EU threatens Israel with tariff on territory goods

Since they are not produced within Israel's pre-1967 borders, some European Union officials believe the cosmetics line is not covered by a free trade agreement that allows Israeli products to enter 15 EU countries without tariffs.

The EU now is threatening to impose tariffs on Israeli goods produced in eastern Jerusalem, the Golan Heights and settlements in the West Bank and Gaza Strip.

Israel staunchly disagrees, saying that the free-trade accord covers all Israeli products, and has charged the Europeans with seeking to use economic blackmail to weigh in on the stalled peace process.

The Council of Ministers, the EU's executive body, was originally scheduled to discuss the matter Monday, but postponed it until June 8.

The idea of targeting certain Israeli products did not originate in Europe.

Last September, a newly formed group called Gush Shalom released a list of goods manufactured in the territories, as well as in eastern Jerusalem and the Golan Heights, urging the public not to buy them.

"Every shekel we pay for a settlement product strengthens the settlers and their radical leaders," Uri Avneri, a journalist and former Knesset member who founded Gush Shalom, said in an interview this week.

At first, the boycott call was ignored in Israel. Then it became a target for attacks by settlers and their allies, which focused light on Gush Shalom's move. The boycott call spread through the Internet and received international attention.

The call, however, has not yet hit home in Israel.

"I never realized that Barkan wine came from the West Bank," said Nava Mizrahi, who was shopping at a Jerusalem supermarket.

In fact, many Israelis do not immediately realize that Modan bags, popular among travelers and schoolchildren, are produced in the West Bank settlement of Shaked or that Pladelet steel doors are made in the Barkan industrial area, located between the West Bank Palestinian towns of Kalkiliya and Nablus.

Popular goods produced in the Golan include several leading wines, the Ramat Hagolan dairy products and Mai Eden mineral water.

While the settlers have not felt threatened by Gush Shalom, the European initiative is a different matter. At stake is an estimated $200 million worth of goods, mainly agricultural produce, that are exported annually from settlements in the West Bank and Gaza.

Several weeks ago, the European Commission issued a document suggesting it had grounds to believe that Israel was violating its agreement with the EU by exporting goods that originate in territories beyond Israel proper.

And it also claimed to have evidence that many goods manufactured in Jewish settlements were being exported to Europe as products made in Israel.

The European threat has triggered angry reactions among settler leaders, who have gone as far to compare it to the boycott of Jewish products during the Nazi era.

"If you provoke the Jews, don't be surprised if you get a tough reaction," said Shlomo Filber of the Council of Jewish Settlements. He suggested that if the Europeans go ahead with their boycott plans, the settlers will urge Jews throughout the world to boycott European products.

For Avneri, the European boycott threat was not surprising.

"The Europeans were angry at us anyway," said Avneri. "They were angry because El Al preferred Boeing over Airbus, because we were delaying Palestinian exports in the ports and because of the orange juice fraud."

The orange juice fraud was one of the main triggers in the deteriorating relations between Israel and the EU. About 18 months ago, the Europeans discovered that Israeli orange juice producers mixed Brazilian juice concentrates with Israeli juice that they exported to Europe as "Made in Israel," enjoying the tax exemptions enjoyed by Israeli agricultural products.

The Europeans threatened punitive action at the time, prompting Israel to dispatch Trade Minister Natan Sharansky on an emergency mission to Brussels, the EU's headquarters.

While Sharansky promised full cooperation with the tax authorities, the episode caused serious damage to Israel's reputation in the EU. Each of the countries that imported the orange juice concentrates is reviewing whether to demand the required taxes.

The Europeans have hinted that they might reconsider their threat to impose taxes on goods produced in the territories if Israel would give Palestinian products the same status as Israeli goods made in the territories. But Israel has objected to that proposal, arguing that Israeli manufacturers in the West Bank and Gaza would not be able to compete with cheaper Palestinian products.

But even if the controversy over settlement products is settled, there is more trouble ahead.

The European Commission has in mind to put a total freeze on all new agreements in the areas of financial services, mutual recognition of technical standards and the promotion of European investments in Israel.

Israel is the only country outside of Europe to receive the same trade privileges as European countries, Manuel Marin, the EU official in charge of relations with Mediterranean countries, told the Israeli daily Ha'aretz this week. "We have implemented the agreements with Israel out of full respect. Israel, however, is not behaving likewise."