An initiative of the European Union was recently announced which will require commercial chains and stores to clearly mark products made in Israeli settlements. In addition, the EU is considering completely boycotting products made in the settlements. But if such a move were made, would it be legal? I doubt it.
Israel and the EU have a free-trade agreement that stipulates preferential tariffs on goods produced in Israel or Europe. However, for several years, the EU has required Israeli exporters to specify the postal code where the goods were manufactured. In some cases, if it turns out that the goods have been made in the settlements, they are not considered to be made in Israel and therefore denied customs benefits upon entering Europe.
There are cases when countries boycott goods from other countries, mainly for political reasons, during armed conflicts, wars and so on. The EU, as we know, is not in the midst of a struggle of any type with the State of Israel and trade relations between the two sides are widespread. The countries of the EU, as well as Israel, are all members of the World Trade Organization. The various WTO agreements set a precedent prohibiting discrimination, known as the "most favored nation" principle. According to this principle, each WTO member state must give equal treatment to goods from other countries in the group without discrimination. Another principle the agreement stipulates is that a country can't impose prohibitions or quantitative restrictions on the import of goods from another WTO country, excluding taxes.
The agreement applies to the territories of the EU and Israel. Therefore, it seems that if the EU decides to boycott goods from the settlements, it could be argued that this is a violation of treaty obligations as part of the WTO and its free trade agreement. If this is the case, Israel has the right to make legal claims against the EU through international dispute settlement mechanisms. The EU, at least as far as Israel's knowledge goes, is not boycotting goods from other countries who have territorial disputes, such as the Falkland Islands, a British overseas territory. The EU also doesn't prohibit the entry of Palestinian-made goods, for example, from the Gaza Strip or areas in Judea and Samaria; even these goods are exempt from customs duties, according to an agreement between the EU and the Palestinian Authority.
South Africa also recently, in May 2012, made a similar move, publishing an amendment requiring labeling for products made in the settlements, different from products made in Israel. Unlike the EU, however, South Africa's process has no meaning in terms of tax rates, since it does not have a free trade agreement with Israel, so its only obligation is to signify origin. In any case, South Africa's move has not been implemented in practice; according to recent reports, implementation was postponed pending further consulting due to the dispute over the issue.
The writer is an attorney specializing in imports, exports and international trade.