While Israel’s government has had a tense political relationship with the European Union in recent years, the money keeps flowing with the EU now being their biggest export market. The strong economic ties could enable the EU to put more pressure on Israel’s settlement policy by threatening to change the free trade agreements – but there are several reasons why this might never happen.
Israel and the EU have had a tense relationship for years due to disagreements over Israel’s settlement policy. Despite the political disagreements, the economic ties only seem to grow stronger.
What do salted bagel cookies, granola bars, chocolate, and sweets from the Israeli companies Abadi Bakery, Jerusalem Granola, and Openheimer have in common besides possibly tasting delicious?
The answer: If you find the products in a store in a European Union member state, then they shall all according to EU law be labelled as produced in an Israeli settlement. In this case in the industrial zone of Atarot in the occupied West Bank.
The EU does not recognise Israel's occupation of the West Bank, Gaza, East Jerusalem and the Golan Heights, lands it captured in the 1967 Middle East war, and says the labelling policy aims to distinguish between goods made inside the internationally accepted borders of Israel and those made outside.
EU’s decision to label goods has put a smile on the faces of the people who are against the Israeli settlements. But it has also triggered loads of anger from the Israeli leaders and put the diplomatic relations on a stall ever since they were introduced on the 4th of November 2015.
Prime Minister Netanyahu’s first reaction to EU’s restriction was full of despise, saying that the last time Jewish products were labelled in Europe were 70 years ago referring to Nazi Germany’s anti-Semitic policies.
In general, he saw the labelling as a natural tendency in the EU establishment to single out Israel and treat it in ways that other countries are not being dealt with, and especially other democracies.
He referred to the fact that EU labelling is not enforced in other places of occupation, such as northern Cyprus, Western Sahara, Kashmir or Tibet and therefore saw it as double standards from the EU.
“And I think it’s wrong. I think it should be corrected,” he said and called for a reset of the relationship with the EU.
Over two years later, the relationship is still a damaged one with the diplomatic relations being on a hold.
But despite the deep political tension, all is not in a critical state. The economic collaboration is stronger than ever with the EU now being Israel’s biggest export market.
That could, in theory, give the EU an advantage when it comes to putting pressure on Israel’s settlement policy.
The question is if the EU is willing to do more than labelling goods?
A drop in the economic ocean
So far, the restriction has had little impact on Israel’s economy.
When the labelling was announced, Israel’s Economy Ministry estimated that the impact will be about $50 million a year, affecting fresh produce such as grapes and dates, wine, poultry, honey, olive oil, and cosmetics.
That is around a fifth of the $200-$300 million worth of goods produced in settlements each year, but a drop in the ocean next to the $16 billion of goods and services Israel exported to the EU in 2017, which amounted to 35 % of all its exports.
The labelling might have had an even smaller impact on Israel’s economy since it is almost impossible to locate the exact origin of agricultural products (vegetables, fruits, and flowers) which are usually mixed with products made in Israel.
In that way, Israel can disguise products partially made in the settlements in order to avoid labelling.
Professor Jakob Egholm Feldt, who has studied European-Middle Eastern Cultural Relations at Roskilde University in Denmark, doesn’t think that EU’s labelling of goods is just a symbolic restriction, but admits that it is a smaller thing.
He sees, the primary reason for the tension between Israel and the EU to be the continuing wars in the Gaza Strip where Israel has done massive bombardment.
The EU has tried to put pressure on Israel in different ways both when it comes to the wars in the Gaza Strip and the settlements.
He explains, that the EU is both trying to show Israel that it supports the existence of their country but that it doesn’t support the Israeli settlements in the Palestinian areas which it views as illegal according to international law.
But the EU has so far only put political pressure on Israel.
“It is very often like that when there are these crises and diplomatic outburst against each other that they have no real importance (on the economy, red.),” he says and adds:
“When is the Israeli going to be scared of the EU? First that day the EU threatens to change these (free trade, red.) agreements. Until then there is just a lot of rhetoric in it.”
The legal basis for EU trade relations with Israel is the EU-Israel Association Agreement, which entered into force in June 2000.
The aim of this agreement is to provide an appropriate framework for political dialogue and economic cooperation between the EU and Israel.
Economic sanctions are unlikely
However, it is very unlikely that the EU will ever take advantage of this since it has a long history of trying to keep economy and politics divided when it comes to international affairs.
An exception to this are the economic sanctions against Russia after the annexation of Crimea. But in general, the EU rather wants global free markets with as few limitations as possible, says professor Feldt.
“All our economic system goes towards breaking down barriers. So, there should happen a lot before we change the agreements with Israel.”
This is not good music in the ears of the Palestinian-led movement Boycott, Divestment, Sanctions (BDS) which is fighting for a boycott and withdrawal of investments in Israeli companies.
They also want governments to end free trade agreements with Israel but economic sanctions against Israel would be a too radical step to take for the EU and the European governments which for years have preferred to keep economics out of the equation and instead focus on putting political pressure on Israel.
The result of this, however, is very limited – ironically because Israel’s economy is going well.
“The Israeli doesn’t react very much on that (the political pressure, red.) because they know that it is the money that in the long run is going to keep the country going. As long as the Israeli economy is going well, and the US is also supporting Israel then they are pretty free,” professor Feldt says and adds:
“But if the EU suddenly decided to boycott Israel economically then (there is no doubt, red.) it would hit them hard.”
Economic sanctions towards Israel would, however, also hit European companies. The EU exports of goods to Israel amounted to €21,1 billion in 2016 – even more than what Israel exports to the EU market.
Future: Confrontation or cooperation?
With the close economic cooperation likely to continue the question is how the political relationship between Israel and the EU will unfold?
Like mentioned earlier, the diplomatic relations have been on a hold – actually also before the EU decided to label goods from the settlements.
The EU-Israel Association Council – a high-level bilateral ministerial body which is normally due to be held every year – was last held back in 2012.
Since then there have been no official meetings between the parties.
They stopped because the political relation started to heat up in July 2013 when the EU decided to make a directive which insisted that all future agreements between the EU and Israel must explicitly exclude Jewish colonies in the West Bank or East Jerusalem.
The EU guidelines prohibit the issuing of grants, funding, prizes or scholarships unless a settlement exclusion clause is included.
It also meant that the Israeli government now was required to concede in writing that the settlements are outside the state of Israel in order to secure new agreements with the EU.
Netanyahu responded to the directive in a broadcast statement saying: "As prime minister of Israel, I will not allow the hundreds of thousands of Israelis who live in the West Bank, Golan Heights and our united capital Jerusalem to be harmed. We will not accept any external diktats about our borders. This matter will only be settled in direct negotiations between the parties."
Photo text: Members of AVAAZ.org a political action group protested the latest Israeli Settlements in Gaza outside the Convention Center in Washington, DC, Monday, March 22, 2009. The protesters dressed in costumes resembling buildings and Israeli PM Netanyahu were confronted by security personnel and Metro Police. Photograph by Mannie Garcia, Flickr
When a new Association Council meeting was announced for an early 2017-date, the hope was that it was a sign of warming ties. But the meeting was later postponed at the request of some EU member states after the Knesset, Israel’s parliament, voted the so-called ‘’Regulation Law’’ which retroactively legalized some West Bank homes built on private Palestinian land.
With President Trump’s decision to move the American embassy to Jerusalem and Israel going through a voting process in the Knesset to pass a death penalty for terrorists-bill, it is hard to see any progress happening with the EU-Israel political relations in the near future.
“It is issues like that which is the reason why the situation is on standby. Israel keeps pressuring the patience of the EU like Turkey is also doing. The EU can accept a lot of economic agreements but not a lot of political things that are happening in the countries (like voting for a death penalty-bill, red.). Turkey is referring to having a unique situation with the Kurds and the Israeli refers to having a unique situation with the Palestinian,” professor Feldt says.
What does Israel think of the EU?
“Again it is divided into those two sections. Economically they see the EU as good for Israel but politically they believe that the EU is unreasonable critical and doesn’t understand their situation.“
With Israel and the EU in each corner of the boxing ring with no signs of consessions from either side, it seems that Abadi Bakery, Jerusalem Granola, and Openheimer has to live with selling their salted bagel cookies, granola bars, chocolate and sweets to the EU market for some time more – with labels on.
The collaboration between Israel and the EU:
The EU is Israel’s main trading partner, accounting for one-third of its total trade. Large Israeli corporations have sizeable investments in Europe and employ many Europeans, while Israel, despite its small size, is one of Europe’s most important trading partners in the Middle East. It supplies Europe with high-tech products, including software and apps used in most PCs and smartphones, medical devices, chemicals and pharmaceuticals. Israel’s TEVA, for instance, is one of the most important sources of generic medicines for Europe).
Beyond trade, Israel and the EU have been collaborating in fields such as agriculture, aviation, science and in a wide variety of research and development fields (R&D) including nanotechnology, health, environment and communications. Israel participated in the latest EU R&D Framework Programme (FP7) and in June 2014 it joined the EU’s research and innovation programme, Horizon 2020, and will contribute to its budget. Hundreds of leading Israeli institutions have received EU funding for innovative research, in many cases sharing their expertise and knowledge with their European counterparts.
There are also defence ties: Israel conducts joint military exercises with Bulgaria, Greece and Italy, while some EU member states, including Germany, the UK and Italy trade defence goods and services with Israel. In addition, Israel’s intelligence agencies and their European counterparts (among them agencies in the UK and Germany) collaborate closely.
Photo credit: xstockimages