Why Doesn’t the Palestinian Authority Resort to International Arbitration to Release the Clearance Funds?

Exclusive to SadaNews: A whole year has passed without "Israel" transferring a single shekel of the clearance funds to the Palestinian Authority, depriving it of its main revenue and plunging it into a financial crisis that threatens its existence. Moreover, the occupation has deliberately worked to "dry up" the withheld clearance funds, which exceed (16) billion shekels, by encouraging settlers and "collaborators" to file compensation claims against the authority in Israeli courts. According to previous statements by Minister of Finance and Planning Dr. Stepan Salameh, there are (475) lawsuits for alleged "compensation" filed against the authority in Israeli courts, valued at (65) billion shekels.

A question arises, since Israel is working to squander the withheld clearance funds through court decisions, why does the Palestinian Authority not resort to international arbitration to release those funds?

The economic expert Dr. Said Sabri tells "Sada News": The reluctance of the Palestinian government to resort to international arbitration regarding the clearance funds can be explained by purely economic considerations related to cost, risks, and lack of guaranteed outcomes, rather than a lack of legal options.

He notes that clearance funds represent the backbone of Palestinian public revenues, constituting about 60–65% of total treasury income, explaining that this high dependence means that any disturbance in the flow of these funds immediately reflects on financial stability, including the government’s ability to pay salaries, meet its obligations, and maintain a minimum of economic activity. Therefore, any escalatory step, such as resorting to international arbitration, must be measured not only in terms of its legal legitimacy but also in terms of its direct economic cost.

He adds: "From this perspective, the government realizes that arbitration, even if legally justified, may provoke Israeli reactions that include tightening deductions or delaying transfers, which means deepening the cash flow crisis in the short term. The Palestinian economy, in its current state, does not have sufficient margins to absorb shocks of this kind without severe social and economic repercussions."

This is not a neutral financial issue

Furthermore, Dr. Sabri believes that clearance funds cannot be regarded as a neutral financial matter; rather, they are a tool of control over cash flows within the Palestinian economy, indicating that due to its control over tax collection and borders, Israel has direct power to influence the timing and volume of these cash flows, granting it continuous economic leverage. Therefore, shifting the dispute to an international legal path does not guarantee the neutralization of this tool but may instead lead to its harsher use as part of managing the conflict.

He believes that even if arbitration succeeds and a ruling is obtained in favor of Palestine, the challenge of implementation remains the most significant hurdle, noting that the economy does not benefit from legal decisions as much as it relies on actual cash flows.

He states: "An unimplementable judgment means continuing the financial crisis, even if an important legal victory is achieved. Herein lies the gap between the legal logic, which focuses on rights, and the economic logic, which focuses on results."

Arbitration may carry political and moral value

In contrast, Dr. Sabri sees arbitration as potentially carrying political and moral value in terms of strengthening the Palestinian position internationally and internationalizing the issue. However, these gains remain limited if they do not translate into a tangible financial impact.

Accordingly, Sabri believes that the failure to resort to arbitration does not reflect weakness but rather a cautious economic reading of a complex equation that combines risks, costs, and uncertainty. Perhaps the most effective course is to gradually reduce structural reliance on clearance funds while enhancing local revenues, alongside internationalizing the issue through more sustainable financial and institutional pressure tools.

A legally complex path

Dr. Amir Khalil, an expert in international arbitration, tells "Sada News" that in principle, the State of Palestine could seek arbitration or international legal settlement procedures regarding clearance funds, but this path is not legally simple as it involves several complex legal and political factors. The possibility of resorting to arbitration or international courts depends on the nature of the existing agreements between the parties and the extent of Israel’s acceptance of international dispute resolution mechanisms in this context.

Clearance funds are defined as the taxes and customs collected by Israel on goods imported into Palestinian territories under the Paris Economic Agreement, which is the economic agreement attached to the second Oslo Agreement. According to these arrangements, Israel transfers these funds monthly to the Palestinian National Authority after deducting specific administrative fees, making these funds a primary source of the Palestinian budget revenues.

No explicit text in the Paris Economic Agreement

Regarding the existence of a text allowing for arbitration, the Paris Economic Agreement stipulated the establishment of coordination mechanisms and joint committees between the two parties to address disputes, but it did not establish a clear and direct international arbitration system as is the case in many international investment treaties. Therefore, resorting to international arbitration requires one of the possible legal scenarios to be in place.

Dr. Khalil points out that the first of these scenarios is an agreement between both parties to arbitration, where theoretically the dispute could be referred to an international arbitration body such as the Permanent Court of Arbitration (PCA) however this option requires prior Israeli approval for arbitration, which is not guaranteed given the political and legal nature of the dispute.

The second possibility is to resort to international courts, such as approaching the International Court of Justice. However, this path also requires mutual acceptance of jurisdiction from both parties or a resolution from the UN General Assembly requesting an advisory opinion from the court, which is an opinion of significant legal and political value but not an enforceable judgment.

Dr. Khalil asserts that other international mechanisms can be utilized; Palestine could raise the issue within the framework of the UN or international financial institutions or attempt to link it to issues related to human rights or international humanitarian law, especially if the withholding of funds is considered an action affecting the economic and social rights of the populations.

Nevertheless, Dr. Khalil clarifies that this path faces several key legal challenges, most notably the absence of an explicit arbitration clause in the Paris Economic Agreement, in addition to Israel's refusal to recognize the State of Palestine in certain legal international frameworks, as well as the fact that the dispute has a clear political nature that transcends being merely a commercial or financial dispute. Therefore, any attempt to resort to arbitration or international courts will require a precise legal strategy and broad political and diplomatic support.

It is noteworthy that, according to data from the Ministry of Finance and Planning, the total public debt and overdue obligations of the Palestinian Authority reached approximately 47.7 billion shekels as of last January, distributed between 10.7 billion shekels in domestic borrowing, 4.2 billion shekels in external borrowing, 7.9 billion shekels due to employees, 8.2 billion shekels due to the private sector, and 16.7 billion shekels in debts to the pension fund and other parties.