Woodhead Commission - Economic Federalism Proposal

Economic Federalism Proposal

The Commission proposed a modified form of partition called "economic federalism" in which the two states would enter into a customs union with the territories that remained under mandate, leaving the Mandatory authorities to determine a fiscal policy. According to the report: "The customs revenue would be collected by the Mandatory, and the net surplus after meeting certain common charges would be distributed between the three areas according to an agreed formula, subject to periodic review...The Commission suggest that initially each area's share should be one-third...To enable the Arab State to balance its budget without subjecting it to external financial control, it should receive a supplementary share out of the share of the mandated territories, under conditions which will entitle it to share in the expansion of customs revenue resulting from an increase of prosperity in the rest of Palestine. This arrangement could be extended, if desired, to cover internal communications (railways, posts and telegraphs) thus removing certain obvious administrative difficulties consequent on partition. While this arrangement withholds fiscal autonomy from the Arab and Jewish states it seems to the Commission, subject to certain reservations, to form a satisfactory basis for settlement, provided his Majesty's Government are prepared to accept the considerable financial liability involved."