs point 
relocating to Erez crossing, and a third party providing 
technical assistance to the PA.  The IMF is supporting this 
proposal. 
-- The GOI,s current preference is maintenance of the 
customs union and relocation of the Rafah terminal to Kerem 
Shalom at the junction of the Gaza border with Israel and 
Egypt. 
 
Wolfensohn said that Eiland felt there must be a  global 
approach, to solving the numerous disengagement-related 
economic issues.  Resolution of the customs union, for 
instance, could not be divorced from improvement of the 
passages and the West Bank-Gaza link.  In this vein, Eiland 
said, third-party involvement in maintaining the customs 
union and the protection of Israeli security concerns have a 
direct impact on any agreement to open an airport or seaport 
in Gaza. 
 
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GOI-EU-PA Trade Talks A Bust 
---------------------------- 
 
4. (S) An inter-ministerial team traveled July 26-28 to 
Brussels for trilateral negotiations between the EU, PA, and 
GOI.  While EU trade commissioner Mandelson requested the 
negotiations as a means of making progress on the customs 
union, Ministry of Industry, Trade, and Labor Middle East 
director Gaby Bar told Econoff that the negotiations failed 
to produce any results, in large part because the GOI had not 
yet made several "political decisions" on the customs union, 
and thus the negotiating team had no mandate.  Bar said that 
the EU pushed for the GOI to formally recognize the interim 
economic agreement signed between the PA and the EU, yet 
Hagit Ben-Yakov of the MFA -- a member of the working-level 
negotiating team -- told Econoff that in the GOI view this 
would contradict the Oslo Accords.  Despite the lack of 
results, the EU has proposed September 26 for the next 
trilateral meeting.  The PA has asked that this meeting be a 
ministerial meeting.  Bar indicated that the GOI has not yet 
accepted the suggestion.  (Note: The GOI is unlikely to send 
a team for more negotiations until key decisions have been 
made within the GOI about the future of trade relations with 
the PA after Gaza disengagement.  End note.) 
 
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Impact of the CU On PA Revenues 
------------------------------- 
 
5. (C) Approximately two thirds of the PA's total revenue 
receipts currently come from taxes collected by the Israeli 
customs service on the PA's behalf as a result of the 
existing CU, according to World Bank and IMF analyses. 
Although the donor community supports resumption of the 
customs function by the PA Finance Ministry in the long term, 
Israeli officials believe that the PA currently lacks the 
capacity to ensure efficient revenue collection, and assert 
that any PA Customs office established at the Rafah terminal 
is likely to be overwhelmed by the volume of work to be done. 
 Additionally, they say, the terminal does not contain 
adequate infrastructure, such as scanners and storage 
facilities, to facilitate the secure import of goods. 
(ConGen note: PA officials would dispute the Israeli 
assessment of PA revenue collection abilities.  They would 
also point out that no infrastructure or scanners exist at 
Kerem Shalom now.  End note) 
 
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