Attachment_J_10_-_Final_report_PITA.pdf

Submitted by Chemonics International Inc. with The Services Group and Massar Associates.

The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government.

PALESTINIAN

INTEGRATED TRADE

ARRANGEMENT

FINAL REPORT

Contract No. PCE-I-00-98-00015-00, Task Order No. 22

CONTENTS

Acronyms ............................................................................................................................ i

Executive Summary

Section I. Project Background

Section II. Trade Capacity Expansion and Security Enhancement

Section III. Procedural Streamlining and Organizational Strengthening

Section IV. Looking Forward

Annexes

Annex A. Commentary from Palestinian Businesses Annex B. Summary of Crossing-Specific Activities Annex C. Trade Data Summaries Annex D. Selected PITA Reports ......................................................................... CD-ROM

ACRONYMS

AMA Agreement on Movement and Access

ASYCUDA Automated System for Customs Data

CPA Crossing Points Authority

PA Palestinian Authority

PITA Palestinian Integrated Trade Arrangement

TFA Trade Facilitation Assessment

TFP Trade Facilitation Project

USSC Office of the United States Security Coordinator

PALESTINIAN INTEGRATED TRADE ARRANGEMENT 1

EXECUTIVE SUMMARY

Through the Palestinian Integrated Trade Arrangement (PITA) project, Chemonics International assisted USAID/West Bank and Gaza in its efforts to enhance commercial trade and supply chain management in critical trade corridors, focusing on cargo transport into and out of the West Bank and Gaza. PITA was designed to facilitate the movement of Palestinian goods to regional and international export markets, to increase revenues and reduce costs for private companies, and to help grow the Palestinian economy.

Trade and movement and access issues, complex in and of themselves, play out in a still more complex and volatile security and political environment in the West Bank and Gaza. PITA experienced both a U.S. no-contact policy for several months in 2006 with the project’s primary counterpart — the Palestinian Authority (PA) — and the Hamas takeover of Gaza, which effectively ended project support in Gaza in mid-2007. Although the political environment compromised a number of activities, they arguably also presented new opportunities for extending benefits to Palestinian stakeholders.

USAID’s contribution to improving the lives of Palestinians through PITA took the shape of the project’s two main components: (1) trade capacity expansion and security enhancement, and (2) procedural streamlining and organizational strengthening. The first component, with the purchase of X-ray cargo scanners, led to expediting a tremendous volume and value of Palestinian shipments while increasing the quality and competitiveness of Palestinian exports. Accompanying infrastructure improvements at crossings with Israel substantially enhanced the movement of goods and people with major benefits to the Palestinian economy. The second part of the project complemented these improvements with policy reform, capacity building for the public and private sectors, communications and outreach, and other improvements to support PA and private sector trade priorities. This work led to operational improvements at crossings to accompany infrastructure changes, greater trade capability within the PA, and, ultimately, cost savings and increased revenue for Palestinian companies.

PITA was a project with demonstrated ability to deliver effectively. The creative solution of meeting key international agreement requirements by leasing multi-million-dollar cargo scanners within two months of startup, while moving forward with plans to purchase this technology, encapsulates the pace and tone PITA adopted as challenges arose. A politically sensitive but necessary rapid closure to the scanner purchase contract negotiation ultimately yielded millions in cost savings. These savings, when reprogrammed, led to several successful activities, including the one that unequivocally brought the greatest impact to the Palestinian economy: the Jalameh vehicle crossing construction. On several fronts, including capacity building of the PA, the PITA team became known for being the “honest broker” on a host of trade-related issues needing support and input from the Palestinian and Israeli sides.

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Not all of PITA’s work was completely effective, and the final section of this report presents lessons for the future. A lack of PA or Israeli government buy-in on certain issues, such as PA presence at crossings and enhanced known trader benefits, made some activities difficult to implement and remains elusive as trade work continues under USAID’s Trade Facilitation Project (TFP). Achieving focused and organized Palestinian advocacy on trade issues was also a challenge. Other project activities had to be stopped because of changes outside the project’s control, such as extensive planning efforts at the Karni/Al-Mintar crossing in Gaza. Once the key crossing for Gaza exports and imports, Karni/Al-Mintar closed in 2007 and is not slated to reopen.

Below are some of the project’s achievements that have significantly supported private-sector trade and, ultimately, the Palestinian economy:

• Designed and constructed a vehicle crossing at Jalameh that has allowed more than

900,000 Arab-Israeli passenger vehicles to enter the northern West Bank, bringing about $120 million in income to local businesses from direct purchases alone, together with other social, cultural, and business benefits.

• Procured and established advanced cargo processing technology that has reliably expedited transit of more than 220,000 Palestinian trucks with exports valued at more than $550 million, improving Palestinian competitiveness through reduced costs and increased product quality.

• Enhanced infrastructure at all three official West Bank cargo terminals, building capacity to address trade demand in the coming decade — capacity that could support more than $150 million each year in additional Palestinian exports.

• Provided the knowledge and tools for Palestinian traders to improve their effectiveness and reduce time and cost associated with moving goods to market.

• Created the strategic vision and enhanced human capacity that give the PA the foundation for their own presence at crossings with Israel for the first time.

• Launched the programs — now brought to maturity under another USAID program

— that change operations at Israeli crossing facilities and complement infrastructure enhancements, providing substantial benefits to Palestinian business.

Beginning in June 2008, PITA was run in parallel with the activities of TFP, also implemented by Chemonics. Synergies developed between the projects. Along with TFP’s new work areas, there was a continued focus on initiatives begun under PITA.

PALESTINIAN INTEGRATED TRADE ARRANGEMENT 3

The PITA Contract

Duration: September 2005 through June 2012

Budget: $55,990,604, including $50 million earmarked by Congress for assistance for Israel to help ease the movement of Palestinian people and goods in and out of Israel.

SECTION I

PROJECT BACKGROUND

Vibrant trade means a secure and efficient flow of goods, dynamic exchange of information, and ultimately, a thriving private sector contributing to a rich economy. With this in mind, PITA comprised two main components: (1) trade capacity expansion and security enhancement, and (2) procedural streamlining and organizational strengthening. In November 2005, Secretary of State Condoleezza Rice brokered the Agreement on Movement and Access (AMA) between Israel and the PA. The intention of the AMA was “to facilitate the movement of goods and people within the Palestinian Territories” and open “an international crossing on the Gaza-Egypt border to put the Palestinians in control of the entry and exit of people,” and thereby “...promote peaceful economic development and improve the humanitarian situation on the ground.” In part, PITA was designed to support the AMA’s overall objectives to improve the lives of Palestinians and help the Palestinian private sector meet the challenges posed by fast-changing political and security events on the ground. In particular, the objectives of the AMA drove early project activities, including trade monitoring and procurement of X-ray cargo scanning technology.

When USAID launched PITA in 2005, the Palestinian economy was in a serious decline that had begun with the Second Intifada in 2000. The uprising adversely affected nearly all economic activity indicators. Two key constraints had been identified as causes of negative economic growth during the four years before the project began. First, restricted movement of Palestinian commercial, agricultural, and industrial goods destined for domestic and export markets was limiting the private sector’s competitiveness. These restrictions were leading to higher costs of doing business, diminished capacity to import needed production inputs, increased unemployment, and lost business. Second, the restrictions, complications, and lack of information about the current regimen on crossings with Israel were limiting Palestinian exporters’ ability to ensure reliable, cost-efficient, and timely exports to their trade partners, and were discouraging export development.

Being closely linked to the Palestinian economy, the Israeli economy was also affected at this time. Practical security concerns over civilian targets in Israel, followed by Israeli Defense Forces activity in the West Bank and Gaza, negatively impacted Israel’s tourism industry. By the end of 2002, tourist arrivals in Israel had fallen by 64 percent over 2000 levels. Downstream impacts of the drop in tourism in Israel (hotels, restaurants, guides, facilities fees, gifts, etc.), combined with declines in Israel's software and manufacturing industries, led to negative economic growth in 2001 and 2002, and no real growth in 2003.

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Total Exported Truck Traffic Over Time

The World Bank and other organizations recognized that the free movement and access of people and goods would be vital to Palestine’s economic recovery. The World Bank noted, “Government of Israel has given encouraging signs of a willingness to reform the management of border gateways, to enable a much faster and more reliable throughput of cargo and people.” PITA’s two components were designed to leverage this growing discussion between the Israeli and PA leadership after Israel approved a disengagement plan for Gaza. The plan eventually included areas of the West Bank, and the business sectors of Israel, West Bank, and Gaza were able to at least maintain the mutual dependence that had developed over decades in spite of serious challenges.

When PITA began, it focused on commercial trade in the West Bank and Gaza. One key element was the Israeli government’s establishment of a small number of crossing terminals at both locations. In the case of the West Bank, Israel planned to reduce commercial routes available to Palestinian commercial traffic, curtailing less formal transit points. With these terminals, Palestinian trucks no longer traveled “door to door” to customers or ports in Israel. A process including manual inspection and “back-to-back” transfer of goods from Palestinian to Israeli trucks, both of which were time-consuming and resulted in damage to goods, took place at the crossing facilities. This was also expected to increase traffic at the existing and planned facilities. The chart above shows this trend over the life of PITA through the three primary West Bank commercial crossings, each of which was supported under the project. This data and other TFP-funded analyses show continued and substantial growth in traffic at West Bank crossings now and in the future, and supported prioritization of PITA activities on an ongoing basis. As described below, this led to substantial PITA support to technology and infrastructure improvements, as well as policy and operational enhancements.

PITA faced daily challenges brought on by the West Bank and Gaza’s volatile political climate and changing security considerations. Many aspects of the project were put on hold after the Hamas election win in early 2006 within months of project’s startup. When

PALESTINIAN INTEGRATED TRADE ARRANGEMENT 5

a new Palestinian government formed shortly thereafter, the project was required to adopt a no-contact policy with the PA. After the Hamas takeover of Gaza in June of 2007, project activities largely ended in Gaza. In these and other instances, some PITA activities had to be substantially redesigned, and the project was forced to cease others altogether. PITA initially worked with the terminals adjacent to the West Bank and Gaza, but in mid-2007 halted activities at Gaza crossings; PITA resources were deployed elsewhere, focusing instead on the three West Bank terminals: Tulkarm/Sha’ar Ephraim, Jalameh, and Tarqumia.

Despite the numerous challenges that arose in this unpredictable environment, staff in the project’s West Bank and Gaza offices continuously revised plans; kept information flowing from Gaza to USAID, the Palestinian private sector, and the Israeli government;

and adjusted activities to move work forward under both project components. PITA’s Ramallah office, which operated from late 2005 through June 2008, led many project activities. Gaza activities were coordinated though a small office in Gaza City, which closed in February 2008. In June of 2008, USAID launched TFP, which continued many of the activities previously led by PITA’s Ramallah office. Support to security equipment procurements and trade infrastructure enhancements continued beyond 2008, with the last construction effort being completed in April 2012 and managed by the Chemonics home office in Washington, D.C., with part-time local support as required.

Through the end of the project, there continued to be great synergy between PITA and TFP. Some activities begun under PITA (known trader, for example), bore fruit for Palestinian business under TFP. Both projects worked at commercial crossings to facilitate cargo movement under different scopes, and their combined efforts brought more holistic and substantial changes for traders. In addition, TFP’s monitoring and analytical activities allowed documentation of the sustainable impact of PITA’s (and TFP’s) investments.

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SECTION II

TRADE CAPACITY

EXPANSION AND SECURITY

ENHANCEMENT1

Perhaps PITA’s most visible work was driven by an agreement by the U.S. and Israeli governments to support the AMA and, in general, maintain Israeli security concerns while fostering increased trade by Palestinians. Originally, the focus of this component of the project was on security technology tied to commercial trade (i.e., Palestinian exports and imports). Further discussion, evolution in the security and political climate, and substantial cost savings on a major procurement afforded additional unanticipated opportunities. At its conclusion, PITA-supported enhancements were essential in allowing major, measurable, and secure exports from the West Bank; fostering tremendous economic growth and reducing unemployment in the northern area of the territory; and expanding cargo processing infrastructure at crossing point facilities with Israel to handle Palestinian goods projected through the next decade.

We should note that work under this component, as originally designed with the benefit of a U.S. congressional earmark, directly engaged the Israeli government, particularly its civilian Crossing Points Authority (CPA), as well as Israeli suppliers, to make enhancements at existing Israeli facilities and support Palestinian trade.

SCANNER TECHNOLOGY AND RAPID RESPONSE TO POLITICAL DEMANDS

To improve the secure movement of goods and speed throughput at major crossing facilities, PITA supported the installation of cargo inspection technology and small-scale installation works. Activities supported AMA objectives and the U.S.-Israeli Memorandum of Understanding signed December 8, 2005, speeding up the inspection and clearance of cargo and enhancing the integrity of goods destined for increasingly demanding customers in Israel, the region, and around the world.

Immediately after contract award, PITA

1 The “Security Enhancement and Implementation” component of the PITA contract.

PHOTO: PITA

To meet tight requirements imposed by the AMA, a leased mobile scanner arrives by cargo plane at the end of December 2005.

PALESTINIAN INTEGRATED TRADE ARRANGEMENT 7

began to define and procure the appropriate cargo scanning technology. Mobile X-ray scanners that could achieve rigorous technical performance standards were essential. At startup in October 2005, the project estimated it would take up to one year to procure and install scanner. In response to Israeli security concerns associated with increasing throughput at crossings, however, the AMA called for scanners to be deployed by December 31, 2005. It was clear that new scanners could not be procured and deployed on that timetable, so PITA began to explore temporary leasing options. Even for leasing, this was a challenge given the need to follow competitive and fully compliant procurement practices. On November 8, 2005, having prepared basic technical specifications, the Chemonics procurement team issued a request for information for four scanners. At the same time, scanner specialists worked to refine technical requirements and the procurement team finalized all lease terms. In this short time, leases were signed with two companies and both sea and air transport was arranged for delivery. In the latter case, a special cargo transport plane had to be lined up to handle the anticipated load on the expedited schedule. In the end, just 30 days after the initial request for information, PITA finalized the first lease agreement, allowing the first scanners to arrive in Israel on December 25 and 28, 2005.

The first leased scanners were certified and put into full operation at the Gaza crossings by February 2006, and scanners were operational at the West Bank locations soon after.

Meanwhile, efforts to procure five new scanners continued. Again, technical and operational considerations led to U.S.-Israeli agreement on the general specifications of the scanners, along with the specific requirement that the scanners be fully mobile (i.e., capable of being driven on local roads between crossings). While this combination of considerations led to compromises based on technology available worldwide, the two governments agreed on an optimal mix of technical specifications for the needs they anticipated at the crossings.

The procurement of new scanners proceeded through 2006 and accelerated once the leased scanners were in place with negotiated maintenance and retrofitting agreements to fully meet local requirements. The procurement and negotiation process for the purchase was extensive. U.S. (PITA-funded) and Israeli attorneys convened to develop purchase, commissioning, maintenance, and performance contracts that would meet U.S.

procurement standards and Israeli government needs. A PITA scanner technology expert and procurement team worked closely with Israeli counterparts to define requirements, conduct a bidder’s conference, review proposals, and negotiate final terms. Following award to a U.S. firm, the process continued with a detailed design review in Israel and multiple manufacturer visits to the United States, concluding with a factory acceptance test.

The first two scanners arrived at Haifa port on August 23, 2007. The first of these began operations in October at the newly constructed Israeli terminal at Tarqumia. Full commissioning and transfer of the first purchased scanner to the Israeli government was completed on December 30, 2007. Considering that one scanner was taken out of service for protracted repairs due to a terrorist incident at a crossing with Gaza, the last of five purchased scanners was fully brought on line by June 2010 with all commissioning and

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contracted retrofits required by the CPA. All scanners were fully supported with associated on-site maintenance and spare parts contracts, rigorously enforced under the PITA subcontract with the supplier to ensure at least 95 percent availability.

More than four years after the deployment of the first PITA-funded scanner, the results are clear. According to CPA data, scanners are performing continuously, at or above 98 percent availability, and have shown no decline in technical performance. At three West Bank and two Gaza commercial crossings, PITA scanners have sped up the processing of more than 220,000 trucks carrying Palestinian cargo, scanning 79 percent of all export trucks at these crossings and keeping pace with the rising truck volume shown on chart on page 4. Note that some product types, such as construction materials and stone aggregates, are generally not scanned. At the other extreme, about 94 percent of empty trucks are scanned.

The benefits of the scanners for the Palestinian private sector are sizable. While door-to-door transit is always preferable, the emergence of “international-like” cargo terminals seems to be received as a new reality. Processing times at these crossings with scanners are less than half those cited by Palestinian and Israeli sources for manual inspection — perhaps an hour or less, in contrast to two to three hours, or more, for manual efforts.

More frequent reports of damage to goods from manual inspection and spoilage from delays have faded, but firm statistics are lacking. Further commentary from Palestinian businessmen is presented in Annex A. In economic terms, a combination of Palestinian export statistics and estimated truck traffic volume through official and unofficial routes

PHOTO: PITA

Cargo scanners effectively process multiple trucks at a time. Scanning time is typically less than 15 minutes, versus one to three hours for manual inspection.

PALESTINIAN INTEGRATED TRADE ARRANGEMENT 9

(as analyzed by TFP), leads to estimates that the three West Bank crossings where PITA scanners are operational have scanned more than $550 million in Palestinian exports since 2006. This is a significant benefit based on the less than $12 million spent under the PITA scanner purchase and maintenance contract and $11 million spent separately for scanner leasing, maintenance, and other services.

SMALL BUT CRUCIAL INSTALLATIONS AT CROSSINGS

Designs for crossing facilities varied greatly in size and configuration when PITA began;

more than one did not yet exist. All were constructed by the Israeli government. With the scanners, the CPA wanted flexibility in operations at specific facilities and the use of a range of locations based on cargo demands and the evolving security situation. For the mobile scanners, PITA was requested to fund the scanner installation works at six crossings during 2006 and 2007 — Tulkarm/Sha’ar Ephraim, Jalameh, Tarqumia, Karni/Al-Mintar, Kerem Shalom, and Nitzana. Tarqumia posed engineering challenges as PITA was instructed to make all work there removable in the event the crossing was relocated. In some cases, PITA supported additional investments that would facilitate cargo movement, enhanced goods quality, or Palestinian drivers’ well being. Much of the work was essential for scanners to operate and move to locations where demands dictated. Other work responded to emerging needs identified to help the processing and integrity of Palestinian goods and the comfort of the transporters. The map on the next page and Annex B contain more complete listings of work supported at various crossings.

IMPROVED MOVEMENT OF PEOPLE AND EXPANDED COMMERCE AND

CONNECTIONS

The scanner procurement under PITA represented a turning point for further activities. A major and unanticipated cost savings afforded by the procurement process opened up new opportunities to expand Palestinian trade. Initially, based on evolving priorities, PITA planned a new procurement action for large-scale, automated pallet scanner installations.

PHOTO: PITA

Arab-Israelis return from the West Bank via the newly opened vehicle crossing at Jalameh.

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Security and Infrastructure Enhancements at West Bank and Gaza Crossings

PALESTINIAN INTEGRATED TRADE ARRANGEMENT 11

By the Numbers: The Jalameh Vehicle Crossing

• Budget and anticipated traffic: $1.8 million for anticipated 200 to 250 vehicles per day.

• Actual traffic: 2,000 vehicles per day, or more than 9,500 vehicles on average per week as of 2012, with maximum of 17,650 per week in November 2010.

• Total vehicles passing (crossing opening through March 2012): 919,135. At an average of two people per vehicle, this is would be double the entire Arab-Israeli population residing within a two-hour drive of the northern West Bank (Northern and Haifa Districts of Israel).

• Impact to the economy: Estimates suggest about $120 million in additional income from direct purchases to the Jenin economy from 2009 through the first quarter of 2012.

The indirect impact to the economy would increase this figure substantially.

• Bottom line: A more than 60-fold return to the Palestinian economy on USAID’s investment.

This represented a new phase in planning to increase the efficiency of cargo processing and transfer, primarily applicable to Gaza crossings. In February 2007, PITA began working with the Israeli CPA to design a procurement for these systems. The procurement went ahead and contract negotiations proceeded smoothly; however, this occurred when Hamas assumed power in Gaza. Based on a U.S.-Israeli agreement, the procurement was suspended and eventually cancelled.

A focus on the northern West Bank emerged from bilateral discussions about PITA’s priorities. The economy of the city of Jenin was tremendously depressed by a number of factors, including its economic isolation from a large Arab-Israeli population just outside the West Bank. A checkpoint existed previously at Jalameh, allowing passenger vehicles to travel to Jenin, until it closed for security reasons in 2000. Initial planning for a subsequent vehicle crossing was never completed. Only pedestrians dropped off at one side of the crossing area and picked up on the other could cross it. The U.S. government, with the support of others in the international community, agreed that designing and opening the Jalameh vehicle crossing was a top priority. Ultimately, the Israeli government agreed to move forward with the project.

Once the Israeli government made this decision, the pressure to complete work and get traffic flowing quickly was high. PITA was given three months, from the design phase at the end of June to the completion of site construction work on September 30. At that time, there was incomplete information about the possible demand at such a crossing.

The Israeli CPA envisioned that it would be able to handle 200 to 250 vehicles per day, 70 to 80 at peak hours. PITA engaged in a design/build subcontract to undertake the Jalameh work. The design phase included discussions with Israeli crossing specialists to ensure the crossing facilitated vehicle movement and maximized throughput while ensuring Israeli security needs. The team established and monitored schedules closely and held several meetings per week.

Despite unexpected circumstances and inevitable challenges, as well as an extremely tight schedule and budget, all work was completed by September 30, 2009. Following the subsequent pilot operations, a formal ribbon cutting ceremony took place on November

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Weekly Incoming Vehicles at the Jamaleh Vehicle Crossing

10, 2009, to mark the full opening of the facility. The ceremony was attended by high-level U.S., Palestinian, Israeli, and other international officials.

Since fall of 2009, the crossing has operated seven days per week with great success and seen the highest traffic volumes on Saturdays and Sundays. As the chart above shows, there has been a clear upward trend in vehicles using the crossing. The crossing is being used so intensively that the Israeli government has taken additional temporary measures to handle traffic and plans to spend an additional 5 million Israeli shekels (about $1.3 million) next year to support anticipated traffic.

No one could have anticipated the remarkable impact the crossing has had on the economy of the northern West Bank. Families are being reconnected and cultural, business, and educational ties have been established and renewed. Other indicators, such as unemployment, continue to show progress. With the sizable increase in economic activity resulting from visitors, the vehicle crossing has undoubtedly contributed significantly to Jenin’s unemployment rate falling from 23 percent to 14 percent from 2008 to 2011. The box above highlights some of the key metrics and results of the crossing.

MAJOR CROSSING ENHANCEMENTS TO MEET PALESTINIAN TRADE DEMANDS

Activities at cargo crossing facilities proved integral to PITA’s mission. In the beginning, work focused on expediting cargo processing with scanners at existing Israeli facilities.

Over time, other changes came to the forefront driven by the growing Palestinian trade regime, plans by the Israeli government to restrict cargo transit to a few “official” West Bank crossings, and CPA operational experience along with constraints with Palestinian cargo at the crossing terminals. Under these circumstances, PITA supported both crossing infrastructure and operational enhancements (discussed in the next section).

Growing demand at crossings, actual and projected, led PITA to make infrastructure investments at the three major West Bank terminals: Tarqumia, Tulkarm/Sha’ar Ephraim, and Jalameh. The map on page 10 illustrates PITA’s work at these and other crossings.

PALESTINIAN INTEGRATED TRADE ARRANGEMENT 13

Decrease in Processing Time Per Truck at Tarqumia (Exports)

The Israeli government constructed the Tarqumia terminal at the terminal’s present site and opened it in October 2007. By mid-2008, by monitoring truck volume and projecting future demand, CPA concluded that several changes were necessary. A series of crossing enhancements came to pass to decrease processing time, reduce cargo damage, and enhance drivers’ experience at the crossing. Modifications funded by PITA doubled scanning capacity and included expanded entrance areas for truck queuing, an enhanced cargo transfer area, and shaded driver waiting areas and lavatories. As with the initial scanner installation, all of PITA’s work was designed to be removable in case the crossing terminal is eventually relocated. Work at Tarqumia continues to be refined. The TFP team is pushing for operational enhancements for all traders, including the validated “known traders” (started under PITA and described below). The commentaries from Palestinian businesses in Annex A point to some of the successful outcomes at Tarqumia and elsewhere from PITA investments. The chart above also tracks one of the key parameters in cargo transport, crossing processing time, and shows time reductions against key changes put in place by PITA and TFP.

Scanner procurement savings afforded further flexibility in PITA’s response to the West Bank’s changing trade needs from 2009 to 2012. Specifically, the U.S. and Israeli governments agreed that projected increases in truck volumes could lead to major capacity limitations at Tulkarm/Sha’ar Ephraim and Jalameh. To avoid this scenario, USAID asked PITA to work with CPA to design and construct major enhancements to the crossings with remaining project funds. PITA first received basic design concepts from the CPA, indicating needed capacity increases of 180 trucks per day at Tulkarm/Sha’ar Ephraim and 160 trucks per day (through two work phases) at Jalameh.

Final design work was awarded to different local engineering firms, which then supported competitive tendering for the construction phase. Construction at Tulkarm/Sha’ar Ephraim began on April 14, 2010, and the site was handed over on August 19, 2011. At Jalameh, work started September 5, 2010 with a handover on February 14, 2012.

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By the Numbers: Infrastructure at West Bank Cargo Crossings

Tulkarm/Sha’ar Ephraim

• Budget. $3 million for anticipated increase of 180 trucks per day.

• Actual capacity. 500 trucks per day up from the 315 seen now (60 percent increase);

capacity for Palestinian exports alone has risen by 83 percent from 164 to 300 trucks per day.

• Impact to the economy. Improvements could lead to approximately $100 million each year in increased Palestinian exports.

Jalameh

• Budget. $4 million for first phase of two-phase project to increase capacity by 160 trucks per day.

• Actual capacity. 330 trucks per day up from the 169 seen now (95 percent increase in first phase only); capacity for Palestinian exports has risen by 94 percent from 86 to 167 trucks per day.

• Impact to the economy. Improvements could lead to more than $50 million each year in increased Palestinian exports.

The engineering and construction teams performed remarkably, responding to unexpected site conditions and running design changes as construction proceeded, but also complying with the CPA requirement to keep cargo processing operations going throughout the construction phase. Key work at Tulkarm/Sha’ar Ephraim included a second scanning lane, a relocated stone aggregate processing area, reconfigured and expanded entrance and exit areas, and a staging area for containers. Jalameh posed greater challenges with more limited space and the takeover of another Israeli government parcel to incorporate it in the terminal footprint. PITA’s work in Jalameh, envisioned as phase one of a broader Israeli initiative to expand the crossing, still enhanced cargo processing capacity and efficiency. Work at Jalameh included an expanded scanning lane, new entrance lanes, an area for the transfer of bulk goods, staging areas for containers and cement transfer, and improved services for drivers. Lengthening the scanning lane was key to the upgrades.

CPA can now scan more than double the number of trucks (five to seven) in only 40 percent more time than it used to take to scan two trucks.

At the beginning of this report there is a graph of trends in truck traffic at the three main West Bank cargo crossings since 2006 (see chart on page 4). Analyses by TFP predict the upward trend will continue. Although existing infrastructure properly operated can handle the current demand, and although future demands cannot be known precisely based on economic, political, and security factors, PITA-funded enhancements will provide capacity well into the future. Corroborating the original design targets, crossing officials now calculate that PITA enhancements have exceeded the original design targets (see box).

THE ONGOING SEARCH FOR NEW TRADE SUPPORT OPPORTUNITIES

PITA remained flexible and identified and supported the implementation of new initiatives under this component as they arose, working with Israeli institutions to facilitate trade for Palestinian business. Given the sensitive, volatile, and evolving political context of the West Bank and Gaza, all of this work was coordinated closely

PALESTINIAN INTEGRATED TRADE ARRANGEMENT 15

with USAID, and much of it was in direct response to mission requests. Below are examples of this work.

One of PITA’s first initiatives under the auspices of the AMA concerned the Rafah terminal between Gaza and Egypt. In late 2005, USAID asked PITA to assist with the communications and information systems between the Rafah terminal and the joint coordination center, which comprises teams of Palestinians, Egyptians, European Union Border Assistance Mission, and the Israelis. Project procurement, installation, and training efforts in October and November were instrumental in allowing this crossing to open on November 25, 2005, with secure monitoring from a location a few miles from the crossing itself.

Exploring innovative ways to enhance the movement of trucks through cargo crossings with reduced damage, PITA specialists held a series of discussions with U.S. and Israeli officials. One concern was the need to transfer goods from Palestinian to Israeli semi-trailers “back to back” due to the inability to fully scan heavy and structurally complex trailers. PITA was asked to assess the feasibility of introducing a “scannable” trailer.

First, the project engaged scanner and truck trailer experts in the United States to work with Israeli experts to develop specifications for a trailer prototype, factoring in design elements and material. The project then engaged specialists in Israel and the West Bank (through TFP) to assess local manufacturing and repair capacity in advanced trailer design combined with an inventory of current trailer options used by Palestinian traders as well as future requirements and demand for such a trailer if it came available. The team gathered more data through a request for information sent to numerous manufacturers in the United States and elsewhere. In the end, three trailers were selected for trial scanning and shipped to a scanner company facility in the United States for trials attended by U.S. and Israeli experts. Although the trailers were promising, the CPA concluded that such trailers could not meet the full U.S. requirement to eliminate all manual inspections and back-to-back transfers. As a result, the PITA assessment was discontinued. Visibility on this issue continued and with additional work under TFP, the Tarqumia crossing now allows special, scannable, “free circulating” trailers that generally eliminate the need for any cargo transfer, drastically reducing processing time and virtually eliminating damage.

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SECTION III

PROCEDURAL

STREAMLINING AND

ORGANIZATIONAL

STRENGTHENING2

Under this component, improved crossing and border management, better information flow, and consensus building between the Israeli government and the PA were seen as keys to increasing trade. The project’s work in this area started immediately and underwent many changes in response to political conditions. The project provided the PA with the technical assistance and tools to plan and set objectives for a “Palestinian side” at the crossings. A goal that emerged under this component was the full implementation of a Palestinian presence at crossing points to provide counterparts to Israeli customs officials. PITA’s work under this component ceased in June 2008, and TFP, with many key staff from PITA’s Ramallah office, began.

TARGETED SECTOR ANALYSIS AND PLANNING INFORM RAPIDLY EVOLVING

PRIORITIES

One of the PITA team’s noteworthy accomplishments was its ability to provide the timely and unbiased data collection and analysis, issue assessment, and planning essential to trade facilitation efforts in the West Bank and Gaza’s highly volatile and politicized environment.

Assessing viable transit corridors. PITA’s initial information gathering activities included several targeted assessments. A transit corridor study was produced in response to USAID’s request for information to assist in a new round of negotiations on the AMA.

The Palestinian private sector also requested an analysis to support advocacy efforts and help companies better manage shipments via available transit corridors. The study documented the realities to which West Bank and Gaza shipments were being subjected one year after the AMA between Israel and Palestine was established. It evaluated methods and cost of transporting merchandise within West Bank and Gaza, and to and from destinations in Israel and beyond. It also provided an accurate description of the restrictions imposed on the transit of goods. Recommendations for ameliorating the identified transit corridor issues and constraints supported improved crossing management and joint Israeli-PA “trust building” and awareness training for crossing personnel.

2 The “Consensus Building and Institutional Development” component of the PITA contract.

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Opportunities for the Rafah crossing with Egypt. The AMA provided a great opportunity for Palestinians to transit through the Rafah crossing, and this was viewed as a key contributor to the economic development and job creation in Gaza near the start of PITA. Seeing this, PITA worked with Egyptian officials and the USAID/Egypt Technical Assistance for Policy Reform II project to assess the feasibility and logistical requirements necessary to export goods from Gaza via the Rafah Crossing Point through Egypt to the international markets. Tied to this, PITA carried out a study of all possible seaports and airports to be used by Palestinian traders, separate from current Israeli options. Outputs included a report on optimal transport routes and the logistics chain between production centers in Gaza and the export ports in Egypt; a distance/time analysis for cargo transport from Rafah to Egyptian seaports and airports east/west of Suez; an analysis of seaport/airport facilities (e.g. cold storage); and a concept evaluation of infrastructure improvements to address Israeli and Egyptian security concerns.

Movement and access input direct from the private sector. Supporting another level of project awareness about evolving issues, regular field visits to Hebron, Nablus, Tulkarm, Jenin, and Bardalha allowed PITA staff to continuously identify and document movement and access challenges facing Palestinian traders, such as new route closures and current crossing point logistics. Business roundtables facilitated by PITA, at which USAID representatives, including the USAID/West Bank and Gaza mission director, met West Bank business owners and listened to their concerns, added an important element of interpersonal communication to this activity and offered some Palestinians meetings with American counterparts for the first time. At two roundtables at the USAID mission in Tel Aviv, participants raised a number of concerns, including the inadequate number of “business man cards” issued by the Israeli government and long delays at crossing points. Regular and less formalized discussions among Palestinian businesses and the PITA team about issues as they arose supplemented these roundtables. After careful vetting of issues through local channels, PITA and USAID resolved issues with Israeli officials. In these engagements, PITA provided informal coaching to Palestinian traders on information needs and approaches to independently addressing similar issues in the future. The text box to the right gives an example how an issue was resolved.

Initial Gaza monitoring for the AMA. In response to a request from USAID to orchestrate and coordinate activities with several USAID projects as well as PalTrade and the appropriate GOI and PA agencies, PITA employed trade facilitators on the Palestinian and Israeli sides of the Karni/al-Mintar crossing. The underlying purpose of this initial effort was to measure implementation of the AMA memorandum of understanding, which stipulated that no less than 150 "truckloads" of commodities (fresh produce and

Orange is the Color of Success

When Gazan businessman Saber Shurrab of the Shurrab Trading Co. contacted PITA in March of 2007, he needed to get his oranges on the road to Israel. Shurrab asked the project to help him export his juice-grade fruit to juice factories in Israel.

For security reasons, management at the Karni crossing was unable to allow entry of Shurrab’s crates. Working with USAID, the U.S. Consulate in Jerusalem, the Dayton Team, and Israeli management at Karni, PITA staff facilitated an agreement with Israeli customs to allow the entry of Shurrab’s crated oranges, the first such shipment in several years. This led to efforts to find longer-term solutions for oranges, which because of their density and moisture pose greater challenges for automated scanning in large, export-ready containers.

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non-agricultural goods) were to be exported from Gaza through the Karni/al-Mintar Crossing by December 31, 2005.

Monitoring also took place at other Gaza crossings, including Nahl Oz, Erez, Sufa, Kerem Shalom, and Rafah. When applicable, data was collected on the quantities of merchandise that pass through the crossings in both directions and on passengers. Additional information related to working days, operating hours, and other important or emergency matters was also reported. All of this information was used to inform U.S. government dialogue with Israel and the PA.

Crossings data collection. A major data collection activity was completed in 2007 for the northern West Bank crossings of Tulkarm/Sha’ar Ephraim and Jalameh, and the southern West Bank crossing of Tarqumia. The conclusions in the data collection report included trader perception of crossing procedures, evidence of information challenges at crossing points (that increased some wait times), and significant variability in the type of cargo processed at the three crossings, among other findings. PITA used this data to design activities that targeted priority issues (trader information sheets) to expedite movement and keep cargoes intact. For example, the northern West Bank moves more agricultural exports, while industrial products are more significant in the south (see adjacent charts reflecting trends as of 2010).

This indicated ramifications for security procedures, civil works (such as covered areas to protect agricultural goods), and equipment at the crossings for effective processing with minimum damage to fragile loads. Data on palletization and containerization showed significant numbers of goods were not palletized and, that in some cases, greater use of pallets could increase crossing efficiency.

Data collected under this activity suggested that scanners contribute to a generally efficient export cargo processing operation within crossing point facilities. Approximately 90 percent of trucks at those points studied work through the entire process

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— where scanning is only one step — in less than one hour. In many cases, total processing time for unscanned import shipments was in the range of that for scanned exports. Data collection included information gathered from traders, and perceptions of the scanning process went from being very positive at Jalameh, where 89 percent of exporters surveyed had positive comments, to being more mixed at Tulkarm/Sha’ar Ephraim, perhaps demonstrating the need for further outreach to companies that do not fully understand crossing point operations. Forty-four companies were also interviewed in Jenin City and the Jenin governorate, which processes 100 percent of its exports through the Jalameh crossing. The project also collected data on capacity at the Tarqumia crossing, the back-to-back transfer requirement by the Israeli government, and a range of crossing operational efficiencies.

Mid-Term Trade Facilitation Assessment. In 2007, USAID requested that the project conduct a broader sector assessment to take stock of ongoing efforts and attempt to identify any new avenues of work that would support overall PITA objectives.

Recommendations for improving information flow and supply chain security through improved PA crossing management and development of a known trader program sprang from the Trade Facilitation Assessment (TFA), which evaluated activities at the crossing points between Israel and the West Bank and Gaza as well as related issues affecting trade and the movement of goods. The TFA primarily focused on the need of the Palestinian people in Gaza and the West Bank for essential goods and services and the Palestinian private sector’s need for assurance that goods reached market in a reasonable time.

Although the TFA outlined next steps for action on priority issues, the study was performed in the month preceding the Hamas takeover of the Gaza Strip in June 2007 and produced in an extremely fluid political, operational, and security environment. The TFA team assessed current management practices at the crossing points between Israel and the West Bank and Gaza and movement and access within the West Bank to identify feasible measures that could minimize the difficult situation faced by much of the Palestinian private sector. Recommendations based on the TFA team’s findings included, among others, improving crossing-point management practices through a risk management system; establishing a communications strategy to keep all parties informed of the operational status of the crossing points, hours of service, types of commodities accepted, and specialized packing requirements; and providing training on packing and shipping best practices.

Three program recommendations were made to the Israeli government:

• Improve crossing management through a shipment-specific risk management system.

• Develop the framework for a known trader program that will award benefits associated with crossing-point procedures to established businesses willing to invest in their own security.

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• Adopt procedures to provide crossing-point managers with advance information on specific shipments.

Most of the TFA’s findings and recommendations were subsequently pursued under the remaining time of PITA or under TFP.

Maintaining a flow of critical information from Gaza. The Hamas takeover of Gaza in June 2007 introduced numerous communication constraints for the project The Hamas control, the closure of the Karni/al-Mintar crossing, the emerging use of Kerem Shalom for trade flows, and Israel’s declaration that Gaza was an enemy, made routine data collection and information gathering…