Washington Report on Middle East Affairs, July/August 1998, Page 80

Trade and Finance

The Netanyahu Effect: Trade Row With European Union, MENA Summits Suspended

By Colin MacKinnon

Despite furious snorts and alarums from the Netanyahu government, the European Commission, the executive body of the European Union, has recommended that the EU go ahead and deny free-trade benefits to products made in Jewish settlements in the West Bank, Gaza, East Jerusalem and the Golan Heights. For years now, Israel has been shipping such goods to the EU labeled “Made in Israel.” The Commission claims the Israeli practice is in violation of the 1975 EU-Israeli free trade agreement (the EU doesn’t consider territory across the Green Line to be Israeli). The Netanyahu government insists that it is not, that the agreement covers goods made in the settlements.

In mid-May the Commission delivered two memoranda to Israel’s Ministry of Industry and Trade and Ministry of Foreign Affairs. One accused Israel of preventing the PA from freely exporting goods. The other raised the issue of products coming into the EU from occupied territory and in effect demanded that Israel set borders for its products and label them honestly. If goods leaving Israeli ports are actually made in what is commonly known as “Israel,” say the Europeans, they should be labeled as such. But if they are made, say, in the Golan Heights, they should be so labeled and not be considered eligible for EU trade benefits.

Though the products in dispute are fairly diverse, an estimated 120 or so, total sales to the EU from beyond the Green Line are probably not large—perhaps $200 million a year at the most, including Palestinian-produced goods.

Both of the two Israeli ministries that received the memoranda rejected them. As of early June, the Council of Europe, the EU’s legislative body, had not acted on the Commission’s proposal.

A Political Impetus

The real impetus behind the EU decision is political, not economic: it is the growing EU frustration both with the Israeli government of Binyamin Netanyahu and with the unwillingness of the U.S. to use its leverage on Israel.

Since the Oslo accords were signed in 1993, the EU and its member countries have been the largest donors to the Palestinian Authority, pledging $1.85 billion out of total international commitments so far of $2.8 billion.

Since that time, Palestinian GDP has fallen 35 percent—largely because of Israeli-imposed border closures—and it has been European money that has kept the PA afloat. The Europeans say, however—and you get some agreement from multilateral agencies such as the World Bank—that the EU is in effect subsidizing Israeli economic pressure on the Palestinians. If European money were not flowing into the PA, the Israelis would have to face the consequences of even greater Palestinian impoverishment. Among those consequences would be a drop in Israel’s $1.5 billion a year in sales to the PA.

Since late last year the EU has also been angling for a larger role in the Middle East peace negotiations, arguing that its preponderant economic weight should give it more say at the table. The EU is also seeking to become the key actor in coordinating donor aid.

EU Outspokenness

On May 26 a top-ranking official of the European Commission told the Israeli daily Ha’aretz that political dialogue between the EU and Israel had simply ceased. Manuel Marin, commission vice president for relations with Mediterranean countries, blamed the Netanyahu government’s policies toward the Palestinians for making dialogue impossible.

It is Israeli policy under Netanyahu that has caused the EU to raise the question of settler products. The EU had avoided the issue for years, Marin said, in order not to compromise the peace process. Marin also accused Israel of buying goods overseas and re-exporting them to the EU under “Made-in-Israel” labels. An example Marin cited was orange juice purchased in Brazil, canned in Israel and sold in the EU under the Free Trade Agreement.

How the EU would implement the recommended policy is unclear. Facing an uncooperative Israel, how would the EU enforce its label-of-origin requirement? How would it distinguish between settler-produced goods and goods produced by the PA, with which the EU also has a free trade agreement? As it happens, most Palestinian exports go through Israeli middle men—governmental or private sector—who ordinarily label Palestinian goods “Made in Israel.”

Though some PA officials reacted favorably to the Commission’s recommendation, since it strikes at Israeli claims of sovereignty over the West Bank and Gaza, the policy, if adopted, would carry real risks for Palestinian producers.

Israel reacted sharply to the EU move. The Netanyahu government threatened to hold Palestinian exports hostage. Netanyahu himself, speaking in late May in Tel Aviv to an international convention of stockbrokers, said that if Israelis lost jobs because of the EU decision, Israel might reduce the number of Palestinians given permits to work in Israel. Netanyahu has also threatened to freeze the EU out of the peace negotiations altogether. The Foreign Ministry and the Ministry of Trade and Industry were described as acting “feverishly” in late May to keep the EU Council of Ministers from approving the Commission recommendation.

MENA Summits Suspended

Like the larger “peace process,” the “MENA process” seems to have exploded as well, thanks to the Netanyahu government. The Middle East North Africa—MENA—economic summit conferences have been suspended indefinitely in the current foul atmosphere. The World Economic Forum in Geneva, which had been sponsoring the annual jamborees, announced in April that it had abandoned plans to hold a fifth summit. The previous ones had taken place in Casablanca, Amman, Cairo, and Doha, though the fourth and last, in fact, had been a party to which few came: Arab governments largely boycotted it to protest Israeli policy toward the Palestinians.

The MENA summits had been designed and pushed by the United States and Israel to make it easy for Arab officials and private sector commercial types to talk with Israelis and do deals. The idea, always somewhat visionary, was that talking and dealing would somehow add momentum to the peace process. The conferences started out as large affairs that attracted hundreds of high-level political and business leaders—prime ministers, foreign ministers, kings, princes and top executives of such companies as Bechtel, GE, Olayan of Saudi Arabia, Koor of Israel.

Attendees of the first three summits did observe the usual pieties (there was much talk of regional integration and development, freer trade, investment—that kind of thing), but in the end few deals or grand schemes came out of the get-togethers.

No surprise here. Regional economic integration simply won’t occur without a political settlement between Israel and the Palestinians. And the death—or suspension—of these summits is proof of the fact.