Behind the Headlines: Regional Economic Cooperation Eludes Middle East Peacemakers

Three years after the historic Rabin-Arafat handshake on the White House lawn, the dream of an economic boom in the Middle East remains elusive.

The “New Middle East” envisioned by former Prime Minister Shimon Peres was predicated on a simple formula: economic partnerships forged between Israel and its Arab neighbors could usher in a new era of regional trust.

But in Israel’s relations with the Palestinians, Jordan, Egypt and the wider Arab world, that economic dream has largely failed to materialize as many of the old distrusts remain.

The most recent evidence that politics continues to interfere with budding commercial ties was Egyptian President Hosni Mubarak’s threat to cancel a regional economic conference set for Cairo in November if there is no progress in Israeli-Palestinian peace talks.

Like its predecessors in Casablanca, Morocco, and in Amman, Jordan, the Cairo conference has been touted as a significant advance for regional economic partnerships.

Despite the threat, most Israeli experts are confident that the conference will be held.

“I am willing to bet that Mubarak will hold the conference no matter what,” said Gil Feiler, of the Begin-Sadat research center at Bar-Ilan University. “It is more important for him than for Israel.”

Indeed, both Israel and Egypt have a vested interest in the economic conference taking place.

For the government of Prime Minister Benjamin Netanyahu, it would provide proof that the dialogue with the Arab countries continues; for Mubarak, it could mean more foreign investments.

However, Israeli officials do not expect any major advances in regional trade as a result of the conference.

“One should not expect too much,” said Oded Eran, deputy director general for economic affairs in the Foreign Ministry. “Israel’s traditional markets are in Europe, not in the Middle East.”

Whether economic realities would ultimately hinder the development of trade and business ties between Israel and its Arab neighbors is not clear.

For now, at least, political realities surrounding the evolving peace process appear to be the main obstacle.

“Fifty percent of Jordanian businessmen are still afraid to do business with us. They say that until we improve relations with the Palestinians, they can’t do much,” said Yosi Barnai, director of the Middle East and North Africa Business Information Center, who recently returned from a visit to Jordan.

After the signing of the Israeli-Jordanian peace agreement in October 1994, there was much talk of joint projects, such as the construction of resort sites along the Dead Sea, the development of regional water resources, the building of a joint Eilat-Aqaba airport and the construction of power plants.

But nearly two years after peace was reached, none of these projects has begun due primarily to bureaucracy and a lack of enthusiasm on the part of potential Arab business partners.

The few exceptions are the several Israeli firms in the textile and refrigerator industries that have opened plants in Jordan to take advantage of its cheaper labor.

The main beneficiary of the peace treaty has been the tourism industry.

More Americans and Europeans have visited the region as a result of the treaty, but even tourism has suffered recently amid uncertainty about the future of the peace process.

Relations between Israel and several Persian Gulf states have shown some promise, but they have nonetheless not lived up to the high expectations generated earlier this year, when Israel reached agreements with Oman and Qatar to exchange trade missions.

Interest offices, considered a first step toward full diplomatic relations, have since been opened in Israel and Oman. And dozens of businessmen from the Gulf visited the recent Agritech fair in Tel Aviv.

But there has been little beyond that.

“With Oman,” said an Israeli businessman who preferred to remain anonymous, “business is pretty good. But all the rest are limping.”

The state of economic relations between Israel and its longest-standing Arab peace partner — Egypt — provides little basis for optimism when it comes to the Jewish state’s ties with the rest of the region.

The cold peace between Israel and Egypt, which signed a peace accord in 1979, has failed to yield any major economic breakthroughs.

The main economic link between the two countries are Egypt’s oil sales to Israel. Excluding that, the volume of trade between the two countries last year was a paltry $77 million, most of that from Israeli exports.

Nowhere in the region are the shattered dreams of a new regional economy more evident than in Israel’s own backyard — the Palestinian self-rule areas.

At the beginning, there was talk of industrial parks along the border between Israel and the Palestinian autonomy and of an economic boom that would take advantage of Israeli know-how and cheap Arab labor.

But those plans were stopped dead in their tracks after a series of Hamas terror attacks in Israel in February and March.

The Palestinian autonomy is now cracking under a heavy load of unemployment brought on by the extended Israeli closure of the West Bank and Gaza Strip that was imposed in the wake of those attacks.

The Palestinians cannot blame their woes only on the closure; they also have, to a large extent, been the victims of their own pride.

They are hesitant to launch any joint ventures with Israeli entrepreneurs and they put up bureaucratic obstacles that scare away potential investors.

The Palestinian Authority’s Ministry of Economy and Trade, for example, recently issued a directive that only goods with a “clear label in Arabic” would be allowed into the Palestinian territory and stressed that the Arabic writing must be larger than any other languages used.

Meanwhile, the donor countries that had pledged to prop up the fledgling Palestinian economy — the United States, the European Union, the Persian Gulf states, Japan — have largely failed to come up with the billions of dollars needed to breathe life into the Palestinian economy.

The donors shrugged off their promises, partly because of the ups and downs in the peace process, partly because they were concerned that a lack of financial accountability in the Palestinian Authority would cause the funds to disappear.

As a result, the Palestinian Authority is still in the position of begging the donor countries for funds.

Palestinian officials recently said that they need an urgent supply of $50 million — simply to cover salaries, not to invest in development projects.

One possible tool to encourage Israeli-Arab economic ties is a new Middle East regional bank that would fund transnational projects. The idea for the bank was endorsed at the Casablanca and Amman conferences, and final details for establishing the institution in Cairo are expected to emerge from the November economic conference in Egypt.

But with some countries, including the United States, still balking at funding the bank, its future, like the evolution of regional economic ties, is unclear.