The JAC Challenge

The Jerusalem Arbitration Center - JAC

While political relations between Israelis and Palestinians remain strained, both sides continue to engage in active and relatively large-scale bilateral trade, primarily motivated by geographical proximity and respective economic advantages. Conservative estimates place annual trade figures at between 3-4 billion USD, although actual figures could be significantly higher.
 
Commercial disputes are a natural by-product of international trade, and Palestinian-Israeli trade relations are no exception. However, the complicated Israeli-Palestinian relationship has created some unique challenges for effective commercial dispute resolution: 
 
  • The majority of bilateral trade between the two sides is comprised of sales from Israel to the Palestinian areas (Palestine to Israel trade is primarily workforce related). This reality often results in the Israeli side being the stronger party in the commercial negotiation. As a direct consequence , Israeli law is often the law of the contract and Israeli courts the agreed forum for resolution of commercial disputes between Israeli and Palestinian business associates (Palestinian courts are generally extremely hostile to Israeli parties and as such would not be viable alternatives even were the parties so inclined);
  • In spite of attempts in the Oslo Accords to provide for mechanisms for the mutual recognition and enforcement of judicial decisions and rulings, in practice the enforcement of Israeli court decisions in Palestinian areas is virtually impossible.
  • As a result of the combination of these two factors, both sides are faced with a "lose-lose" reality with relation to commercial dispute resolution: the Palestinian side is usually forced to agree to a legal forum he may view as unfavorable, while the Israeli side runs the considerable risk that awards in his favour from the Israeli courts will not be enforced (awards of Israeli courts in favour of Palestinian parties are enforceable in Israel).  
Recognizing these inherent risks, businesses interested in bilateral Israeli-Palestinian trade will often resort to one of three transaction models:
 
  • Cash on delivery – a relatively undeveloped trade practice, guaranteeing payment but creating serious practical difficulties for large-scale trade
  • Requirement of bank and other guarantees - again significantly improving payment probability, but at a high contractual cost.
  • Foregoing bilateral Israeli-Palestinian trade opportunities and focusing on other, less challenging, markets
 
Obviously, the creation of a viable, mutually acceptable and enforceable Palestinian-Israeli commercial dispute mechanism could go a long way towards overcoming these challenges, eliminate barriers obstructing bilateral trade and generally improve relations between the two sides.