The transatlantic rift over the war in Iraq, and now post-war reconstruction, builds on growing European disenchantment with muscular US unilateralism. French and German opposition to the war—echoing the sentiments of a majority of the European Union’s member states—highlighted seemingly growing differences between European and American attachments to international laws and conventions, underscored by recent trade disputes and wrangling over US attempts to exempt its nationals from the jurisdiction of the new International Criminal Court. Differences between European capitals and Washington have been particularly acute as regards the Israeli-Palestinian conflict. In early February 2003, German Foreign Minister Joschka Fisher pointedly notified Secretary of State Colin Powell that he viewed this conflict, and not Iraq, as the main foreign policy challenge in the Middle East. More recently, British Foreign Minister Jack Straw provoked a furor in Tel Aviv when he suggested that Israel should comply with UN Security Council resolutions mandating an end to its occupation of Palestinian lands, just as Iraq should have complied with resolutions dictating its disarmament.

The pronouncements of Fischer and Straw may be heartening for partisans of the EU and those hopeful that Britain’s support for the Iraq war was purchased by an American promise to intervene positively for peace between Israel and the Palestinians. Yet such optimism glosses over the fact that the EU’s own commitment to international laws and norms in Israel-Palestine has eroded perceptibly over the past decade. While repeatedly expressing concern about Israeli violations of humanitarian law, particularly during the second Palestinian intifada, the EU has failed to hold Israel accountable in any meaningful way. Its economic non-policy on Israeli settlements has been a particularly stark case in point, not least because of what it has implied about the EU’s attachment to its own laws.

Booming Trade

For several decades, settlement enterprises in the West Bank, Gaza and Golan Heights have been exporting goods labeled “made in Israel” to the European common market, benefiting from successive free trade agreements between Israel and the European Community. Most recently, the EU signed an Association Agreement with Israel in 1995, as part of the Union’s broader free trade policy in the Mediterranean region, guaranteeing that European importers would not pay duties on goods purchased from Israeli manufacturers. On the back of such arrangements, the EU has become Israel’s largest trading partner—in 2001 alone, Europe bought a record $10 billion of Israeli goods and services.

Concomitantly, however, the Union has also become a premier international trading patron of the Israeli settlement movement. Israeli government estimates value the settlements’ annual exports to Europe at about $200 million, comprising mostly produce, cut flowers, textiles, cosmetics and wine. But when this total is adjusted to include exports partly processed in occupied territory, it amounts to about $2 billion, or 20 percent of total Israeli exports to the EU. The special EU treatment accorded this trade by the Association Agreement violates the EU’s legal commitment to the Fourth Geneva Conventions, according to which the settlements are illegal and should not be allowed to derive economic benefits from the Convention’s signatories.

A combination of factors have nevertheless permitted the trade in settlement products to flourish over the past decade. Chief among these was tacit European acceptance during the Oslo “peace process” of the 1990s that the parameters and “sensitivities” of the peace process superceded international law&mdashla principle to which the Palestinian Authority arguably also acceded in signing the Oslo accords. The EU’s reluctance to let politics interfere with its expanding Mediterranean trade initiative, which it sees as a crucial mechanism for dialogue in the region and which is also bound up with considerable economic interests, has complicated matters further. Various EU members have taken differing positions on the issue, but the consensual mode of EU foreign policymaking has allowed the lowest common denominator position to prevail. Despite escalating controversy over the settlement trade dating back to 1998, and calls in 2002 by the European Parliament to suspend free trade with Israel outright, the EU’s executive tier has so far stymied any action. What is more, over the past five years, this inaction has gradually shaded into active intervention to forestall, and ultimately render near impossible, future remedies.

Oslo and Its Complications

Since a 1980 European Community declaration in Venice, Europe has been officially committed to a permanent solution to the conflict based on international law and UN Security Council resolutions—a position affirmed as late as 1996 in Dublin. The term permanent solution encompasses such matters as the status of occupied East Jerusalem, the right of return of Palestinian refugees and the status of Israeli settlements, which have slipped in US diplomatic parlance from being “illegal” to mere “obstacles to peace.”3⁄43⁄4

Nevertheless, since the 1970s, European governments have turned a blind eye to the settlement trade, in large part due to limited public pressure in Europe itself. This non-policy was boosted by the advent of the Middle East peace process. Israel, supported by the US, successfully argued through its supporters in the Union that Europe should delay action on the issue until the conclusion of a final Israeli-Palestinian peace settlement that resolved the status of the Occupied Territories.

However, because settlements are officially not recognized as being part of Israel, and are therefore not entitled to benefit from its trade privileges with the EU, the issue has provoked growing tensions between EU’s executive bodies and the foreign ministries of its member states on the hand, and their respective customs authorities on the other. The issue came to a head in 1997. Pressure from customs bureaucracies was then building over Brazilian orange juice fraudulently channeled via Israeli firms to the European market, spurring questions from the European Parliament and national customs officials about Israel’s broader compliance with the customs treaty. In the face of initial Israeli intransigence, the European Commission—the EU’s executive branch—was eventually stirred into action.

“They got very upset when they did certification and the Israelis did not respond,” recalls Charles Shamas, a Ramallah-based humanitarian law expert and trade consultant who has been working on Israeli trade policies in the West Bank and Gaza for the past ten years. Brussels sent a fact-finding commission.

Its 1998 report established grave Israeli violations of the trade agreements, to the extent that “the validity of all preferential certificates issued by Israel, for all products, are put in doubt.” As the guardian of the EU’s treaties, the Commission could not but respond to the findings. It called for enforcement by the EU and its member states, and issued a notice warning European companies trading with Israel that they could be liable for back-dated import duties if they were importing settlement products. Some states, including Germany, began demanding that importers of Israeli goods deposit funds to cover any retroactive duties.

Cold Feet

After the 1998 report, the Israeli government openly told European officials that they refused to accept that the settlements were not part of Israel. Israel would continue to export settlement products to Europe under the reduced tariffs of the Association Agreement. This Israeli position could have been declared flagrant non-cooperation with the rules of the Agreement, allowing the EU to suspend the Agreement completely or take other unilateral action. Rather than argue that such non-cooperation existed, however, the EU decided it would have to rely on Israeli authorities to clarify the origin of products through certain verification procedures. Not surprisingly, Israeli authorities affirmed that all products were originating in Israel.

Because few people in Brussels were then in the mood to rock the boat of the faltering Oslo process—or endanger the economic interests bound up with the Association Agreement—the European Commission stalled. In answers to questions from European parliamentary members, the Commission has since denied the existence of the blunt Israeli responses to the 1998 report, asserting only that it had “indications” calling into doubt the validity of the Israeli origins certificates.

France and Germany were among the countries which opted instead to push for a non-confrontational solution, boosted by Israeli arguments that the EU should not seek to “prejudge” the borders of the Israeli state by pushing the issue, since these were then subject to negotiations with the Palestinians. In January and March 2000, the European Commission replied to parliamentary questions about the settlement trade by declaring that it would seek “solutions that do not prejudice the positions of any of the parties.” In other words, the EU agreed tacitly that it would ignore, in practice, the indefinite continuation of Israeli violations of the Fourth Geneva Conventions as a concession to the Oslo process.

Damaging Precedents

The EU’s attempts to reach a solution have since resulted in a prolonged tug of war between the EU and the Israeli authorities, on the one hand, and various EU governments and their customs bureaucracies on the other. Throughout, the Commission has shied away from addressing the basic issue of Israel’s non-cooperation. This position was encapsulated by a statement also made in March 2000, that “the procedure for verifying the origin of products enables us to determine if a product may be benefiting from the right to preferential treatment, even if there is no cooperation on the part of the third country involved in determining the product’s origin.”

The statement set a damaging precedent. While deferring an outright EU-Israeli confrontation, it also undermined the grounds on which the EU could challenge breaches of the trade agreement. Henceforth, Israel could keep insisting that its disagreements with the Union were merely due to differences in interpretation of the agreement, not a lack of cooperation—since such cooperation was not needed.

At Israel’s suggestion, the EU initially sought to square the circle by getting the Palestinian Authority to agree to have settlements considered part of its customs territory, subject to its own trade agreement with the EU. The PA wasn’t interested. The EU then tried to obtain voluntarily from the Israelis a list of goods produced in settlements. Though such a list is readily available on the Internet, courtesy of the Israeli anti-settlement organization Gush Shalom, the Israeli government was not so forthcoming.

As required, verification procedures were then activated. After coordinating with the EU’s central customs body, by August 2000 several EU customs authorities forwarded to Israel detailed questions about the origin of exports by more than a thousand Israeli firms. In due time, Tel Aviv replied that all exports came from Israel. The EU deemed this reply unacceptable. Several frustrated member states asked the Commission for “political guidance.” “According to the Agreement, if the answers received do not contain sufficient information, they shall collect duties. So the customs services asked, ‘What shall we do?,'” recalls Shamas. “The Commission said, ‘It’s your responsibility.'” In a barbed rejoinder, the customs services accepted all the Israeli answers, released all security guarantees and granted preferential tariff treatment to all the queried imports. “The member states said, ‘Don’t ask us if you let the Israelis get away with it,'” notes Shamas. “[They] were fighting because they had an additional burden forced on them; they are under pressure from their customs authorities. So the two sides are trying to slide away from responsibility for the issue.”

Facts on the Ground

Such evasion has come at a price, however. By failing to act on its own information about Israeli trade policies and the real origins of its settlement exports, the Commission has rendered near impossible any future action against existing settlement exports. “Under treaty law, practice that is known by both parties is acceptable,” says Shamas. This was confirmed by a May 2001 ruling by the European Court of First Instance, concerning long-standing Turkish export to the EU of televisions incorporating a high share of parts manufactured overseas. The court quashed a belated attempt by EU customs authorities to claim duties on the TV sets, noting that it had known about the problem for a substantial period of time, but failed to act on it. Therefore it could not now penalize the European importers. To guard itself against similar complications with Israel, on November 23, 2001, the Commission issued another “notice to importers” of Israeli products, reiterating its warning that retroactive duties could be claimed. In all likelihood, however, it was too little, too late.

The EU’s continued vacillation on the issue has defied growing political pressure to act. In reaction to Operation Defensive Shield, the massive Israeli tank invasion of the West Bank in March-April 2002, the European Parliament in May 2002 voted to suspend the Association Agreement, invoking its human rights clause. Yet the European Council—the EU’s political decision-making body, composed of the heads of state of the union’s member states—is not obliged to follow the Parliament’s resolutions, and discarded the vote. Privately, EU diplomats say that there is no chance the Association Agreement would ever be suspended. This assessment has been confirmed publicly by EU public relations commissioner Chris Patten.

Without guidance from the EU, customs authorities in various member states have increasingly had to go it alone—with limited results. Pursuant to the November 2001 notice, Italian customs decided to collect deposits from importers to cover possible tariffs. This sparked no small amount of concern in Tel Aviv, since Italian customs practice allowed them to refuse preferences not only for particular questionable brands, but also for whole categories of similar goods. Entire industries in Israel suddenly found themselves in the firing line. However, at the request of Tel Aviv, the Italian government quickly intervened to cancel the customs decision, unopposed by countervailing Commission guidelines.

The Italian example since has impelled EU member states to scale back the scope of their alternative remedies. On April 3, 2003, British authorities announced that they would deny duty preferences to a limited set of Israeli imports, “where there is reasonable doubt as to entitlement.” Similar decisions have reportedly been taken by other EU members, after another unsuccessful verification cycle covering some 60 categories of good was launched in January 2003. According to Shamas, the British decision is a highly circumscribed initiative which will have minimal economic impact—so as not to provoke a legal challenge that customs authorities know might be difficult to defeat. “They are doing it hoping that no importer sues,” he says, adding that “there is general agreement that this is not the end of the story.”

“Put Up or Shut Up”

For Shamas, the matter has been unresolved for far too long. “It’s become a particularly trenchant case of ‘put up or shut up.’ Here we have the community, and its institutions and member states, actively engaged in irregular conduct compromising the community’s own law under community treaty, in order not to have to require Israel to implement its association agreement as public international law requires. So community institutions have crossed the line between inaction to wrongful action. They are basically complicit in Israel’s own violations of the Geneva Conventions.”

Ironically, the EU’s rhetorical distance from US Middle East policy has widened while the settlement trade issue has heated up in Europe. While Washington has acquiesced in Israel’s ongoing reoccupation of Palestinian towns, at least for the duration of the Iraq war, in early March 2003 the EU sent a protest letter to the Israeli Foreign Ministry, which “censured IDF actions in the West Bank and Gaza Strip [and] also criticized the expropriation of Palestinian land for the construction of a separation fence between Israel and the West Bank, as well as the closure of universities and infringement of human rights in population centers in the territories.” According to official Israeli sources, the letter was “one of the most serious that we have received in the recent past.” Should the EU want to do something about Israeli infringements of Palestinian rights, they could very well start at home.

Yet for the time being, EU intervention in the Israeli-Palestinian conflict is likely to be confined to tweaking the forthcoming US “road map” to Middle East peace—a document notable for its scant references to international law. The road map, in keeping with the long-standing diplomatic status quo, rests on a false premise: constructive international intervention in the conflict must always emanate from Washington, rather than Brussels or the UN building in New York. Despite its rhetorical protestations, the EU appears destined to continue its service as a legitimizing cover for US unilateralism in Israel and Palestine, if not yet in Iraq.

How to cite this article:

Peter Lagerquist "On Settlement Trade, Europe Doesn’t Stand Tall," Middle East Report Online, April 08, 2003.

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