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Economic Exploitation of Occupied Territories: HCJ 69/81 Abu ‘Aita v. Regional Commander of the Judea and Samaria Area; HCJ 493/81 Kanzil v. Officer in Charge of Customs, Gaza Strip Region (Judgment of April 5, 1983)
Court Watch | 69/81 | 1.11.2009 | Adv. Yossi Wolfson
Youths demonstrating against the rising costs of living and the PLO's economic agreements with Israel; one protester carries a sign in solidarity with Palestinian prisoners on hunger strike in Israeli prisons, Bethlehem, September 2012. Photo: Ryan Rodrick Beiler, ActiveStills
Criticism
The economic exploitation of occupied territories is as ancient as wars and occupations. Perhaps, beyond all national, security and ideological explanations, the expectation of economic exploitation is what drives any occupation and war. It is only natural therefore, that the attempts made by international law to control the use of force and limit the severe implications of war extended also to the issue of the economic exploitation of occupied territories. Thus, for example, the Hague Regulations determine that if the occupying power collects taxes in the occupied territory, it must do so, to the extent possible, in the framework of the same taxation that was in place before the occupation. The collection of taxes is bound in the obligation to defray the expenses of the administration of the occupied territory (Regulation 48). The Hague Regulations allow for levying “money contributions” in addition to the taxes previously collected. Yet, these may not serve to contribute to the wealth of the occupying power, but only to cover the expenses of administering the occupied territory itself (Regulation 49).[1] These specific provisions with regards to taxation join the general provision according to which administration of the occupied territory is to be carried out in accordance with the laws in effect prior to the occupation and legislation changes by the occupier are the exception.

The Abu ‘Aita judgment is fascinating since it offers a glimpse into an area which is seldom examined: the economic aspect of Israel’s control over the West Bank and the Gaza Strip

These precepts protect both the principle of sovereignty and human rights. From the sovereignty aspect, international law does not permit the acquisition of territories through military takeover. A military takeover of a territory is temporary and does not vest the occupier with even a shred of sovereignty. The occupier holds the territory in trust, for a limited time, and may not establish irreversible facts therein – the decision regarding such facts must rest with the legitimate sovereign only. Legislative arrangements and taxation policies are perceived to be issues under the authority of a sovereign. From the human rights aspect, there is always concern regarding the occupier’s inability to be true to the needs of the population, which is, to it, an enemy population. It is of course, impossible to assume that the legislation in effect before the occupation was human rights friendly. Thus, for example, the occupier may not exercise authorities vested in the previous regime that contravene the residents’ rights which are protected under the laws of war. However, it would be equally naïve to assume that an occupying regime would implement democratic reforms or that the taxation system it imposes will ease the burden on the civilian population and serve the local economy rather than the financial interests of the occupying power.

The Abu ‘Aita judgment is fascinating since it offers a glimpse into an area which is seldom examined: the economic aspect of Israel’s control over the West Bank and the Gaza Strip. In the Abu ‘Aita case, the High Court of Justice was requested to rule on the legality of imposing the value added tax (VAT) in the Occupied Palestinian Territories (OPT) in conjunction with it being imposed inside Israel. This is seemingly a deviation from the provisions of customary law (as entrenched in the Hague Regulations) which generally prohibit changing taxation laws in an occupied territory.

Despite the fact that the matter reached the HCJ only in the early 1980s, the judgment reveals that Israel began a systematic change of taxation legislation in the OPT as early as in the summer of 1967. The OPT and Israel were determined to be a single customs region, such that no customs were imposed on the wares transported inside the single economic unit. Simultaneously, the indirect taxes levied in the OPT were made equal to those in Israel.[2] Imposing the VAT in the OPT was merely the consistent progression of that same policy.

Then-Deputy President Meir Shamgar dedicated most of his opinion in the Abu ‘Aita case to proving that public international law does not prohibit any and all changes in the taxation system in effect in an occupied territory in an absolute and rigorous way. He presents sources, according to which if existing taxes cannot be collected for one reason or another, it is possible to collect a parallel alternative tax.[3] The reasons Shamgar cites for the inability to collect taxes include lack of cooperation by tax collectors, loss of necessary data and records, military limitations and the likes. The passage of time may also constitute a reason for a need to change the taxation system – if, for example, economic changes (such as currency depreciation or major changes in purchasing power) render the old taxation system irrelevant.[4] The obligation to maintain orderly public life may, in time, result in a need to change taxation systems. In Shamgar’s words:

[T]he rules of assessment, i.e., the rules which determine the amount to be collected, and the rules of incidence and apportionment, which are the rules that determine from whom the tax is to be collected, may vary, of course, in the course of time, or if the objective conditions change substantively. In this regard, there is no logic in applying the same criterion to a newly established military government and to a military government that has administered a territory with all the problems of civil administration, for ten years or more.[5]

Justice Shamgar was well aware of the fact that there is another thesis among scholars – one which interprets international law as prohibiting changes in the taxation system. However, in his view, this thesis leads to intolerable results. According to this approach, he claimed:

The military government will not be able to adjust the direct and indirect tax structure to changing needs, although such taxation is considered an acceptable and orderly means as long as it conforms to the economic conditions of the area and the capacity of the economy operating therein, and as long as the limitations on the purposes of the revenues are respected.[6]

Obsolete taxation systems would be perpetuated and the needs of the economy in the occupied territory would not be met:

[F]reezing the taxation activities to their general form as employed in beginning of the military rule may bring about over the years, particularly if a few decades are involved, a freezing of the economy and disregard of its fluctuations, development and self-adjustment to the changes taking place in the world economy, the economy of the area, and the economy of the state which is responsible for the military government, if the latter has any implication on the economy of the area under military control.[7]

It seems that there is quite the logical gap between Justice Shamgar’s conclusion and Israel’s intervention in taxation laws in the OPT. As demonstrated by Justice Shamgar himself, Israel implemented the changes immediately upon seizing the OPT and not due to the passage of time or changes in circumstances which made the pervious taxation system impracticable. The changes were not localized, designed to solve one problem or another. They had a single and consistent objective: to equalize indirect taxes in the OPT to those in Israel and remove obstacles to trade between the OPT and Israel.

The big profiter of the economic unification between Israel and the OPT was the Israeli economy. It gained a large supply of cheap labor alongside a large population of captive consumers

Shamgar presents the removal of trade obstacles and the equalizing of the taxation system between Israel and the OPT as necessary in order to maintain orderly life in the OPT. Shamgar dedicates lengthy paragraphs to data regarding economic growth in the OPT since 1967[8] and concludes:

[I]n view of the economic realities created by the conjunction of political facts (military government) and geography (territorial contiguity) directly bound up with the relative sizes of the economies and the sectors comprising them (agriculture, industry, employment), the economy of the Territories is umbilically tied to the economy of Israel. For this reason, it was decided at the time of the establishment of the military government that the two economies would not be separated […] along the lines, as it were, of the Armed Truce before 1967. To separate them as aforesaid would impede the possibility of a return to orderly life and prevent the effective observance of the duty regarding the assurance of “la vie publique”. As a result, the military government at its outset took action to equalize rates of indirect taxes.[9]

However, as mentioned above, the occupier’s actions, which are allegedly for the benefit of the population, are always suspect. The big profiter of the economic unification between Israel and the OPT was the Israeli economy. It gained a large supply of cheap labor alongside a large population of captive consumers. Residents of the OPT purchased Israeli products with the money they earned doing difficult manual labor for the Israeli market. The open bridge policy allowed residents of the OPT to immigrate to the Gulf countries. The money sent by those working in the Gulf to their families in the OPT also partly flowed to the Israeli economy through the purchase of Israeli products. Israeli imposed restrictions which prevented the development of a substantive industry in the OPT increased the dependency of their residents on Israeli products. The equalizing of indirect taxation was carried out primarily in order to prevent a situation whereby the economic union with the OPT would have negative side effects for the Israeli economy: a significant price gap between Israeli products and services (which are subject to VAT) and their counterparts from the OPT might have created a reverse situation, where the Palestinians would have taken over Israeli markets instead of Israel taking over Palestinian markets.[10] The objective of minimizing the competitiveness of products from the OPT emerges from the Abu ‘Aita judgment itself, where the state’s position, which presents a quasi ultimatum, is laid out: either VAT is instituted in the OPT, or we will have to take other measures to protect the Israeli market from products made in the OPT – measures which would be even more deleterious.[11]

Thus, the institution of VAT in the OPT was not designed to protect the economy of the OPT. It was part of a move which began as early as 1967 and was designed to maximize the economic benefits Israel sought to reap from the occupation of the OPT. Through uniting the two markets, Israel sought to boost the Israeli market. Instituting VAT in the OPT was designed to prevent a situation whereby exposure to the Israeli market would give benefits to the Palestinian economy [rather than the Israeli economy]. Absurdly, Shamgar manages to present this economic move as if its purpose is to benefit the Palestinian population. As we are now aware, in the long run, the economic unification between the developed Israeli economy and the developing Palestinian economy has created an economic dependency of the OPT on Israel and curtailed the ability of Palestinian society to build an independent and sustainable economy.


Adv. Yossi Wolfson
The author is a lawyer and an activist for human and other animals’ rights. Formerly on staff at HaMoked: Center for the Defence of the Individual.


[1] 
[2] 
HCJ 69/81 Abu 'Aita v. Regional Commander of the Judea and Samaria Area (1983), judgment of April 5, 1983, paras. 6-7.
[3] 
See, e.g., ibid., para. 17.
[4] 
Ibid., para. 25e.
[5] 
Ibid., para. 24c; also further on, e.g. in para. 50, emphasis is put on changes caused by the passage of time.
[6] 
Ibid., para. 25e.
[7] 
Ibid.
[8] 
Ibid., para. 52a-b.
[9] 
Ibid., para. 52c-d.
[10] 
On Israel's economic policy vis-à-vis the OPT, see e.g.: Arie Arnon, “Israeli Policy Towards the Occupied Territories: The Economic Dimension, 1967-2007”, The Middle East Journal, Vol. 61:4 (2007), p. 573; and also Shir Hever, The Political Economy of Israel's Occupation (2010), pp. 8-10, 51-53.
[11] 
See above note 2, para. 4.
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