Business chiefs warn Israeli sanctions could backfire

Acting Prime Minister Ehud Olmert's cabinet voted on Sunday to withhold customs duties that Israel collects on behalf of the Palestinians, as part of a package of sanctions against the incoming Hamas-led government.

The duties, worth some 50 million dollars a month, account for around 30 percent of the Palestinian Authority's budget.

Their absence imperils the salaries of some 140,000 Palestinian civil servants and 60,000 members of the police and security services.

Although the cabinet held back from barring all Palestinian workers from entering Israel, more stringent security checks are likely to further reduce a labour force which has shrunk to around 15,000 -- less than a tenth of its size prior to the outbreak of the uprising five years ago.

The United Nations has been among those who criticised the decision regarding money which does not belong to Israel and that comes before the Islamic movement Hamas takes office following its election triumph last month.

Within Israel as well, there are voices in the business world who worry the move could end up boomeranging on both the diplomatic and economic fronts.

Sever Plotzker, the chief economic commentator for the best-selling Yediot Aharonot newspaper, said the use of sanctions was wrong-headed.

"Collective punishment is no response to terrorism, while sanctions which are imposed as a result of a democratic election risk doing ourselves harm," it said.

Plotzker recalled how Israel tried without success to impose sanctions on the Palestinians during the first uprising which began in 1987, when tens of thousands of residents of the West Bank and Gaza Strip were barred from crossing into Israel for work.

"Sanctions don't work as you can see in Cuba where Fidel Castro is still in power and in Iraq where the Americans ended up having to wage a war after the failure of the boycott of Saddam Hussein's regime," he added.

The Israeli Manufacturers' Association was also far from sold on the argument for sanctions.

The organisation's director general Yoram Blizowky warned that economic sanctions "are going to hit Israeli textile enterprises which sub-contract out work to Palestinian workshops" where labour is much cheaper than in Israel.

Up until now, Israel has been the main beneficiary of trade exchanges with the Palestinians.

The annual trade surplus for the Jewish state is around 1.5 billion dollars.

"It is always problematic to lose a client, even if the Palestinian markets is not vital as the Israeli economy is much more geared towards the United States, Europe and Asia," said an official in the association.

"If the government decides to declare that the Palestinian Authority is an enemy entity, then companies will no longer be able to legally do business with the Palestinians," added the official on condition of anonymity.

"But until that happens, we will continue with our relations with our Palestinian counterparts."

Reserve general Danny Rosthchild, a former coordinator of Israeli activities in the Palestinian territories, said "it is not in Israel's interests for the Palestinians to be immersed in misery."

"Images of starving Palestinian children would be disastrous for us. We must act intelligently and not turn ourselves into the villains," he said.

Within government ranks as well there are differences on the practicality of sanctions, with the foreign ministry letting it be known of its fears of a "humanitarian catastrophe".

Olmert was understood to have initially considered a blanket ban on Palestinian workers entering Israel but eventually decided against such a move.

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