It is no secret that U.S. President Donald Trump views international relationships in purely transactional terms. In his understanding of diplomacy, Trump sees American assistance without an immediate return as an investment not worth making. No doubt this mindset (along with advisers like David Friedman, Jared Kushner, and Nikki Haley’s not-so-thinly veiled contempt for the Palestinians) informed the administration’s recent decisions to withdraw United States funding for UNRWA and USAID projects in the West Bank and Gaza.
A unilateral American initiative is unlikely to resolve the most problematic aspects of foreign assistance to the Palestinians. The economy in the Palestinian territories is automatically stunted by an array of Israeli restrictions and outdated arrangements. Without addressing these obstacles first, international donations will always be integral to both the Palestinian private sector and public services, while reforming aid channels remains a non-priority. Until now, Washington was a primary source of aid for the Palestinians. The United Kingdom responded to the new U.S. policy by advancing its own aid, and other countries could follow in stepping up their contributions. But if they are unable to do fully compensate for the American cuts, the end result of the Trump administration’s actions will have been to worsen everyday life for Palestinians, not to address serious problems with UNRWA and USAID programs.
UNRWA, the UN refugee agency for Palestinians, provides a range of basic services, including its own school system and healthcare. UNRWA also awards microfinance loans to Palestinians, primarily to enable the growth of small business. USAID, an American governmental agency, offers similar benefits, supporting education programs, facilitating partnerships between U.S. and Palestinian businesses, and (critically) working on safe water access and sanitation infrastructure in the Gaza Strip.
UNRWA is rightly criticized for politicizing of Palestinian refugee status. Its existence separate from the UN High Commissioner on Refugees is without obvious justification in 2018. Hamas rocket stockpiles were uncovered in UNRWA schools on multiple occasions during the 2014 Gaza War and individual former employees have alleged terror connections. USAID partners with the Palestinian Authority, a corrupt and authoritarian institution, although USAID funding is not a form of direct assistance to the PA.
Decrying that aid programs for the Palestinians are imperfect (UNRWA being especially flawed) is not enough because these aid programs made necessary by a suboptimal situation. However opaque the Palestinian leadership is, their people will always depend to some extent on foreign assistance so long as they remain stateless, as the PA lacks essential attributes of statehood that would permit greater economic growth.
Under the 1994 Paris Protocol, the Palestinians depend on Israel for collection of taxes and duties on imports to the occupied territories (which must first pass through Israel). The agreement further stipulates that the PA cannot determine its own import tariffs except for certain goods and services from specific states, namely Egypt and Jordan. Israel is also obligated to refund valued-added and excise taxes on certain goods the Palestinians consume. Israel is supposed to make monthly payments to the PA delivering this money. However, Israel has withheld tax revenues in the past and promises to do so again in the future over political disputes.
Israel employs (or threatens) this tactic to punish a wide range of PA practices, including bids for full membership at the United Nations and International Criminal Court, stipends for the families of convicted terrorists, and arson kites from Gaza. While Israel has legitimate grievances and security concerns about certain behaviors like the so-called “martyr payments,” freezing tax revenues over more symbolic measures like UN membership is arbitrary and needlessly punitive. Weaponizing tax collection over actions taken by militants in Gaza, where the PA lacks effective control on the ground, is plainly unfair.
The suspension of tax payments to the PA has born out tangible impacts on the Palestinian economy before. In 2015, Israel withheld a monthly transfer of $125 million over Palestinian attempts to join the ICC. During that period, the PA was forced to cut salaries to government workers. The Palestinian Authority is the single largest employer in the West Bank. Across-the-board pay decreases will have reverberations beyond the public sector.
Under these conditions, the average Palestinian cannot easily achieve significant upward socioeconomic mobility. Ramallah sorely needs serious anti-corruption measures and most Palestinians, particularly in Gaza, have been poorer than their Israeli neighbors long before Israel seized the territories in 1967. But the PA will never be able to provide consistent essential services to its constituents as long as its tax collection capabilities and the broader Palestinian economy are artificially subordinate to Israeli control. This is not to say that Israel and a future Palestine should eschew economic ties; quite the opposite. However, the PA’s substate status automatically makes it a junior partner and means that the present relationship is dictated almost exclusively by Israeli interests.
Foreign aid is a regular part of life throughout the developing world, including in many fully independent countries. Because of non-state Palestine’s special conditions, international assistance will continue to support (or substitute) public services and more organic forms of economic growth. Today, foreign aid represents a significant but not overwhelming share of the Palestinian GDP (13 percent). Still, it is not difficult to envision that figure falling in the future if the Palestinians gain greater autonomy, and ultimately, true sovereignty. Until then, outside donor agencies, no matter how problematic, will be staples of Palestinian economic life.