Investment Incentives
The Palestinian Authority's Ministry of Economy and Trade and Ministry of Industry promulgated the Law on the Encouragement of Investment of 1995, enacted on April 29, 1995 (hereinafter, the Investment Law), which authorizes the establishment of the Palestinian Higher Agency for the Encouragement of Investment (hereinafter, the Investment Agency) to implement the provisions of the Investment Law.
The Investment Agency board of directors is composed of fifteen private and public sector members and is chaired by the Minister of Economy, Trade and Industry. Decisions are made by majority vote of the board of directors, and, in case of a tie, the chairman casts the deciding vote. The board of directors appoints auditors to audit the Investment Agency's account in conformity with generally accepted practices and to submit a report to the President of the PA every six months.
The Investment Law is aimed at encouraging investment in all sectors of the economy and developing export oriented businesses. Certain categories of investment projects are exempt from taxes and customs duties under the Investment Law provided the investment project fulfills certain criteria.
To be eligible for the exemptions available under the Investment Law an investment project must meet the following criteria:
* The investment project must have paid-up capital of more than US$ 500,000 and/or be a project that permanently employs at least twenty-five Palestinian workers. The projected business plan of the investment project must be for at least ten years. Projects answering these criteria are entitled to an exemption from income taxes and duties for the first five years.
* The investment project must have paid-up capital of more than US$ 150,000 and less than US$ 500,000 and/or be a project that permanently employs at least 15 Palestinian workers. The projected business plan of the investment project must be for at least six years. Projects answering these criteria are entitled to an exemption from income taxes and duties for the first three years.
* The investment project must have paid-up capital of more than US$ 100,000 and less than US$ 150,000 and/or be a project that permanently employs at least 10 Palestinian workers. The projected business plan of the investment projects must be for at least five years. Projects answering these criteria are entitled to an exemption from income taxes and duties for the first two years.
* The Investment Law allows the Agency to grant additional special exemptions to projects that have paid-up capital of more than five million U.S. dollars and/or which permanently employ at least fifty Palestinian workers.
* Additional exemptions may be granted for both export-oriented products and projects that will benefit the Palestinian economy.
The Investment Law, however, does not define what is considered to be paid-up capital for its purposes, nor does it define Palestinian workers. Also, the law gives no indication at what point after approval an investor must satisfy the criteria in question. This is especially problematic in light of the Investment Agency's right to cancel its approval and demand repayment of all taxes and dues (see below).
Application Procedure
Applications for approval of a foreign investment project in areas under the full civilian jurisdiction of the Palestinian Authority (i.e., Areas A and B) are filed with the Palestinian Authority Ministry of Economy, Commerce and Industry.
All investors must receive the approval of the Investment Agency. The application has to be supported with a technical and economic feasibility study of the project. Further, it is required that investors obtain all necessary licenses and permits from political authorities before the Investment Agency will approve a proposal. The Investment Agency has between 30 and 60 days from the date of the application to provide an answer that should include the reasons supporting the decision. Following approval, the investor must present an action plan detailing the steps to be followed to complete the project. The project must be started within six month of the date of approval.
The Agency has the power to cancel investment licenses in advance or retroactively at any time if it finds they do not comply with the Investment Law itself or with the conditions of the license. Investors whose licenses are superseded or canceled have no recourse to judicial review or to independent arbitration to challenge the decision; they can only appeal the decision before the President of the PA. The Investment Agency may also approve all asset transfers in connection with investment projects. The criteria for such approval are not stated in the Law, except for the provision that priority must be given to Palestinian purchasers.
The Investment Law does not stipulate clearly whether investors who do not wish to obtain benefits under the Investment Law are required to obtain the approval by the Authority in order to carry out their project.
Protections for Foreign Investors
Foreign, non-Palestinian Arab and expatriate Palestinian investors who invest in approved investment projects may repatriate their capital and profits after paying applicable taxes. The Investment Law also grants them the right to permanent residence status and provides guarantees against nationalization, expropriation or confiscation.
With respect to protection against nationalization, the law states that no investment, irrespective of the investor's nationality shall be nationalized in whole or in part without the investor's consent. This rule, however, is subject to the exception that expropriation is conducted in compliance with a final judgment handed down by a competent court according to Palestinian law.
Investors do have the right to transfer capital and profits after having paid the dues prescribed by Palestinian law. The nature or level of these dues, however, is not mentioned in the Investment Law.
Finally, according to the Investment Law, all disputes between investors and the PA are to be settled by Palestinian courts according to applicable Palestinian law. Independent arbitration does not seem to be a possibility, although in its official summary, the PA states that the Investment Law "admits the possibility of dispute resolution through arbitration" without citing a provision that contains direct or indirect reference to arbitration.
Trade Issues
The Paris Protocol addressed many of the sensitive trade issues affecting the intertwined Palestinian and Israeli economies. In particular, the Paris Protocol determined significant measures with regard to agriculture, industry and tourism. The Palestinian Authority is entitled to market its agricultural and industrial products externally (i.e., outside of Israel), without restriction under the terms of the Paris Protocol, provided Palestinian certificates of origin are issued for the product designated for export.
Imports
All imports into the areas ruled by the PA must comply with a specific list of sanctioned imports and meet certain quota and standards requirements, as agreed to by the PA and Israel. The list is available at the Ministry of Economy, Trade and Industry. It is expected that this list will be expanded and that the quota limits will be increased in the near future.
Licensing is required for specified imports into PA territory, including health products, food, transportation and fuel. Also, imports generally need to comply with PA standards and requirements, as well as with environmental standards.
The documentation procedures required for imports include:
* a certificate of incorporation if the importer is a duly registered company;
* a certificate of good standing from the appropriate Chamber of Commerce;
* a certificate of foreign trade dealings obtained from the Ministry of Economy Trade and Industry;
* a pro-forma invoice with the estimated value of the goods imported;
* import licenses for goods that are on the specified list.
To facilitate the importing process, the required documentation must be presented to the Customs Department. Obtaining an import license takes approximately 10 to 15 days following the submission of the completed application to the Customs Department. Licenses are valid for a period of six month to a year, depending on the product.
Agriculture
The Paris Protocol determined that there would be free movement of agricultural products, free of customs and import taxes, between Israel and the Palestinian Authority, subject to certain exceptions and limitations regarding veterinary certification and international codes for livestock. The agricultural section of the Paris Protocol temporarily restricts market access between the two parties for poultry, eggs, potatoes, cucumbers, tomatoes and melons.
Industry
The Paris Protocol establishes free movement of industrial goods between the two sides to the Protocol. Such goods will be free of any restrictions, including customs and import taxes. The Protocol provides that the Palestinian Authority may employ incentives and adopt encouragement measures, including measures similar to those in force in Israel, to encourage and to promote the development of industry in the Palestinian Authority. With regard to industrial goods, each party agreed to take steps to prevent environmental damage to territory of the other party.
Tourism
Each of the parties to the Paris Protocol agreed to allow the entry of tourist buses and other transportation authorized by the other party to enter its jurisdiction. Access to tourist sites and places of religious and national significance in both jurisdictions will be open for visitation to all tourists at reasonable hours. Each party is committed, under the Paris Protocol, to protect and to ensure the proper maintenance of historical, archaeological, cultural and religious sites. The Paris Protocol also calls for the establishment of a Palestinian Tourism Authority, which will be responsible for, among other things, regulating, licensing, classifying and supervising tourist services, sites and industries.
Product Labels
The Palestinian Authority issued a regulation requiring, as of March 30, 1996, that products intended for sale in the West Bank and Gaza be labeled in Arabic and that the Arabic characters should be larger than those used for a second language, if any. The content of the second language version should correspond exactly to the Arabic version.
The law also provides that the label is to include specific details such as the name of the product, the trade name, the grade of the product, name and address of the importer if the product is imported, the place of production, name and address of manufacturing company, date of production and expiration date, basic ingredients that make up the product, storage directions and quantity in numbers, length or area as applicable.
Trade Agreements
The Palestinian Authority has finalized trade agreements with the European Union, Jordan and Egypt. Products originating in the PA thus gained preferential status for import into the EU. All industrial products and some agricultural products are granted duty-free access, for some agricultural products reduced restrictions apply.
In October 1996, following the obtaining of beneficiary status under the Generalized System of Preferences (GPS), the PA entered into an agreement with the United States gaining duty-free access for certain Palestinian products.
Real Estate Property
Under Oslo 2, the Palestinian Authority is responsible for land registration, planning and zoning. Zoning regulations and building and safety codes are in effect in both Gaza and in the West Bank. The Palestinian Authority has not yet issued any legislation in the area of real estate ownership. Therefore, the Ottoman and British Mandatory law regarding real property governs in Gaza, and the Ottoman law as amended by British Mandatory and Jordanian law and modified by Military Orders, regarding real property governs in the West Bank.
In Gaza and the West Bank, registration of land is effected in the Department of Land Registry. In Gaza, foreign entities may purchase land. Real estate development companies, however, must first obtain approval of the President of the Palestinian Authority before registering purchased property. In the West Bank, in accordance with Jordanian law, foreigners may only purchase property which is located within municipal boundaries, subject to obtaining the permission of the Civil Administration in accordance with Jordanian law, unless a special exception is made (such as for an approved investment project).
In 1967, the Civil Administration took title to all property owned by absentee landowners. Such property cannot be conveyed by the absentee owner, regardless of whether the owner has a valid title under Jordanian law. Under Oslo 2, the Palestinian Authority is responsible for absentee property but is obligated to safeguard the rights of Israelis in such property.
Collateralization of Loans
Land is often a preferred collateral security for loans. Only about 35 percent of the land in the West Bank and about 50 percent of the land in Gaza has been registered. The remainder is unregistered, and ownership is determined based on family and community records and evidence. The lack of a formal land registration system and the dearth of clear evidence of title in real property often raises questions regarding boundaries and legal succession. These factors and the uncertainty regarding whether it is possible to foreclose on collateral security in the event of default on a loan, make the banks, especially foreign banks, unwilling to grant collateralized loans. Reportedly, many local banks require numerous cosigners, and they resort to extended family members of the borrower to recoup bad debts.
In the past, the Civil Administration was responsible for enforcement of foreclosure on land used as collateral for a loan. As a result, lenders refrained from resorting to foreclosure on land, in order to avoid having to resort to the Israelis to enforce such measures. Furthermore, the Civil Administration was reluctant to become involved in such civil matters and, therefore, enforcement, if requested, was slow to come. Now that the Palestinian Authority has the police powers necessary to enforce the civil laws in Area A, it remains to be seen whether enforcement and implementation of foreclosures will take place and become routine. The question of enforcement is not merely an issue of adequate and authorized police, but also one of social mores. Palestinian society has a strong taboo against evicting a person from his home. For this reason, the courts may be reluctant to order foreclosure and eviction since it would not be well received in the community.
While the Jordanian Collateral Lending Law No. 46 of 1953 is applicable in the West Bank, it is outdated. It does not provide for giving written notice to the borrower of the lender's intent to foreclose prior to commencing foreclosure proceedings, and it does not include a statutory redemption period during which the borrower, after having received notice of foreclosure, may redeem the loan and avoid foreclosure. Furthermore, no parallel law is applicable in Gaza. A modern collateral lending law, applicable throughout the Palestinian Authority, which addresses the societal concerns regarding foreclosure and eviction, and which is enforceable by the courts and police in the autonomous areas, would greatly enhance the economy by reducing the lending institutions' risk. The reduction of risks is crucial to bringing down the costs of lending and to making loans more widely available. Collateral security is merely one area in which the lack of a unified, modern legal system with practical experience in enforcement and implementation can deter investment and hinder growth in the Palestinian Authority.
Environmental Law
The Palestinian Authority is not presently a signatory to any international or regional environmental treaties. In addition, there is no specific legislation regarding the environment in the PA. The Palestinian National Council, however, is considering drafts to such laws. Environmental provisions are included in laws such as the criminal code and import standards.
© 2000 Mena Report (www.menareport.com)
