The European Union and Israel’s Occupation: Using Technical Customs Rules as Instruments of Foreign Policy

Abstract

This article describes the rules of origin dispute between the European Union and Israel, and argues that these technical customs rules are also instruments of foreign policy. Although the rules have had no direct impact on Israel’s industry in the Occupied Territories, they have bolstered the European Union’s self-identification as a “normative power” while constituting an important legal precedent that has served to legitimize other actions against Israel’s occupation.

In January 2005, the European Union decided to implement fully the rules of origin (ROO) clause¹ of the 1995 European Community (EC)–Israel Association Agreement² and to subject products manufactured in the territories Israel had occupied during the 1967 Arab-Israeli war to customs duty. The EU’s decision spurred a scholarly debate about its legal basis,³ the implications it would likely have on Europe’s normative positions,⁴ and on whether it is consistent with the EU’s policies involving rules of origin in other regions.⁵ Surprisingly, though, few scholars have examined the actual economic and political implications of applying the ROO on Israeli products manufactured in the Jewish settlements in the occupied West Bank and the Golan Heights.⁶ It is important to determine whether, for example, the implementation of the ROO has actually had an impact on Israeli industry in the Occupied Territories or on Israel’s settlement policies, since such questions help us gain insight into how technical customs rules can be deployed as instruments of foreign policy and whether they really have an impact.⁷

We begin with a brief overview of the ROO, followed by a description of the political processes leading to the EU’s decision to enact the ROO clause on products manufactured in Jewish settlements in the Territories. We claim that while the decision was carried out in accordance with the stipulations of the 1995 EC-Israel Association Agreement, the decision to apply the ROO was also informed by the EU’s displeasure with Israel’s settlement policy in the West Bank, Gaza Strip, East Jerusalem, and the Golan Heights. Hence, we contend that the implementation of the ROO should also be understood as a form of political conditionality carried out by the EU towards Israel. Next, we briefly describe the Israeli export industry in the Territories, showing that the application of the ROO has had no tangible impact on this industry, on the Israeli economy as a whole, or even the settlement project in particular.

We go on to explain why the direct impact has been insignificant, emphasizing that during negotiations the EU conceded that products from the Territories would continue to be labeled “Made in Israel,” because currently, with few exceptions, labeling rules are determined by each EU member state. We claim, however, that the application of the ROO has had an incremental impact, since the rules have influenced some EU member states to begin addressing the labeling issue. They have further served as the basis for the publication of new EU guidelines prohibiting the allocation of the EU’s funds to Israeli companies, public bodies, and nongovernmental organizations (NGOs) working within the Israeli settlements (hereinafter “EU guidelines”).⁸ Finally, they have, even if by association, given legitimacy to the decision of private companies and financial institutions such as the Dutch cooperative Pensioenfonds voor Gezondheidszorg, Geestelijke en Maatschappelijke (PGGM) pension fund to stop investing in five Israeli banks because of “their involvement in financing Israeli settlements” in the Territories.⁹ We conclude by advancing two arguments: First, the EU-Israeli case suggests that the current separation between the ROO and labeling rules defangs the ROO and therefore hinders the rules’ ability to become an effective instrument of European foreign political policy. Nonetheless, the ROO do have an incremental political impact, since they serve as the basis of legitimization for other policy decisions of the EU, member states, and private corporations. Second, the decision to implement the ROO has had two domestic effects: it has served to legitimize EU trade with Israel and to bolster the Union’s self-identification as a “normative power.”¹⁰

THE RULES OF ORIGIN

Described as the economic nationality of products, the ROO outline the criteria used to determine in which country a product originates. The ROO are divided into two types: non-preferential and preferential. While the former is connected to enforcing trade remedies of a general nature, such as antidumping and countervailing duties, as well as for compiling statistics on global trade flows, the latter is used exclusively within preferential trade agreements (PTAs) to determine which goods are eligible for a reduced tariff rate within a free-trade area.¹¹ The ROO appear in practically all PTAs and are used primarily to prevent trade deflection — a situation in which a third country not party to a PTA ships a product through a country that is benefiting from the lower tariff and thus illegally enjoys a custom reduction.

The ROO are informed by two underlying assumptions. First, that the origin of a product can be determined, and second, that the territory from which the product originates is neither disputed nor occupied. Most of the difficulties involving the ROO have to do with the first assumption, because in reality many products are manufactured in several countries, in the so-called global factory.¹² Hence, for the past four decades it has been acknowledged that ascertaining a product’s country of origin has become increasingly difficult with the internationalization of production processes. Over the years several economic tests have been developed to determine the origin of a product that is manufactured in several countries,¹³ and while disputes about this issue continue to arise, in this case the EU and Israel do not disagree about the origin of the products but rather about the legal status of the territory whence the products originate.

The second underlying assumption of the ROO is that political borders are both clear-cut and agreed-upon. This further suggests that issues relating to the origin of a product are interlaced with questions about legal territorial sovereignty,¹⁴ and indeed that the ROO presuppose such sovereignty. Currently, however, there are over 20 disputed or occupied territories around the globe which either export goods or are believed to hold considerable natural resources. Moreover, each of the countries laying claims to these territories has signed PTAs, which include the ROO clauses, indicating that the legal status of the territory is of utmost importance. The Occupied Territories are among the few regions where the status of the territory has actually led to a serious examination of how it should affect the ROO clauses signed by Israel and therefore can serve as a case study for analyzing the use of the ROO as instruments of foreign policy.

CUSTOM RULES AS INSTRUMENTS OF EUROPEAN FOREIGN POLICY

By the end of 2008, the EU had 35 preferential trade agreements, making the Union’s network of PTAs the largest in the world.¹⁵ In addition to the liberalization of trade, the declared motivation of PTAs, particularly those signed with non-EU Mediterranean countries in the framework of the Euro-Mediterranean Partnership (EMP, also known as the Barcelona Process and, as of 2008, the Union for the Mediterranean), includes the promotion of political stability through economic prosperity. The idea, as Alan Winters point out, is to ensure against disruptive social or economic conditions that could spill over and adversely affect EU member states.¹⁶ Hence, the EU not only recognizes the economic importance and impact of the trade agreements it signs, but also claims to use them in order to advance political goals. The former European commissioner for trade, Karel De Gucht, even avers that the EU’s trade policy is one of the key instruments to promote rule of law and respect for human rights, which he characterizes as “the shared values that underpin the European construction.”¹⁷ The implementation of the ROO in this context should be considered as an EU attempt to reassert the Green Line (which Israel erased by, inter alia, building and expanding Jewish settlements) and a message to Israel that it will not be profitable to build industry in the Territories.

THE ROO AND THE 1995 EC-ISRAEL ASSOCIATION AGREEMENT

The fourth protocol to the 1995 EC-Israel Association Agreement defines the concept of “originating products” and the methods of administrative cooperation between the parties to the agreement. The protocol specifies the origin criteria for different categories of products. Although the stipulations regarding the ROO are well defined, the agreement does not offer a specific definition of what constitutes the “territory of the State of Israel.” Based on the secret 1971 “Schuman Document on the Middle East,” the first official EC declaration on the Arab-Israeli conflict from November 6, 1973,¹⁸ as well as several other declarations made over the years, the EU signatories to this agreement consider the “territory of the State of Israel” as the area within the borders determined by the 1949 armistice agreements. They subscribe to United Nations Security Council Resolutions 242 and 338, which serve for the 28 EU member states as the basic contours for any future agreement pertaining to the Territories and the creation of a Palestinian State. Israel, on the other hand, prefers to leave the exact demarcation of its borders ambiguous, not only because it unilaterally applied its civilian laws to East Jerusalem in July 1967 and the Golan Heights in December 1981, but because it considers the Jewish settlements in the West Bank as integral to the State.¹⁹

Ironically, perhaps, the European Commission raised the question of the origin of products produced in the Territories as a result of another investigation. In 1993, the EC suspected that Israeli orange juice producers were using Brazilian juice concentrate in products labeled “Israeli juice” in order to enjoy tax benefits under the EC-Israeli agreement (a classic case of trade deflection). Although the European Commission was unable to find conclusive evidence of fraud, it published a “First Notice to Importers,” in November 1997, informing European Community importers that there were grounds for doubt about the validity of the origin certificates for orange juice coming from Israel and that the importers would be liable for duty recovery. This investigation into an issue unrelated to the Territories seems to have served as the impetus for questioning the origins of goods exported to the Union from the territories Israel had occupied in 1967, since in the same notice the EU further informed European Community importers of problems relating to Israel’s implementation of the ROO regarding products from Israeli settlements in the Territories.²⁰

In May 1998, the European Commission concluded that according to UN General Assembly and Security Council resolutions, no Israeli settlement in the West Bank, the Gaza Strip, East Jerusalem, or the Golan Heights could be considered part of the territory of the State of Israel. Thus, exports originating from Israeli settlements in the Territories did not qualify for preferential treatment under the terms of the EC-Israel Association Agreement, and, consequently, any origin certificates issued by Israel for goods produced in Jewish settlements contravened the agreement’s fourth protocol on the ROO and should have been brought to an end.²¹

Initially, Israel denounced the European declarations, characterizing them as an attempt to impose sanctions on Israel. The discussions surrounding this dispute were fractious and for several years the two sides failed to reach a satisfactory solution. The EU insisted on implementing the ROO not only due to its resolve to abide by the 1995 agreement, but, as we explain below, also because the lack of implementation would contradict another legally binding agreement that it had signed. Consequently, Israel had to succumb to European pressure, and in December 2004, the EC-Israel Joint Customs Cooperation Committee drafted a “technical arrangement” to end this dispute. One month later, a new notice was issued to customs operators, informing them that “products coming from places brought under Israeli Administration since 1967 are not entitled to benefit from preferential treatment” under the agreement and therefore the full customs duty should apply to those products.²²

THE “TECHNICAL ARRANGEMENT”

Under the terms of the arrangement that went into effect in February 2005, Israeli customs authorities are required to identify the place of production for all products exported to the EU. In other words, Israeli products from the Territories continue to be labeled “Made in Israel” but Israel is now obligated to indicate on all origin certificates the precise name of the city, village, or industrial zone, with its accompanying postal code, and where production conferring originating status has taken place. As we argue below, the ability to continue labelling these products “Made in Israel” was crucial to undermining the direct impact of the ROO on Israeli industry in the Territories, as well as on Israel’s settlement project.²³

THE POLITICS INFORMING THE RULES OF ORIGIN

Officially, the EU insists that its decision to implement the ROO is a “technical matter.” Responding to Israeli claims that the imposition of the ROO was comparable to imposing sanctions on Israel, the EU’s commissioner for external relations, Chris Patten, stated in May 2001 at the European Parliament that:

preferential access to Community markets for exports originating in Israeli settlements in the West Bank and Gaza Strip and in East Jerusalem and the Golan Heights “contravenes agreed rules of origin since these territories do not form part of the State of Israel under public international law.” … Our decisions will be entirely based on the law and its technical application case by case.²⁴

This does not mean, however, that at least for some EU diplomats the decision to implement the ROO was a way of using technical customs rules as instruments of European foreign policy in order to try to change Israel’s policies in the Territories. In April 2001, The Telegraph reported:

The European Union is preparing to strip Israel of privileged trade access as a punishment for the use of ‘excessive force’ against the Palestinians. … This means Israel will no longer be able to get away with exporting duty-free goods made at Jewish settlements in the West Bank and Gaza as if they were Israeli products.²⁵

Three years later, The Guardian affirmed that the decision to impose the ROO on Israel was due to “the EU’s displeasure at Israeli settlement policies, highlighting differences over the legitimacy of the pre-1967 border.”²⁶ Hence, it appears that the motivation for implementing the ROO was not merely due to “technical reasons,” but also as an instrument for advancing European foreign policy; in this case, as a form of EU political conditionality in order to pressure Israel to stop fortifying its settlement project in the Territories.

EU DOUBLE STANDARDS?

In addition to the explicit claims of EU officials that the strict adherence to the ROO has been technical, scholars have argued that the EU’s decision is inconsistent with its policies in other regions. Eyal Rubinson, for example, compared the EU’s stance towards Israel’s occupation with its position on Western Sahara.²⁷ He shows that even though Western Sahara is considered to be an occupied territory, the EU allowed Morocco trade benefits under its association agreement with respect to products (mainly from fisheries) originating from this region. The inconsistency of the application of the ROO suggests, in Rubinson’s view, that the decision to implement them in the Israeli case was not merely technical, but also informed by the EU’s desire to convey a strong political message to the Israeli government.

Others have also used the Western Sahara comparison to claim that the EU decision regarding the implementation of ROO with respect to the West Bank, the Gaza Strip, East Jerusalem, and the Golan Heights was politicized, and therefore informed by a degree of double standards.²⁸ Following the July 2013 EU Guidelines prohibiting the allocation of the Union’s funds to Israeli projects in the Territories, Avi Bell and Eugene Kontorovich also used the Morocco–Western Sahara case to argue that “in adopting the Guidelines, the Commission has set a double standard: it has one rule for the Jewish state, and a different one for the rest of the world.” Not only do Bell and Kontorovich hold that the EU has set double standards, but based on this behavior and on the Union’s working definition of anti-Semitism, they conclude that the EU is an anti-Semitic entity.²⁹

There is, however, a crucial difference between the two cases, whose significance all of these scholars fail to underscore. Namely, that in the Western Sahara case the EU had signed a free-trade agreement (FTA) only with Morocco and not with any other entity that lays claim to the disputed territory, while in this case the EU had also signed a FTA with the Palestine Liberation Organization (PLO). In February 1997 the EC and the PLO signed an interim association agreement on trade and cooperation for the benefit of the Palestinian Authority (PA) of the West Bank and the Gaza Strip. Protocol Three of the Interim Association Agreement defines the concept of originating products and methods of administrative cooperation.³⁰

The existence of parallel FTAs with Israel and the PLO and the fact that both agreements include ROO clauses is vital. Simply put, if the EU did not implement the ROO clause in the 1995 Association Agreement it had signed with Israel, it would be in breach of the Interim Association Agreement it had signed with the PLO for the benefit of the PA. As was held by the European Court of Justice (ECJ) in its 2010 Brita case,³¹ each of the two association agreements has its own territorial scope, and there is no overlapping between the two: the 1995 EC-Israel Association Agreement applies to the territory of the State of Israel (as per the 1949 armistice agreement), whereas the 1997 EC-PLO Interim Association Agreement applies to the territory of the West Bank and the Gaza Strip. For the ECJ, the customs authorities of each exporting country should have exclusive competence within their territorial jurisdiction to issue origin/movement certificates. The ECJ emphasized that as a consequence, the 1995 EC-Israel Association Agreement cannot be interpreted in such a way as to compel the Palestinian authorities to waive their right to exercise the competence conferred upon them by virtue of the 1997 EC-PLO Interim Association Agreement. It follows that the 1995 EC-Israel Association Agreement “must be interpreted as meaning that products originating in the West Bank do not fall within the territorial scope of that agreement and do not therefore qualify for preferential treatment under that agreement.”³²

More generally, state sovereignty, as John Ruggie maintains, is an attribute of “territorially defined, fixed and mutually exclusive enclaves of legitimate dominion,”³³ indicating that a given territory cannot, according to international law, have two legal sovereigns simultaneously. This does not imply that the EU’s decision regarding the implementation of the ROO lacked political motivation, but it does suggest that the claim about it being inconsistent or informed by a double standard is not accurate. In fact, the opposite is the case. The EU would be inconsistent and incoherent if it had failed to implement the ROO; the only way that the EU could ensure that its association agreements were not in conflict with each other was by insisting that the ROO clause in the EC-Israel Association Agreement would be implemented. Lack of implementation, therefore, became a matter of legal incongruity, so that even Israel’s longstanding allies in Europe had to support it.

THE ROO’S IMPACT ON ISRAELI INDUSTRY IN THE TERRITORIES

Insofar as the EU’s imposition of the technical customs rules was aimed at putting pressure on Israel to stop investing in its settlement project, then it is important to ascertain whether the implementation of the ROO has actually had an impact on Israeli industry in the Territories or on Israel’s settlement policies. According to a report by Who Profits, an Israeli NGO monitoring industry in the Territories, there are 136 companies in the Territories that export goods to European countries. Of these, 125 have offices in the West Bank, seven in the Golan Heights, and four have plants in both the West Bank and the Golan Heights. The majority of these companies (94) have headquarters inside Israel’s pre-1967 borders, while the headquarters of 35 companies are in the Territories, and the remaining are production plants of companies from Belgium, France, Italy, the Netherlands, Singapore, the United Kingdom, and the United States. The industry itself is made up of construction companies (36), low-tech manufacturers (34), food supplies and agriculture (29), banking and investment (12), security industry (8), marketing (8), transportation (5), and communications, services and high tech (4).³⁴ The implementation of the ROO on these companies entails the enforcement of customs duties on products exported to the EU.

While we do not have up-to-date data about the volume of exports from the Territories, in 2003 these exports amounted to $120 million, comprising about 0.6% of Israel’s total exports during the same year.³⁵ Since about 30% of Israel’s exports go to the EU,³⁶ we can assume that about $40 million would have been subjected to customs duties. Accordingly, if the ROO were strictly imposed, it would have only a limited impact on Israel’s overall trade. However, Israel wanted to make sure that the implementation of the ROO would not have any impact whatsoever on the industry in the Territories, since the relocation of companies from the Territories back to Israel would have internal political consequences on the settlement project. Consequently, immediately after the EU and Israel reached their December 2004 “technical arrangement” on the ROO dispute, Israel established a “national compensation mechanism” for Israeli exporters from the settlements whose exports were refused preferential status by the EU’s customs authorities.

In its 2006 budget, Israel introduced a new budget line “directive number 320408: exporters’ compensation.” The directive explains:

the State of Israel has trade agreements with a large number of countries in the world. For political reasons, [EU] member states decided in recent years to prevent duties reduction as established in these agreements for Israeli products produced beyond the Green Line. Due to the resultant loss of income, the Government of Israel compensates the farmers and industrialists operating beyond the Green Line.³⁷

About $8 million were allocated for reimbursement in 2006,³⁸ but by 2011, the money transferred to the fund was reduced to $3 million.³⁹ In the fiscal years 2013 and 2014, this budget line was merged with three other budget lines under the title “various kinds of annual support,”⁴⁰ and only about $1.9 million were allocated for the “national compensation mechanism” for each fiscal year (we explain in the subsequent pages some of the reasons for the reduced allocations).⁴¹ Hence, we can conclude that the ROO has affected no more than 0.5% percent of Israeli exports. This exact figure was also confirmed by two different officials of the European External Action Service (EEAS), who are working on EU-Israeli relations.⁴² Moreover, if the implementation of the ROO aimed at imposing an economic fine for being located in the Territories, then the State of Israel absorbs the cost and in this way guarantees that these companies do not lose capital. In this way, the State helps ensure that they stay in the Territories.

It seems that the companies themselves have introduced strategies to deflect the economic and political impact of the ROO, primarily by obscuring the origin of the exported goods. As noted, the headquarters of most Israeli exporting companies in the Territories are not located in the West Bank or the Golan Heights, while some of the companies whose headquarters are in the Territories have outlets or plants inside Israel proper. At times, the manufacturing process of the exported good takes place in both Israel proper and the Territories. All of this enables the Israeli companies in the Territories to use an undisputedly Israeli address when exporting settlement goods to EU markets and bypass the ROO.

There are further strategies to get around the ROO. As the deputy director general of the Arza Winery, located in the Adumim Industrial Park in the West Bank, explained:

we are successful in overcoming the boycott by using other companies or distributors who are operating abroad. There is no direct export to the country of destination but rather through a third company. Sometimes we play with the label on the bottle. The English label states that we operate from Israel but it does not state that it is from Mishor Adumim, but rather from Adumim [Industrial] Park.⁴³

The State’s funds used to reimburse companies that are obliged to pay customs duties dropped by over half from 2006 to 2011, which suggests that these strategies have been widely used.

Furthermore, we are aware of only two out of 136 Israeli companies in the Territories that have actually moved back to Israel proper.⁴⁴ It does not seem likely that the major reason for relocating was due to the implementation of the ROO, since companies have not incurred any real financial loss, while the fact that the companies continue to label their products “Made in Israel” makes it extremely difficult to organize a consumer front against their products. Therefore, the implementation of the ROO has not engendered a serious negative incentive for these companies to move.

Finally, since the implementation of the ROO, Israel has only further entrenched its settlement project.⁴⁵ In 2013, 2,534 apartment units were under construction in the West Bank, more than double the amount the previous year (1,133).⁴⁶ Between January and April 2014, the Israeli government announced that it would build a total of 6,672 new units in the Territories, despite ongoing criticism from the EU.⁴⁷ A March 18, 2014 internal report written by EU diplomats stationed in Jerusalem and Ramallah underscored “the unprecedented surge in settlements activity” since negotiations resumed in July 2013. This, the authors of the report maintain, appears to be part of Israel’s strategy to use settlement construction and infrastructures “to expand Jerusalem deeply into the West Bank.”⁴⁸

THE RULES OF ORIGIN AND LABELING LAWS

The implementation of the ROO and their deployment as an instrument of European foreign policy towards Israel has not directly bore fruit. One of the reasons for the lack of impact involves the December 2004 “technical arrangement” the EU hammered out with Israel, whereby the goods originating from the Territories continue to be labeled “Made in Israel.” The decision not to change the labels of Israeli goods produced in the Territories has to do with the fact that the ROO are not directly tied to labeling laws, and that with few exceptions labeling rules are decided by each EU member state. Currently, “the limited available tools” at the EU level consist of Directive 2000/13 on food labeling, which requires consumer labels on the “true origin” of goods,⁴⁹ as well as Directive 2005/29 on unfair commercial practices.⁵⁰ Based on these “limited tools,” in July 2014, the EU warned the Israeli agriculture ministry that it was not allowed to supply permits for the export of poultry which originates in the OT. The EU asked the ministry’s veterinary services unit to differentiate between products made in “Israel proper and those produced in the territories,” making it clear that “unless Israel comes up with a sufficiently effective mechanism,” it might impose a ban on all Israeli meat, poultry, and dairy products.⁵¹

A “non-binding EU code of conduct” on labeling settlement-produced food might be ready only by mid-2015, and the EU code “covering all exports, including wine and cosmetics, could take much longer.”⁵² An EU official interviewed by EUobserver in September 2012 even admitted that “the mixture of EU laws is so messy [that] ‘it could take years’ before a code of conduct on labelling of all settlement exports is ready” (emphasis added).⁵³

Another legal obstacle involving the enforcement of labeling has to do with the fact that the EU signed two association agreements, one with Israel and the other with the PLO, and that both lay claim to the same territory. As was discussed earlier, according to the Brita case, it would be legally impossible to label Israeli goods produced in the Territories as “Made in Israel — Occupied Territories,” since goods from the Territories must enter EU markets only under the 1997 EC-PLO Interim Association Agreement.⁵⁴

Both these obstacles are significant, and yet the upshot is that the 2004 “technical arrangement” ends up misleading consumers and makes it impossible for them to know the real origin of Israeli goods that are produced in the Territories. One can hardly expect that European consumers would use the European Commission’s list of non-eligible locations and their postal codes in their daily shopping. Put differently, because the 2004 arrangement, with some minor exceptions, de-links the ROO from labeling, it has deflected potential consumer action against settlement products on the basis of the information made available to them. This is because the ROO operate in a top–top manner, in the sense that officials determine which products are not included in the PTA and impose upon them a customs duty. Thus, the pertinent information remains at the top and none of it is readily accessible to the end user. In this way, the ROO deflects the power of the local — in this case, EU citizenry — from weighing in through, for example, consumer boycotts. By contrast, and with some exceptions, labeling operates in a top–down manner. The labeling itself is determined by officials according to state laws, but the information about where the goods are produced is clearly marked and ends up reaching EU citizens, which gives them an opportunity to act. The assumption here is that the EU citizenry have power, but they need knowledge in order to use it; the ROO does not provide them this knowledge, while labeling does. Hence, the de-linking between the ROO and labeling of most Israeli exports to European markets has effectively disempowered EU citizenry and, in this way, has stripped the technical customs rules of their potential ability to have an impact on an active European foreign policy.

THE ASSERTION OF “AN ECONOMIC GREEN LINE” AND THE EU’S SELF-IDENTIFICATION AS A NORMATIVE POWER

Notwithstanding the lack of direct impact, the ROO’s implementation has had a number of interesting, if not always intended, effects on Israeli industry in the Territories and Israel’s settlement project. Wittingly or unwittingly, when implementing the ROO, the EU did not seem to have taken into account Israel’s economic borders. Israel does not have two separate economies, one in the pre-1967 borders and another in the Territories. A 2010 research paper about Israeli banks, for example, shows that the banks in pre-1967 Israel:

provide[d] the financial infrastructure for all activities of companies, governmental agencies and individuals in the continuing occupation of Palestine and the Syrian Golan Heights. The services provided by the banks support and sustain these activities.⁵⁵

Moreover, the customs and monetary regimes are the same in pre-1967 Israel and in the Territories. It is therefore no surprise that most of the companies operating in the Territories have headquarters or plants in Israel proper, allowing them to avert the European customs duties by providing a postal code in Israel.

By promulgating the notion that Israel’s economy is severed from the occupation, the ROO provide the EU with normative legitimation to deepen its trade ties with Israel despite its displeasure with Israel’s settlement project, since the EU can accurately proclaim that it is simultaneously sanctioning Israeli industry in the Territories. The problem with this strategy is that the use of customs rules to reassert a nonexistent economic border can to reinforce the existing status quo. Put differently, the implementation of the ROO has provided Israel’s economy normative legitimation by inserting an imaginary distinction between Israel’s pre-1967 economy and its economy in the Territories.

Consequently, by imposing the ROO, the EU’s self-identification as a “normative power” is bolstered.⁵⁶ This latter point requires further explanation. From its first attempt to craft a unified foreign policy in the early 1970s as the European Political Cooperation (EPC), the EU understood that European identity would evolve as a function of the dynamic construction produced progressively through the member states’ relation to other countries or groups of countries.⁵⁷ By defining common positions towards countries and other regions such as the Mediterranean and the Middle East, the EU constitutes its own identity as a distinct and unitary actor.⁵⁸ Our claim is that as a form of normative power, the ROO serve to build the EU’s own identity and to solidify the unity among the member states.

The incentive to implement the ROO was, in other words, not only to impact Israeli policies in the Territories, but also to influence the identity of member states and their citizens by producing a common normative claim. The EU’s long-standing normative position that Israel’s occupation is illegal helps constitute its own identity when the discursive citation of this position is internalized within local European institutions, agencies, and legislation.⁵⁹ For the normative position to be effective as a solidifying device, for it to be an inward bound mechanism that helps produce a unified identity, the norms — in this case the claim that Israel’s occupation is illegal — have to manifest themselves in actual policies and practices; they have to be seen, and not merely heard. In this way, the implementation of the ROO played a role in institutionalizing a norm that also has an inward bound role.⁶⁰

THE RULES OF ORIGIN’S INCREMENTAL IMPACT

Although the ROO assert an imaginary economic border and have not had a direct impact on Israeli policies in the Territories, their implementation has produced an important legal precedent that has served to legitimize a series of other actions that, over the past decade, have taken place at three distinct levels: the supranational, national, and private, corporate/financial entities. While these actions have been propelled by numerous factors, all of them have in common the notion that conducting business with Israeli companies either located in the Territories or complicit in the occupation can be legally problematic. At the time of publication, it appears that the European campaign to boycott Israeli companies and institutions is gaining strength and we are witnessing the beginning of a snowball effect whereby these disparate actions are actually coalescing and together are beginning to influence Israeli decision-makers.

Chronologically, the implementation of the ROO impacted member states first. A few member states understood that the de-linking of the ROO from labeling in practice defanged the ROO clause, but decided to use the clause in order to legitimize the adoption of new national labeling laws. In 2008, the UK called on the EU to be stricter in its application of the 1995 EC-Israel Association Agreement, reminding Israeli and European officials that goods produced beyond the 1967 borders should be labeled as originating in Jewish settlements in the Territories. The UK holds that these products should be distinguished from Palestinian industrial, agricultural, and other goods.⁶¹

Along similar lines, in May 2012, the Danish Politiken newspaper reported that Denmark, then the rotating president of the Council of the EU, was planning to ban the labeling of products from Israeli settlements in the Territories as “Made in Israel.” According to the Danish foreign minister at the time, Villy Søvndal,

this is a step that clearly shows consumers that the products are produced under conditions that not only the Danish government, but also European governments do not approve. … It will then be up to consumers whether they choose to buy the products or not.⁶²

The Danish moves followed reports of similar plans announced in May 2012 by South Africa’s government.⁶³ On April 11, 2013, foreign ministers of 13 EU member states signed a joint letter to the Union’s high representative, Catherine Ashton, in which they noted that “the correct labelling of products is necessary to ensure our consumers are not being misled by false information.”⁶⁴ All these countries understand that by delinking the ROO from labeling they have possibly misled their citizenry and have thus prevented them from using their power to influence both national and European foreign policies. In many of these countries there are current initiatives to introduce labeling laws that forbid settlement products to be labeled “Made in Israel.”

On the supranational, EU level, it appears that the ROO created the necessary legal groundwork for new guidelines prohibiting the allocation of EU funds to Israeli companies, public bodies, and NGOs working within the Israeli settlements.⁶⁵ The guidelines cover the new EU research program Horizon 2020, which entered into effect in January 2014, replacing the Seventh EU Framework Programs for Research and Technological Development (FP7). Following the 1995 EC-Israel Association Agreement and in line with the 2010 Brita ruling of the ECJ, the guidelines make it clear that the EU does not recognize Israel’s sovereignty over the Territories, irrespective of their legal status under Israeli law.⁶⁶ Hence, the guidelines are based on the same logic informing the ROO and use the Brita ruling as precedent, but expand it to include the dispensation of funds, grants, and awards to Israeli companies, NGOs, and institutions in the Territories.

Finally, companies and financial institutions in different EU countries have begun divesting from Israeli institutions that are complicit with the occupation. These include PGGM, the largest Dutch pension fund, that decided to divest from Israeli banks,⁶⁷ and Denmark’s largest bank, Danske Bank, that decided to pull its investment from Israel’s Bank Hapoalim due to the latter’s involvement in settlement construction. Danske Bank’s decision followed its previous divestment from Africa Israel Investments Ltd., another firm that is involved in settlement construction.⁶⁸ While there is no causal relation between the implementation of the ROO and the decisions of these financial institutions, the ROO and the Brita ruling draw a legal distinction between pre-1967 Israel and the Territories — suggesting also that Israel’s presence in the latter is illegal — that is pertinent to all European institutions. In this way, it serves both as the legal foundation and as a mechanism of legitimization for the decisions reached by these financial institutions.

CONCLUSION: THE RULES OF ORIGIN AS INSTRUMENTS OF FOREIGN POLICY

While we agree with Hirsch that the rules of origin (ROO) “may promote the foreign policy interests of a country or economic block [sic],”⁶⁹ we believe that the ways and extent they impact politics are extremely complex. We began by showing that the implementation of the ROO had no direct impact on Israeli industry in the Occupied Territories or on Israel’s settlement project. Simultaneously, the imposition of the ROO clause created an imaginary economic border between pre-1967 Israel and the Territories and, in this way, helped legitimate business as usual between the European Union and Israeli firms. The implementation of the ROO justified the preferred trade agreement (PTA) between the two parties. Thus, initially it appears that if the ROO had an impact, it was unintended and even contradicted the original objective of implementation. Imposing the ROO did, however, serve to bolster the EU’s self-identification as a “normative power.” In this sense, the implementation of ROO has played a role in institutionalizing a norm that has an inward bound role.

Finally, we claimed that the implementation of the ROO and the Brita ruling have also had an incremental effect in that they created a legal precedent that helps justify the initiation of a series of other actions that use commerce to underscore the illegality of Israel’s occupation. Providing a number of examples, we showed that these actions take place on three levels: supranational, national, and private, corporate/financial institutions. While more research needs to be carried out, it appears that together these actions produce a normative web that makes demands on Israel, on other EU institutions, and on private entities so that they too will adopt a similar normative position.