Since the onset of the first intifada, policy makers, pundits, the media and others suggested various methods for achieving lasting Middle East peace. World leaders visited the region to share their ideas; American presidents spent considerable time on this issue; grassroots organizations planted themselves in the region to make their push for ending hostilities. Nonetheless, the conflict continues.

A recent economic peacemaking initiative is the latest in the long string of peace proposals. The Palestine International Business Forum (PIBF), created in 2004, has the stated mission ”[t]o strengthen the Palestinian private sector to be able to propel economic development that will benefit the Palestinian society as a basis for stability and prosperity towards a future two state solution.” To that end, the PIBF recently created the Jerusalem Arbitration Center (JCA), which facilitates a peaceful dispute resolution to Palestinian-Israeli trade, as part of this economic peacemaking within a recognized framework.

There are two theories supporting conceptual economic peacemaking. First, strong trade increases the cost of war because trade forges strong economic, political, strategic ties that war would interrupt and damage. This results in disincentivizing war. Second, economic ties foster an atmosphere of confidence that would be shattered by conflict, which presumably all sides do not want to shatter. Based on these reasons, proponents support economic peacemaking.

Recognizing that economic peacemaking is incomplete without dispute resolution, the PIBF created the joint Palestinian-Israeli JCA as the final piece of the economic peacemaking framework. An empirical study shows that traders who avoid a market for lack of legal protection will engage in that market if they feel that market shifted to adequate legal protection. (Alessandra Casella) As such, a mechanism for legally protecting those involved in trade is crucial.

Moreover, “systems of closer commercial relations could serve as the means to the improvement of political relations and the maintenance of peace.” (Wilfred Pareto) Therefore, the PIBF believes, peace, through economics, is now attainable. Hence the use of strong economic cooperation, completed by the JCA, as a means for peace.

The economic reality on the ground throws dirt on this theory. In 1998, Israeli exports to the territories constituted 8 percent of Israeli exports. In 2009, under a growing Israeli economy, that number was at 4.7 percent. Not surprisingly, Palestinian unemployment in the West Bank and Gaza in 2008 was 26.5 percent, up from 12.5 percent in 2000. These numbers reflect the increasing Israeli shift from an agrarian to hi-tech economy. Gone are the days of glorifying the overall-wearing Israeli farmer working on his kibbutz in the blazing heat; instead, Israelis now glorify those who sit in air-conditioned offices creating software to sell around the world. As an agrarian society, Israel focused on selling produce and manufactured goods, which has a strong need for regional customers. Many of those customers were “rivals” living in the West Bank and Gaza. In its current technology-driven society, Israel seeks other customers, especially from advanced countries, to purchase their goods. The 2006 decision to devalue the Israeli Shekel fueled this phenomenon because that made Israeli imports cheaper, thereby sweeting the deal for international customers seeking to purchase Israeli technology.

Perhaps more than the currency devaluation, the motivation to move to a technology-driven sector was in large part a reaction to Palestinian terror. Due to the radicalization of Palestinian society, its support for a Hamas government, suicide bombers, its use of unmitigated, sustained rocket attacks, Israelis decided to disengage from regional businesses and pursue businesses in the international arena. Despite an Israeli blockade of Gaza, Palestinians used smuggling tunnels to import lethal weapons to be used against Israelis. This resourcefulness of attaining a terror arsenal under those conditions likely served as a call for Israelis to take their business elsewhere.

The PIBF, together with the JCA, may have succeeded in initiating peace through trade at a time when such trade existed. That trade no longer exists. Palestinian terror pushed the Israeli economy to change its trajectory; simultaneously, the Palestinian economy’s trajectory has not changed. Arbitration is the submission of a dispute to an unbiased third person wherein the parties agree in advance to comply with the ruling after being heard. When there is no bilateral trade, there are no parties. When there are no parties, there is no need for arbitration. As such, the PIBF arbitration initiative is worthless.