Peace Dividends


The U.S./Israel special relationship is at once affective, geopolitically strategic, and rooted in economics.  In this essay I suggest that the neo-liberalization of the U.S. economy during the Reagan administration was tied to the formation of international free trade agreements. This brief survey of economic liberalization and neoliberal governance across the U.S. and Israel/Palestine, in which I analyze the 1985 U.S./Israel Free Trade Agreement and the 1993 Oslo Peace Accords, reveals an often-overlooked aspect of the so-called “special relationship.”

The post-Cold War U.S./Israel relationship transformed in the mid-1980s as the U.S. assumed control of the international community by moving major geopolitical matters that served its interests to the United Nations Security Council. At the same time, the U.S. entered into Free Trade Agreements (FTAs) not only as international economic policy, but also as foreign policy and diplomacy. In 1985, under the leadership of Henry Kissinger, America successfully moved the sensitive operations of international geopolitics out of the democratic UN General Assembly and into the exclusive Security Council, of which the U.S. is a permanent member. As Henry Kissinger then argued, “Empires have no interest in operating within an international system; they aspire to be the international system …”

Concurrently, the new neoliberal global order linked concerns for geopolitical security in the Middle East to market liberalization. As President George W. Bush would argue, “Old patterns of conflict in the Middle East can be broken if all concerned will let go of the bitterness, hatred, violence, and get on with the serious work of economic development.” Similarly, Bill Clinton’s secretary of state Warren Christopher argued, “Governments can create the climate for economic growth… [but] only the private sector can produce a peace that will endure.”

In the mid-1980s the Israeli economy was in crisis as a result of Israel’s military industrial complex. As Joel Beinin has noted, from 1968 to 1985 Israeli military expenditures ranged from 21.7 to 32.8 percent of GDP (as compared with 3 to 6 percent in the developed capitalist world). As a result of heavy investment in the military and lack of investment in other sectors of society, inflation grew dramatically and Israel found itself in economic crisis. In 1984 the United States offered emergency aid, in the amount of $1.5 billion, conditional on Israel liberalizing its economy and privatizing key sectors.

During the same year that it moved sensitive geopolitical matters into the UN Security Council, the U.S. entered into its first international FTA – with Israel.  The U.S.-Israel FTA, signed by Ariel Sharon and Ronald Reagan, eliminated all tariffs between the two countries for an initial 10-year period. The U.S.-Israel FTA was updated in 1996, to include agricultural trade. The FTA had an important impact on trade relations; U.S. exports to Israel in 2010 increased 536% from 1984, while during the same period Israeli exports to the US increased 1,215%.

During the 1990s, the U.S.-brokered Israel/Palestine peace process was driven by market rationales. On August 20, 1993, Israeli negotiators and members of the Palestinian Liberation Organization (PLO) agreed to a Declaration of Principles on Interim Self-Government Arrangements, which became known as the Oslo Peace Process. The Oslo process, among other things, enabled Israel and the U.S. to implement neoliberal governance as a substitute for overt colonial occupation. Under Oslo, a non-elected Palestinian National Authority (PNA) would be installed as the governing authority in small portions of the West Bank. The PNA would only have the authority to encourage social responsibility among the Palestinian population. It would police areas under its jurisdiction and supervise education and culture, health and social welfare, taxation, and tourism in the West Bank and Gaza. In exchange, Israel would withdraw military powers from limited areas of the West Bank and Gaza while maintaining control of water, electricity, and all security and borders.

While partial dis-occupation and privatization garnered vast sums of international aid to Israel, similar incentives were offered, but ultimately denied, to the PNA. In exchange for policing the West Bank and maintaining Israeli security, the Palestinians were promised $2.4 billion in foreign aid during the five-year interim. Yet throughout the Oslo period, only half of this aid was delivered due to bad faith as well as perceived failures on the part of the PNA to halt Palestinian protest, including attacks on Israel (the second intifada began in 2000).

Moreover, Israeli control of air, sea, and land undermined attempts to grow the Palestinian economy. Beginning in March 1993 Israel implemented multiple forms of closure on the West Bank that severely impeded the ability of Palestinian workers to enter Israel. And, during the Oslo years, the settler population in the West Bank grew 39 percent to 145,000. Following Oslo, the U.S. initiated a new approach to regional Middle East peace by promising what it called a “peace dividend” to countries that would enter trade agreements with Israel, and indirectly, with the U.S. Working in coordination with international financial institutions and CEOs across the Middle East, the U.S. formed the Regional Business Council (RBC) in order to bring Israel into trade relations primarily with Jordan and Egypt. One part of the RBC agreement was the formation of Qualifying Industrial Zones (QIZ) program that established export-processing zones (EPZs) within Egypt and Jordan, while excluding the West Bank and Gaza. The EPZs had to produce jointly-valued commodities, which could then be exported to the US tax-free. The RBC viewed trade-relations as prerequisites for healthy foreign relations.

In 2007, the West Bank was brought into circuits of international trade when the World Economic Forum, led by a U.S. initiative, launched the Israel/Palestine Business Council to encourage CEO’s from Palestine and Israel, as well as other Middle East nations, to join a consortium for free-trade. The idea behind the RBC was that economic liberalization would lead to peace. According to the Council’s charter, “The Business Council will constitute a platform to enable the two business communities to work together, under the umbrella of the forum, to devise a strategy for more cooperation and bilateral intervention on the issues affecting the respective agenda of the two peoples on both the social and economic fronts.”

The Oslo model of economic liberalization is not unlike the forms of neoliberal governance that shaped U.S. domestic politics during the same period. During the Oslo period, the increasing debt load of the U.S. and its cities and ensuing attacks on welfare, such as the 1996 Personal Responsibility and Work Opportunity Act (PRWOA), alongside the adoption of Israeli police tactics and heightened securitization in urban U.S. cities, produced similar social and economic crises as those across Europe, Palestine, and Israel. Free trade agreements between the U.S. and Israel have linked U.S and Israeli securitization, culture, and infrastructure. One of the most popular television shows in the U.S. last year was Homeland, an Israeli-format drama. The Israeli firm Elbit Systems, Inc. was recently awarded an $87 million (USD) contract from the U.S. Department of Homeland Security to build surveillance equipment on the U.S./Mexico Border, equipment modeled on the so-called West Bank “separation wall.”

The politics of BDS are fundamentally about Palestinian civil society’s three demands of ending the occupation, respecting UN resolutions regarding the refugees, and guaranteeing equality for Palestinian citizens of Israel. Given the dense economic linkages between the U.S. and Israel, in what ways might the politics of BDS also confront the era of U.S.-led neoliberal governance?

Alex Lubin is a Professor in the Department of American Studies at the University of New Mexico and the author of Geographies of Liberation: the Making of an Afro Arab Political Imaginary.

(photo credit: Jewish Virtual Library)

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Alex Lubin