PALESTINE PARTITION COMMISSION REPORT
[Summary of the Woodhead Report]
Presented by the Secretary of State for the Colonies
to Parliament by Command of His Majesty
London , October 1938
SIR JOHN WOODHEAD, K.C.S.I., CLE.
SIR ALISON RUSSELL, K.C.
A. P. WATERFI ELD , Esq., C.B.
T. REID, Esq., C.M.G.
S. E. V. LUKE, Esq.
SUMMARY AND CONCLUSION
1. The Size of the Proposed Jewish State
2. The Attitude of the Arabs and the Jews
3. The Arab Minority in the Jewish State
7. Economic Interests
483. In order to explain the form in which we shall present our conclusions, we find it necessary to say what, in our view, was intended by our terms of reference. Those terms of reference require us first to recommend boundaries for the proposed Arab and Jewish States and Mandated areas which will comply with certain specified conditions ; and secondly to examine and report on the economic and financial questions involved in partition. In your predecessor's despatch of the 23rd December, 1937, to the High Commissioner, covering our terms of reference, it is expressly said that our functions will be " to act as a technical Commission, that is to say (they) will be confined to ascertaining facts and to considering in detail the practical possibilities of a scheme of partition ; " and again " to submit to His Majesty's Government . . . proposals for a detailed scheme of partition." After setting out our terms of reference the despatch goes on to indicate that it will be for His Majesty's Government to decide whether, as a result of our investigations, a scheme of partition is equitable and practicable. We ourselves are nowhere directed to report upon the equity or practicability of partition in general. The majority of us have interpreted these directions to mean —
(i) that His Majesty's Government desire us in any case to produce the best scheme of partition that we can ; but in so far as it may fail to satisfy any of the specified conditions, or may seem to be impracticable, to say so and give our reasons ;
(ii) that we are not directed, or entitled, to call in question the equity or morality of partition as a general principle. We 1 were appointed as a technical body, and we conceive that we shall best assist His Majesty's Government if we are careful not to let our views on technical matters be coloured by any views that we may have formed as individuals on the question of principle involved.
Further, we wish to emphasize that the question of practicability is one of degree, on which it is not possible to express a final opinion without taking into consideration other matters, such as the consequences oi rejecting partition and the equity and practicability of any alternative solution, which were left outside our terms of reference.
484. In chapters XI, XIII and XIV, we have described, under the title of plan C, the best plan of partition which we have been able to devise. We will now summarize, under different heads, the chief points which in our opinion His Majesty's Government will have to take into account in deciding whether this plan can be regarded as equitable and practicable or not, and will indicate our views on each.
1. The Size of the Proposed Jewish State
485. The Permanent Mandates Commission in their Report to the Council of the League on the work of their Thirty-second (Extra- ordinary) Session expressed the opinion that —
Any solution to prove acceptable should therefore deprive the Arabs of as small a number as possible of the places to which they attach particular value, either because they are their present homes or for reasons of religion. And, further, the areas allotted to the Jews should be sufficiently extensive, fertile and well situated from the point of view of communications by sea and land to be capable of intensive economic development, and consequently of dense and rapid settlement ....
The facts adduced in our report show that these objectives are irreconcilable. If the Arabs are to be deprived of the smallest possible number of their homes, and if the fewest possible Arabs are to be included in the Jewish State, as our terms of reference direct, the Jewish State cannot be a large one, nor can it contain areas capable of development and settlement in the sense which the Permanent Mandates Commission evidently had in mind. Does this fact alone render the plan impracticable ? We think not, so long as provision can be made for the continued immigration of Jews, subject to control, into the greater part of those areas which we propose should be retained under British Mandate, and for the develop- ment of those areas with a view to Jewish settlement therein, also under control. But this will necessitate heavy expenditure from public funds on development and other services in the Mandated Territories, and this expenditure (which we suggest should be limited to sums not exceeding £1 million on non-recurrent services, and not exceeding £75,000 per annum for 10 years on recurrent services) can only be provided by the United Kingdom Government, since the Government of the Mandated Territories will be unable anyhow to balance its budget. The effect of this will be considered below as part of the general problem of finance under partition.
The size of the proposed state as a factor limiting the domestic market open to Jewish manufacturers will be considered separately in paragraph 494.
2. The Attitude of the Arabs and the Jews
486. We have said that in our opinion there is a deep-seated hostility to partition in any form among the Arab population of Palestine, and that we are convinced that the plan recommended by the Royal Commission would lead to an outbreak of general rebellion which could only be put down by stern and perhaps prolonged military measures. But what will be the Arabs' reaction to plan C we do not know. Of the official witnesses whose opinions we sought on plan C shortly before we left Palestine at the beginning of August, one took the view that, no matter what plan was adopted, it would be resisted by the Arabs with violence. None was prepared to say that the Arabs would acquiesce willingly in the plan. Their evidence was given in camera and in such a form that it would be undesirable to attempt to convey their views by brief selected quotations ; but the general impression that we received from the evidence of those whom we examined on plan C was that, while none of the witnesses was optimistic, some at least would not exclude the possibility of a settlement on these lines: We realise, however, that if they were consulted again to-day, they might take a more pessimistic view. Unfortunately, no Arab came before us to state the Arab view, and although plan C demands of the Arabs much less sacrifice than the other plans which we have considered, we think the only prudent conclusion is that, until plan C is published, it is impossible to say what the Arabs' attitude towards it will be.
487. The resolutions of the Twentieth Zionist Congress at Zurich in August, 1937, include the following passages —
The Congress rejects the assertion of the Palestine Royal Commission that the Mandate has proved unworkable, and demands its fulfilment. The Congress directs the Executive to resist any infringement of the rights of the Jewish people internationally guaranteed by the Balfour Declaration and the Mandate.
The Congress declares that the scheme of partition put forward by the Royal Commission is unacceptable.
The Congress empowers the Executive to enter into negotiations with a view to ascertaining the precise terms of His Majesty's Government for the proposed establishment of a Jewish State.
In such negotiations the Executive shall not commit either itself or the Zionist Organisation, but in the event of the emergence of a definite scheme for the establishment of a Jewish State, such scheme shall be brought before a newly elected Congress for decision.
The Jewish Agency more than once urged that we should take them into our confidence in order to ensure that any plan which we might put forward should be such as they would be able to recommend for acceptance by the Zionist Congress, and they con- tended that the wording in your predecessor's despatch " after consultation with the local communities " implied that this was the intention of His Majesty's Government. We were unable to accept this view. If it had been possible to consult representatives of Arabs as well as of Jews, in the hope of producing a scheme which was likely to be acceptable to both parties, such consultation in some form might have been thought desirable. But as matters stood, that was impossible, and we felt that in the circumstances consulta- tion as desired by the Jewish Agency would do more harm than good. We, therefore, confined our consultations with the Jewish Agency to asking, both orally and in written questionnaires, for their opinion on any matter on which we felt that it would be of assistance to us. These matters did not include the detailed proposals under either plan B or plan C, either as regards the boundaries of the several areas or the development, with a view to Jewish settlement therein, of the areas to be retained under Mandate. In evidence we were told that the Jews would not be prepared to accept a plan which gave them a state inadequate for their needs, and in particular none that did not include Haifa, Galilee, and part of Jerusalem. It would seem, however, that their final decision must depend upon what alternative His Majesty's Government may be prepared to offer them in the event of their declining partition ; and until that is known it seems to the majority of us premature to advise you what that decision is in our opinion likely to be. It is not easy to see, however, how the establishment of a self-supporting state in either the Arab or the Jewish area can be regarded as practicable, whether from the administrative or the political standpoint, if the community concerned should refuse to accept the offer of independence under such conditions.
3. The Arab Minority in the Jewish State
488. The Royal Commission assumed that provision would be made for the transfer of the greater part of the Arab population in the Jewish State, if necessary by compulsion under a scheme to be agreed between both states. But in his despatch of the 23rd December, 1937, your predecessor made it clear that His Majesty's Government have not accepted the proposal for compulsory transfer ; and we have found it impossible to assume that the minority problem will be solved by a voluntary transfer of population. It is largely because of the gravity of the situation that would thus be created that we have felt obliged to reject the Royal Com- mission's plan, under which at the outset the number of Arabs in the Jewish State would be almost equal to the number of Jews. But, it may be said, if it is wrong in principle to put nearly 300,000 Arabs against their will under the political domination of the Jews under the Royal Commission's plan, how can it be right to do the same with 50,000 Arabs under plan C ? The ethics of this question are certainly very difficult to determine. Pushed to its logical extreme, the argument would obviously rule out all possibility of partition, since it is impossible to draw boundaries in such a way as to include no Arabs at all in the Jewish State. But it is inconceivable that either the Royal Commission in advocating partition, or His Majesty's Government in accepting it as the best and most hopeful solution of the problem, regarded this fact as in itself a fatal objection to any partition scheme ; and indeed our terms of reference imply that His Majesty's Government were prepared for the inclusion of Arabs in the Jewish State, and vice versa, albeit the fewest possible. It would seem to be recognized, therefore, that the question is one of degree, rather than of principle ; and from that standpoint we feel that we should not be justified in rejecting plan C solely on the ground that it necessitates the inclusion of some 50,000 Arabs in the Jewish State.
489. The Jewish State under plan C, though small, is compact, and is as easily defensible as any state could be into which Palestine might be partitioned. But the military authorities have impressed upon us that no boundary can be found west of the Jordan which affords a satisfactory strategic line, judged by the conditions of modern warfare. The most that can be done under any partition scheme is to find a line which is tactically defensible against rifle and machine-gun fire ; and it is only from this point of view that the boundary under plan C can be regarded as providing adequate security for the proposed areas. The only real security for any partitioned area in Palestine is to live at peace and in friendship with its neighbour. At the outset of our enquiry we felt reasonably hopeful that it might be possible to provide a plan of partition which would bring about this result ; but the events of recent months must clearly be taken into account in considering what the result is likely to be of putting any scheme of partition into actual operation.
490. It may be taken for granted that services which can be wholly partitioned, such as education, will give less value for the money spent than before ; and that services which provide communication between or through the partitioned areas, such as railways, posts and telegraphs, will, taken as a whole, be less efficient as well as more costly. As regards personal freedom of movement between the several areas, even under the conditions which we recommend in chapter XIV, some restriction on those who are now Palestinian citizens will be inevitable ; and the inconvenience and expense, both to the individual and the state, of any system of control will be considerable. Finally, the separation of the Jerusalem Enclave from the other two areas of Mandated Territory by the Arab and Jewish States will give rise to administrative inconvenience. These difficulties are not, however, insuperable, and cannot be said to be sufficient in themselves to make plan C impracticable.
491. This is a major difficulty. In chapter XVIII we found that it was impossible, whatever boundaries we might recommend, to set up an Arab State which should be self-supporting. The forecast made for us by the Treasurer of Palestine, which we accept, with certain adjustments, as the nearest approach that it is feasible to make to an estimate of the budgetary prospects of the several Administrations under plan C, shows, in round figures, and without making any provision for the cost of defence, deficits of £P.610,000 per annum for the Arab State (including Trans- Jordan) and of £P.460,000 per annum for the Mandated Territories, but a surplus of £P.600,Q00 per annum for the Jewish State. We have found that it is not possible to call upon the Jewish State for a direct subvention to the Arab State, and neither practicable nor equitable to set up an Arab State with a budget so very far from being balanced. We conclude that, if partition is to be carried out, there is no alternative but that Parliament should be asked to provide, in some form, sufficient assistance to enable the Arab State to balance its budget.
492. In addition, of course, the United Kingdom Government would be obliged, in accordance with recognized practice, to assist the Government of the Mandated Territories to balance its budget, including say £175,000 per annum for the cost of the development services in those territories referred to in paragraph 288. Altogether this would mean that partition would cost the United Kingdom taxpayer say £1,250,000 per annum without including any provision for defence. On the other hand, the Jewish State would-be able to look forward to an annual surplus of say £P.600,000 apart from the cost of defence. Broadly speaking, the result would be much the same under any conceivable plan of partition.
493. Manifestly, such a position would be highly unsatisfactory to the British Treasury. But before deciding that this conclusion renders partition wholly impracticable, it is necessary to take into account the cost of Palestine to the British taxpayer under existing conditions. In the judgment of the majority of us, the cost of partition cannot rightly be compared with an estimate of what the financial position of an undivided Palestine might be, assuming the restoration of peace and normal conditions. Doubtless it would be possible to obtain peace in Palestine to-morrow under certain conditions ; but whether those conditions are such as would not involve a complete change in the financial and economic structure of Palestine, necessitating a drastic curtailment in the present standard of public services, if the budget is to be balanced, is quite another matter. The only valid comparison, therefore, is with the cost to the United Kingdom under existing conditions. This may be taken to be in the neighbourhood of £2 ½ to £3 millions in 1938 ; and while it is impossible to foresee how long our liabilities will continue at this rate, it is clear that the substitution for the present position of a plan which involves, apart from the cost of defence, a continuing annual payment from the British Exchequer of sums amounting even to as much as £1,250,000, should not necessarily be ruled out on financial grounds, if in other respects the plan should appear to be practicable. If, however, this were voted subject to the usual conditions of financial control applicable to a grant-aided dependency, the Arab State could not be called independent, and we have been unable to devise any means of overcoming this difficulty if the assistance is given in the form of a direct subsidy.
7. Economic Interests
(i) Tariffs and Customs Administration
494. In considering the boundaries of the proposed areas under our terms of reference we have found the creation of the Mandated Territories as a separate political area to be essential to any scheme of partition which we could recommend. But the creation of those territories as a separate tariff area will be a severe blow to the economic welfare of the Jewish State, which, if it is to provide work for additional migrants in large numbers, must expand industrially, and cannot hope to do so without an assured market larger than can be provided by the population of that state alone. The economic survival of the Arab. State also depends upon its finding a market outside its territory for its agricultural products, in particular wheat, of which it has a large exportable surplus. We conclude that a customs agreement of some kind between either state and the Mandated Territories is essential, and that as far as the Jewish State is concerned, nothing short of a complete customs union, with both free trade and identity of tariffs, will really satisfy their requirements, while between the Arab State and the Mandated Territories a similar arrangement, though not essential, is very desirable. It is true that the tariff requirements of the Arab and Jewish States are likely to be fundamentally different, the Arab State, with its predominantly agricultural population, being likely to prefer a moderately low tariff for revenue purposes, with at least as much protection as at present for its cereals and other agricultural produce, while the Jews may be expected to pursue a policy of high tariffs for the protection of their industries, and to wish to keep the price of wheat, if not of agricultural produce generally, as low as possible. Nevertheless, we feel that there is sufficient common ground between the two states and the Mandated Territories to make the operation of a common tariff practicable ; and that in any case the needs of both states in this respect are so' urgent that there is no other way by which the economic survival of the one or the economic expansion of the other under plan C can be assured.
495. Further it seems to us that a customs union would give an opportunity to relieve, if only partially, the financial strain which would be imposed on His Majesty's Government as the result of partition. We consider that the provision of an assured market for the Jews in the rest of Palestine would justify the payment by them in return of some special revenue contribution to be credited to the Arab State, thus reducing the call by that state on the British taxpayer. Working on a formula which we have described in chapter XXI, and using the figures given us by the Treasurer for the budgetary forecasts shown in chapter XVIII, we find that this arrangement might be expected to reduce the net charge on the United Kingdom taxpayer by about £175,000 in the first year, that is from about £1,250,000 to about £1,075,000. This credit would be provided partly at the expense of the Mandated Territories, whose deficit (to be met from the British Exchequer) would be increased by over £P. 100,000, but mainly at the expense of the Jewish State, which, however, would still be left with a surplus of about £P400,000, apart from the cost of defence.
496. The Arab State's position would be improved by a corresponding amount, but it would still show a deficit of £334,000 ; and the only way in which we can suggest that this might be met is by an arbitrary redistribution of the customs revenue representing the joint shares of the Arab State and the Mandated Territories in such a way as to make good the deficit at the expense of the latter. This would, of course, mean a corresponding increase in the grant-in-aid to be made by the United Kingdom to the Mandated Territories, but the formula which we have suggested in chapter XXI (formula B, paragraph 473) provides for the possibility of gradual reductions in this supplementary charge as the net surplus revenue from the customs union increase.
497. The same formula provides also for the possibility of the Arab State sharing, to some extent, in any increase of customs revenue arising from an expansion of trade and prosperity in the rest of Palestine. One of the main arguments against partition is, we think, the fact that, under any plan of partition which is based on the inclusion in the Arab State of the fewest possible Jews and Jewish enterprises and on the creation of a Jerusalem Enclave and Corridor, the greater part of the Arab wealth of Palestine is necessarily left outside the Arab State (whether in the Jewish State or the Mandated Territories) ; that state is therefore found to be singularly lacking both in natural resources, in created assets, and in inherited wealth, and is likely to remain a very poor country. Its relative backwardness will become still further marked if as a result of the development proposals in plan C the material conditions of the Arabs in the Mandated Territories should be substantially improved. Any arrangement, therefore, which holds out to it the possibility of some increase of revenue which it will not have to receive in the form of a subsidy from a foreign Power, with its necessary accompaniment of financial control, is to be welcomed. Under this arrangement there would seem to be no need for any such control : the settlement of accounts with the Arab State under formula B, as set out in chapter XXI, would be automatic. It seems to us, therefore, that an arrangement of this kind would go a considerable way towards solving the financial difficulties inherent in partition, while at the same time providing the necessary economic stability for both the Arab and Jewish States.
498. Unfortunately, however, we have found ourselves unable, on constitutional grounds, to recommend a customs union except under conditions which would ensure that in tariff policy the wishes of the Mandatory should prevail ; and as this would be inconsistent with the grant of fiscal independence to the Arab and Jewish States, we have been obliged to abandon the idea of a customs union between independent states as a solution of the financial and economic problems of partition.
(ii) Reactions on the rest of Palestine of the Immigration policy of the Jewish State
499. This is an aspect of partition under plan C to which we think it necessary to draw special attention, both for its economic and financial consequences. The economic future of the Jewish State, depending as it will upon a unique combination of economic, political, racial, and emotional factors, is exceptionally difficult to foresee. Jewish witnesses have agreed with the suggestion that, if the Jewish State should adopt an active immigration policy, it must expect to encounter set-backs and to pass through periods of depression, but our impression is that they were inclined to under-estimate the violence of the economic fluctuations to which the Jewish State is likely to be exposed when as an independent state it takes over full responsibility for immigration. The same witnesses, anxious to explain to us the future policy of the Jewish State on this subject, assured us that " the volume of immigration to be admitted at any given time will, so far as immigrant workers are concerned, fall to be determined by reference to the openings for employment that are in sight and to the resources available for financing such employment." We do not doubt that such will be the intention of the leaders ; but we feel considerable doubt whether they will be able to maintain so rigid a line in the face of the urgent pressure that will be brought to bear upon the newly-formed state to receive the hundreds of thousands of distressed Jews who will be demanding a refuge in the Jewish State as a national right.
500. It is true that, once the Jewish State has been set up, these matters will become a Jewish responsibility entirely ; indeed, it is one of the special attractions of partition that this controversial but crucially important subject will henceforth be dealt with by the Jews themselves. But this argument assumes that the Jewish State alone will stand the risks, as it will be entitled to the benefits, associated with an active immigration policy. Under whatever conditions a Jewish State might be set up, it is doubtful whether experience would prove this assumption to be well-founded. But under plan C, in which a customs union between the three areas is essential, with all the financial and economic associations which that involves, it is certain that the Administrations of the Arab State and the Mandated Territories could not view with indifference the possibility of an economic collapse in the Jewish State, and that if such an event were to happen, both the economic systems and the budgets of those areas could not fail to suffer gravely from the consequences.
501. The case then is this. If a Jewish State is set up, with full responsibility for immigration policy, the risk of an economic depression in Palestine of exceptional gravity must, in our opinion, be acknowledged. The same Jewish witnesses argued that, even so, depressions do not last, for ever and that it is reasonable to expect that the Jewish State will ultimately recover its prosperity, as other countries have done ; and in any case the Jewish community would, no doubt, consider that the political advantages will outweigh the risks, however great. From the point of view of His Majesty's Government, however, the question is whether the risks to the Arab population, to the Administration of the Mandated Territories, and to the British Government in the background, are so great as to render it inadvisable to proceed with partition. As far as the Arabs are concerned, the answer would seem to be that, if they are likely to suffer from a depression in the Jewish State, they are likely also to benefit when that state is prosperous ; indeed, that is a part of the case for the formulas proposed in chapter XXI. And if it is thought probable that the general economic trend of the Jewish State will be towards greater wealth and prosperity as time goes on, the Arabs are likely to gain rather than lose in the long run by close economic association with the Jewish State. Much the same argument applies to the Government of the Mandated Territories and to the British Government. Neither can expect to enjoy the benefits which the proposed formulas would bring without being prepared to accept the attendant risks. But the risk does not depend wholly upon the acceptance of those formulas, though its consequences would be intensified if they are accepted. The risk is, in our opinion, inherent, to a greater or less degree, in any form of partition. Before deciding whether plan C or any other plan of partition is practicable, His Majesty's Government must ask themselves whether they are pre- pared to enter into an arrangement under which communities, for one of which they must accept full, and for the other a partial, financial responsibility, are liable to have their economic and financial systems injuriously affected, at any rate temporarily, by a policy pursued by a neighbouring state, for reasons which are primarily racial, and over which His Majesty's Government will have no control.
(iii) The need of Part-time employment to supplement agricultural earnings in the Arab State
502. In chapter X, we noted the importance of Haifa as providing a source of supplementary employment for fellaheen, whether normally resident in the Mandated Territories or the Arab or Jewish States, who were either landless or unable to earn an adequate livelihood from their lands. But Haifa is not the only source of such employment at present. All along the coastal plain, the demand for extra labour in the citrus-groves during the picking season from October to April attracts casual labour from many Arab villages. Even now, notwithstanding partisan attempts to banish all but Jewish labour from the Jewish plantations, the relative cheapness of Arab wages leads to a considerable demand by Jewish employers for Arab labour ; and it must be remembered that of the total amount of citrus land in the proposed Jewish State, about 56,000 dunums are owned by Arabs. Jewish witnesses have, told us that immigration of casual Arab labour will not be permitted into the Jewish State. How many of the Arabs who find casual employment in the orange-groves are residents of villages which will tall outside the Jewish State we cannot say ; no statistics are available. But we think that it is not an exaggeration to say that many Arab villagers outside that state will after partition find themselves and their families deprived of an important subsidiary means of livelihood, "the loss of which will have a serious effect on their economic position.
(iv) The Growth of Population
503. We have seen in chapter III that, owing to the abnormally high rate at which natural increase has been taking place in the Arab population under the Mandatory administration, it can already be said that the economic position of that population will be menaced in the future unless one or other of the following developments should take place : an increase in the standard of cultivation, enabling a larger population to be maintained on the land ; an increase in industrial activity, providing opportunities for secondary employment ; a limitation of the size of the family ; or migration. Under partition, the economic situation of the Arab State will continue to be subject to the same threatening conditions ; and the possibility of relief from either of the first two quarters mentioned will be reduced. The opportunity of finding secondary employment in the Jewish State will be denied to them ; and the chances of improvement in the standard of cultivation will be remote, for the funds that would be needed to bring about such improvement will no longer be available. Nor is it likely that the size of the family will be limited, or that the rate of natural increase in the population ; of the Arab State will be reduced by any marked rise in the death-rate due to a material lowering of the standard of administrative services. If, indeed, the Arab State were obliged to rely entirely upon its own resources, and no migration were to take place, a rise in the death-rate might be expected to occur in due course owing to pressure on the means of subsistence. But before that happens it is probable that increasing pressure will drive the surplus population to rely more and more upon the neighbouring Mandated Territories to provide relief in the form of supplementary employment, the amount of which from time to time will in turn depend, first' upon the amount of capital introduced by Jewish immigrants into those territories, and secondly, upon the fluctuations between prosperity and depression brought about by Jewish immigration policy in general (see paragraph 499.)
504. From these observations the following conclusions emerge —
(a) There is no reason to suppose that the present high rate of natural increase of the Moslem population will diminish in the Arab State after partition, unless a rise in the death-rate should be brought about by positive starvation.
(b) Owing to this continued increase in the population, the economic situation of the Arab State, if left entirely to its own resources, would become increasingly serious as time goes on.
(c) This makes it all the more necessary to provide opportunities for supplementary employment for the surplus Arab population in the Mandated Territories.
(d) But such employment can only be provided in sufficient quantity through the importation of Jewish capital, brought by Jewish immigrants, into the Mandated Territories. It is a matter of urgent interest, therefore, to the Arabs themselves that such immigration should be permitted, and even encouraged, subject, to control as proposed in chapters XIII and XIV. It seems safe to say that the Arabs outside the Jewish State would be .faced with the prospect of greater economic hardship, if the development of the Mandated Territories were to be checked by a closing down of immigration, than if immigration should be allowed to continue, subject to the conditions proposed in those chapters.
(e) As pointed out in paragraph 501, the economic inter- dependence of the Arab State and Mandated Territories with the Jewish State, which will inevitably continue under partition, is liable to cause painful reactions in those areas when the inevitable periodic set-backs occur in the economic cycle of the Jewish State. The greater the economic dependence of the Arab State on the Mandated Territories, the more serious the effect of such set-backs is likely to be for the Government of the latter, and through them for the United Kingdom Government itself.
505. Taking all these matters into account, we should, if we were to adhere strictly to our terms of reference, have no alternative but to report that we are unable to recommend boundaries for the proposed areas which will give a reasonable prospect of the eventual establishment of self-supporting Arab and Jewish States. But we do not believe that it would be in accordance with your wishes, or with the public interest, that we should end our enquiry with a merely negative conclusion. We propose, therefore, to carry the matter a step further, even though by doing so we exceed in one respect our terms of reference.
506. We, therefore, now suggest that, rather than abandon the idea of partition altogether as impracticable, His Majesty's Government might think it well that, as a condition of the' surrender of the existing Mandate, not to be altered hereafter without the approval of the League of Nations, the proposed Arab and Jewish States should be required to enter into a customs union with the Mandated Territories, on the following terms —
(i) The customs service for the whole of Palestine should be administered by the Mandatory Government.
(ii) The fiscal policy of the customs union should be deter- mined by the Mandatory as he thinks fit, after consultation with representatives both of the Arab and the Jewish States, and after taking into account the interests (a) of all the areas comprised in the union, and (b) so long as any deficiency grant continues to be made by the United Kingdom Government to the Administration of any part of Palestine, of the United Kingdom Exchequer. It would be implicit in this arrangement that the Mandatory should not direct the fiscal policy of the union so as to give preferential treatment to British trade.
(iii) In other respects the financial arrangements between the several areas should be as proposed under formulas A and B in chapter XXI, subject to such modifications, if any, as may be decided upon in the course of negotiations between His Majesty's Government and the Arab and Jewish representatives.
507. States established under these conditions, deprived of the right to settle their own fiscal policy, would certainly not be sovereign independent states, in the sense contemplated by the Royal Commission. Nor could we regard even an arrangement on these lines as wholly satisfactory to His Majesty's Treasury, for the calculations we have made are in any case speculative ; the duration of any formula which may be agreed upon must be regarded as uncertain ; and in any case the amount which Parliament would have to be asked to vote as a deficiency grant to the Mandated Territories (including what we have called the "supplementary share" of the Arab State) would be in excess of £1,000,000 to begin with. The best that we can hope for is, as pointed out in chapter XXI, to find an arrangement which will enable these deficiency grants to be provided in the manner least open to constitutional objections. Such an arrangement will undoubtedly intensify the risk, described in paragraph 500, that an economic depression in the Jewish State, caused by Jewish immigration policy, may spread to the Arab State and Mandated Territories, with serious results to their financial and economic systems. But that risk, to a greater or less degree, must be accepted if partition is to be proceeded with at all : it cannot be eliminated entirely. Subject to these reservations, however, we think that the financial and economic needs of the Arab and Jewish States may now be said to have been provided for satisfactorily ; and we should be prepared with the aforesaid reservations to report, that the boundaries which we have recommended under plan C will give a reasonable prospect of the eventual establishment of self-supporting Arab and Jewish States. It would then p remain for His Majesty's Government to consider whether, if the plan of partition which we have put forward should in other respects appear to them equitable and practicable, it is better to accept the financial liability involved than to reject partition entirely in favour of some other alternative.
508. We add two brief comments before concluding this part of our report —
(i) If His Majesty's Government should decide that an arrangement of this kind offers a satisfactory means of overcoming the financial and economic difficulties of partition, it is tempting to go further and provide a similar solution for certain of the administrative difficulties which we have noted in the course of our enquiry. If inter-area communications — railways, posts and telegraphs (including telephones) — were reserved for administration by the Mandatory, at any rate for a period of say five years in the first place, there is no doubt, we think, that the public would be better served than if they were split up among the three Administrations. We realise, however, that, for political reasons, broadcasting could not be made a reserved service, except by agreement between the States concerned.
(ii) If any term were needed to describe the constitutional procedure which we have suggested, it might be " economic federalism " ; and that, in fact, was the term used of a some- what similar scheme by a Jewish witness who had made a special study of this subject. The same witness, when asked why he was not content that the states should be set up under partition and then left to form an economic federation if they wished, replied : "I am convinced . . . that that would be a policy of suicide. The first thing that would inevitably happen would be the pull of the Arab State towards Damascus and Baghdad instead of towards Jerusalem and Haifa. It is inevitable." That is a pregnant comment. We are far from wishing to hinder a movement in the direction of closer union between the Arab State and the other Arab countries ; but we are convinced that if that should come about it will be to the interest of the Jewish State that room should be made for them to be included in the same political and economic circle. It seems to us to be one of the advantages of the plan we have just proposed that, if the political outlook for such a development should be favourable, but it should be thought prudent to move tentatively in the matter and to encourage the parties to enter as a first step into an economic agreement, such an arrangement will be far easier to bring about if the areas comprising Palestine and Trans- Jordan are already grouped together in a customs union than if they had been economically isolated. There is force in the criticism that has often been made against partition that, considered merely as an abstract policy, it is retrogressive. Whether economic federalism will lead ultimately to political federation we cannot venture to prophesy ; but that it should do so would not be altogether surprising ; and we think that meanwhile both Jews and Arabs may be disposed, after the weary and bitter struggle of the past year, to look with some favour on a plan which provides that in one respect at least, if only in the form of a customs union and a common system of communications, Palestine shall still remain whole and undivided.
509. We can now sum up the position. The question whether partition is practicable involves considerations of two kinds : practical and political. The former concern chiefly finance and economics ; the administrative difficulties are great, but they cannot be called insuperable, if the will to find a solution is present. But the financial and economic difficulties, as described in this chapter, are of such a nature that we can find no possible way to overcome them within our terms of reference. Rather than report that we have failed to devise any practicable plan, we have proposed, in paragraph 506, a modification of partition which, while it with- holds fiscal autonomy from the Arab and Jewish States, seems to us, subject to certain reservations, to form a satisfactory basis of settlement, if His Majesty's Government are prepared to accept the very considerable financial liability involved.
There remain the political difficulties. We cannot ignore the possibility that one or both of the parties may refuse to operate partition under any conditions. It is not our duty, as a fact-finding Commission, to advise what should be done in that event. But there is still the possibility that both sides may be willing to accept a reasonable compromise. We cannot feel confident that this will happen, but we put forward the proposals in this chapter in the hope that they may form the basis of a settlement by negotiation.
Source: at https://archive.org/
 In March, 1937, according to the Government Wage-rate Statistical Bulletin No. 3/1937, the wages of permanent Jewish workers in orange groves were 200-300 mils per day, as against 150-200 mils per day for Arabs.